Morrison sees strategic dangers ahead. Here's hoping he doesn't lose sight of the economic ones

While Labor went into overdrive this week in an effort to hold the marginal seat of Eden-Monaro, and the Liberals exhumed the ghosts of tax and spend to try and grab the seat for the government, Scott Morrison put Australia at a critical intersection.

Actually, let me rephrase that. Morrison didn’t put us at the intersection, events put us there. But it is the job of prime ministers to frame the times, to set priorities, and make decisions, and this week the shape of some decisions emerged. The decision of the week was about defence spending. Morrison used a speech midweek to reaffirm that the government would be properly funding defence “with the certainty of a new 10-year funding model that goes beyond our achievement of reaching 2% of our economy of GDP this year”.

At one level, Morrison only foreshadowed an investment strategy that had been flagged in the 2016 defence white paper. Strange perhaps, to create a sizzle around staying on track with your commitments, and extending the timeline, but there was a purpose to the update. Priorities were being substantially rejigged in light of the deteriorating regional outlook. Morrison flagged $270bn in capability upgrades, including the acquisition of longer-range missiles.

Related: Australia to acquire long-range missiles as PM warns of dangerous post-Covid-19 world

The context (apart from the Eden-Monaro byelection, “vote one Fiona Kotvojs”) was projecting some necessary prime ministerial realism about the post-Covid world. Morrison noted that world would be poorer, more dangerous and disorderly. Lest that point be missed, the prime minister invoked the conditions that prevailed in the 1930s and 1940s as a working comparison.

I mentioned Australia’s arrival at an intersection a moment ago. From where I sit, the intersection looks like this. Morrison is gradually turning up the temperature on the China relationship. There’s obviously a continuum here; Malcolm Turnbull had already set Australia down a more hawkish path, but both the language and the signalling is becoming iteratively more assertive.

In Morrison’s narrative, our region is becoming more dangerous. The foreign minister has identified China as an architect of disinformation and interference. Morrison is saying Australia needs to muscle up to these threats on our own terms. We need to assert sovereignty, we need to “shape” the strategic environment.

Now obviously this will be a popular line, it will resonate, particularly at a time when only a quarter of Australians trust China to act responsibly in the world.

But the truth is Australia will never spend enough on defence to shape the strategic environment in a meaningful way. Shaping the environment, in the way that concept was invoked midweek, requires either massive investments, or a partner or partners. Cue Washington, idling on the other side of the intersection.

Superficially, Morrison’s speech worked through the checklist of America-love. Australia’s relationship with the US was close, and critical to Australia’s security in the world. Australia would support US-led coalitions (implied but not stated: even with that madman in the White House). This bit of rashness was caveated by national interest considerations, and “where [such coalitions] match the capability we have to offer” (which are two pretty significant caveats if you take more than 30 seconds to think about them).

Morrison projected that Australia was part of the Five Eyes firm, and happy in the service. The security assurances and intelligence-sharing and technological industrial cooperation Australia enjoys with the US was critical to our national security and would remain so.

There was also a direct nod to the “what’s in it for me” sensibilities of Donald Trump. It has been well documented that Trump is a president who knows the cost of everything and the value of nothing – he imagines America as a victim of the united freeloaders of the world rather than the beneficiary of partnerships that contribute to global peace and stability.

Related: Australia drafting plan to offer safe haven to Hong Kong residents, Scott Morrison says

Picking up this default sensibility, Morrison reasoned “to be a better and more effective ally” Australia must be prepared to invest more in our own security. We need to expand the surveillance capability over Australia’s eastern approaches and “increase our investment in intelligence under-sea surveillance and cyber capabilities to enhance our situational awareness”.

So how to decode all this? At one level, Morrison delivered a polite forelock tug, in language Trump can understand.

But viewing the speech exclusively through that prism misses what I thought was the most interesting element of the outing.

Morrison’s speech contained a considered note of independence.

While genuflecting dutifully, and doubtless pragmatically, at the altar of Australia looks to America, the speech also pointed to an era where Australia would need to think about making its own way in the world rather than rely on great powers.

Implied rather than stated was the present reality obvious to anyone not blinded by fealty, or habit, or stupidity: great powers are not always reliable. Great powers can lead the world into conflagration. As the trade minister Simon Birmingham noted recently, perhaps this might be an era for middle powers being more assertive, navigating the various cross currents.

How Australia achieves more strategic independence remains very much an open question, but Morrison’s speech did capture the geopolitical challenge that was with Australia pre-Covid, but has been accelerated by the crisis.

It demonstrates the prime minister understands just how bad things could get; that we could be looking at a period that is as dangerous as the two most dangerous decades of the 20th century.

Less clear to me is whether or not Morrison understands just how bad things could get economically as a consequence of the pandemic. Just before we leave the strategic realm and track to the domestic economy, there is one obvious point to make that ties the two challenges together.

Australia relies on China for our prosperity. Beijing is our most important economic partner. This is not a reason to mute criticism of the regime. Australia needs to defend our values and our interests. Let me say that again: Australia needs to defend our values and our interests rather than be supine to an authoritarian regime harbouring hegemonic intent.

But the fact is the government is dialling up the rhetoric, outing by outing, at a time when the world hovers on the brink of recession. China is perfectly capable of retaliating to provocation, and that could spell trouble for our domestic economic recovery.

Apart from this risk, there are a bunch of hugely significant policy judgments sitting before the government right now, and the quality of those judgments will determine whether or not Australia experiences a deeper recession than we experienced in the early 1980s and 1990s.

There is pressure on Morrison from within his own ranks to exit the fiscal supports put in place during the crisis, but the reality is the Australian economy, like every other economy in the world, is going to need support for a considerable period of time. The Reserve Bank has been very clear about that. So has the International Monetary Fund.

The IMF has pointed out that Australia is faring better than most (a point seized upon triumphantly by the government when its latest outlook was released recently) but in this environment, faring better than most means a forecast for a 4.9% contraction this year. Just give yourself a minute to absorb that news.

The IMF warned governments to tread very carefully. The exit from targeted support “such as wage subsidies for furloughed workers, cash transfers, enhanced eligibility criteria for unemployment insurance, credit guarantees for firms, and moratoria on debt service – should proceed gradually to avoid precipitating sudden income losses and bankruptcies just as the economy is beginning to regain its footing”.

This sounds like impeccable advice, but is the government listening?

This month, we’ll get an answer to the question.