US-Australia-Japan strategic cooperation in the Indo-Pacific: Testing trilateralism through crisis simulation

Foreword

The Indo-Pacific strategic environment continues to face major challenges, including great power competition, territorial disputes, nuclear proliferation, arms racing, grey-zone warfare, economic coercion, threats to freedom of navigation, and non-traditional security threats including climate change and supply chain insecurity.

As states attempt to leverage the force-multiplying effects of international cooperation in dealing with these challenges while also avoiding the gridlock associated with larger multilateral institutions, ‘minilaterals’ such as AUKUS and the Quad have emerged as significant players in regional politics and security.

Reflecting this minilateral logic, Australia, Japan, and the United States have increased their strategic cooperation through trilateral military exercises and strategic dialogues such as the trilateral Strategic Dialogue (TSD) and trilateral Defence Ministers’ Meeting (TDMM). The Australia-Japan-US trilateral (hereafter ‘the trilateral’) has converged around shared objectives such as promoting the rules-based international order and building resilience against efforts to revise the regional status quo (especially those emanating from China). The trilateral is enabled by strong economic and military complementarities as well as what it describes as an ‘unshakable foundation of shared interests and values.’¹

The United States Studies Centre convened senior Australian, Japanese, and US experts for a Strategy Simulation involving a simulated strategic crisis in the Indo-Pacific.

Recognising the growing importance of the trilateral to regional peace and security, and the associated need to refine and ‘stress test’ Australia-Japan-US trilateral approaches to regional strategy, in November 2024 the United States Studies Centre (USSC) convened senior Australian, Japanese, and US experts for a Strategy Simulation involving a simulated strategic crisis in the Indo-Pacific. These experts included current and former members of national legislatures, former ambassadors, former diplomats, former flag officers, and former government secretaries. Over four turns, the simulation required the Australian, Japanese, and US teams to draft policy recommendations for their respective political leaderships in response to the evolving crisis. Teams had the opportunity to negotiate both privately and in a trilateral forum while shaping national policy responses.

This report summarises the major outcomes of this Strategy Simulation, describing how the different country teams interacted, how they perceived their respective national interests, and what foreign policy tools they deployed in the pursuit of favourable outcomes in the crisis scenario. Reflecting on these outcomes, this report also derives policy recommendations to inform trilateral approaches to addressing regional strategic challenges.

Crisis simulation and wargaming is an increasingly favoured tool for generating insights anchored in realistic and integrated problem solving.² However, the goal of crisis simulation, both generally and as applied here, is not to establish prescriptively what will and will not happen in real-world crisis scenarios. Rather, it is to provide insights into broad issues and debates that are likely to arise in such contingencies, and to workshop potential solutions. It is in this spirit that this report should be read. The findings presented below indicate how senior policy makers in Australia, Japan, and the United States are likely to understand, analyse, and respond to a particular spectrum of strategic challenges in the Indo-Pacific, and what this means for the real-world practice of deterrence, security, and foreign policy in the Indo-Pacific.

Executive summary

• The Strategy Simulation centred around two interrelated crises: a cross-Taiwan Strait crisis culminating in the Chinese seizure by force of the Matsu Islands; and a North Korean nuclear crisis culminating in an atmospheric test of a tactical nuclear warhead.
• In the cross-Strait scenario, the trilateral demonstrated notable convergence in their policy preferences. All three teams pursued escalation control, military hedging, and engagement with Beijing. Team Australia, however, demonstrated an initial reluctance to challenge China directly, particularly through economic measures. The US and Japanese teams, on the other hand, were willing to deploy economic statecraft early to impose costs on Chinese provocations.
• The cross-Strait crisis imposed a dilemma upon Team USA between (a) demonstrating resolve to signal the credibility of regional US security commitments while (b) demonstrating restraint to prevent undue escalation and reduce allied entrapment risks.
• All three teams prioritised the North Korean nuclear crisis differently when faced with a simultaneous cross-Strait crisis. This demonstrated the potential for disagreements regarding risk tolerances and the allocation of resources in trilateral responses to crises involving multiple theatres.

The findings indicate how senior policy makers in Australia, Japan, and the United States are likely to understand, analyse, and respond to a particular spectrum of strategic challenges in the Indo-Pacific, and what this means for the real-world practice of deterrence, security, and foreign policy in the Indo-Pacific.

• All three teams repeatedly emphasised the importance of involving additional international stakeholders beyond the trilateral in the crisis, ranging from South Korea and India to the Quad and WTO to NATO and the UN Security Council. Arguments in favour of so expanding international involvement in the crisis were many, including capability aggregation and generating international buy-in to resolute trilateral responses to Chinese and North Korean provocations.
• The simulation demonstrated the ongoing importance of US political and military leadership in the Indo-Pacific, with Team USA providing leadership in relation to the foreign policies of its allies as well as a critical mass of national capability for affecting regional outcomes. In the simulation, however, US agency did overshadow Australia-Japan cooperation, with the Australian and Japanese teams often reverting to a ‘hub-and-spokes’ mode of security cooperation and eschewing bilateral foreign policy initiatives and innovations.
• Despite the trilateral carrying distinct interests in addressing the Chinese and North Korean crises, they demonstrated a remarkable ability to compromise and coordinate policy. The simulation demonstrated a significant level of trust between all three teams, where the enormity of the shared strategic challenges appeared to override parochialism and the pursuit of intra-trilateral advantage.

Recommendations

• Develop a menu of escalatory economic statecraft options in response to Chinese grey zone activities as well as options for distributing the costs of economic warfare with China across the trilateral states. Where these instruments do not yet exist, establish now their foundations (working groups, coordination mechanisms, etc.) to support their rapid deployment in a future crisis.
• Australia to assess whether its current levels of diplomatic engagement with, and expertise on Taiwan provide Canberra with sufficient capabilities for advancing its cross-Strait foreign policy preferences.
• Develop and promulgate a multi-tiered escalation ladder that provides trilateral states sufficient flexibility to jointly respond to Chinese cross-Strait provocations while also accommodating potentially divergent risk tolerances for conflict with China.
• Investigate how US-aligned states perceive ‘victory’ in the North Korean nuclear issue, and whether differing views may impede joint responses to the issue.

The simulation demonstrated the ongoing importance of US political and military leadership in the Indo-Pacific, with Team USA providing leadership in relation to the foreign policies of its allies as well as a critical mass of national capability for affecting regional outcomes.

• Australia, Japan, and the United States to prioritise strategic planning—both independently and trilaterally—for scenarios that span multiple theatres.
• Explore how strategic planning mechanisms across US alliances in the Indo-Pacific and NATO might coordinate in responding to crises that span multiple theatres.
• Identify key international partners in responding to likely Indo-Pacific contingencies and invest now in the enablers of a rapid and coherent international response if and when crises emerge.
• Investigate whether Japanese and Australian crisis communication mechanisms with the US are sufficient to facilitate effective decision making in likely Indo-Pacific contingencies.
• Investigate the barriers and enablers of ‘spoke-to-spoke’ cooperation between US allies and partners in the Indo-Pacific.
• Promote Track-2 and Track-1.5 dialogues across the trilateral that elucidate the domestic political barriers and enablers of trilateral cooperation on regional security issues.

Responding to a cross-Strait crisis

The Strategy Simulation centred around two interrelated crises, the foremost being a cross-Strait crisis marked by Chinese economic coercion and military posturing, culminating in the Chinese seizure by force of the Matsu Islands. This crisis was set against the backdrop of a deteriorating Chinese economy due to a collapsing Chinese housing market and rumours of a forthcoming Taiwanese declaration of independence.

In the simulation, there was notable divergence in the interests driving each team’s response to the evolving cross-Strait crisis. Discussions in Team USA focused on the risks of great power war and the need to ensure Taiwanese sovereignty. Discussions in Team Japan focused on ensuring freedom of navigation to minimise disruption to supply chains (particularly energy and food) and the regional strategic balance. Discussions in Team Australia focused on ensuring economic stability and the regional order. The Australian focus on economic stability (discussed further below) is not surprising given Australia’s relative strategic weight compared to Japan and the USA, and that China is the destination for approximately one third of Australia’s exports (compared with 18% for Japan and 7% for the US).³ Australia also enjoys a nearly AUD 80 billion trade surplus with China, compared with the US and Japan, both of which carry trade deficits with China.

Despite diverging interests, the three teams exhibited notable convergence in their policy preferences. First, all three teams emphasised escalation control and the restoration of deterrence, particularly early in the crisis. This included, inter alia, providing assurances to China.

Second, while all three teams emphasised the importance of avoiding war, they also demonstrated a willingness to hedge militarily. Team USA proposed enhanced force posture in the Taiwan Strait and new military exercises. Team Australia proposed increasing the readiness of its northern base network to support US operations and expanding the scope of Talisman Sabre. Team Japan proposed hosting US assets, deploying strike capabilities to its Southwest Islands, and standing up the US-Japan Bilateral Joint Operation Coordination Center (BJOCC).

Third, all three teams saw value in maintaining open communication channels with Beijing, particularly in the earlier, pre-kinetic stages of the crisis. This was seen to provide two key advantages. First, it offered an instrument to promote de-escalation by both signalling a willingness to work with China and impressing upon Beijing the potentially catastrophic implications of an escalation in cross-Strait tensions. Second, it reduced the likelihood of miscalculation, specifically because it provided the trilateral an opportunity to (1) reassure Beijing of their intent to deescalate; (2) communicate the trilateral’s intent and capability to respond to further Chinese provocations; and, in the specific context of this crisis scenario, (3) alleviate Chinese concerns of a forthcoming Taiwanese declaration of independence.

Fourth, all three teams emphasised close coordination with one another in managing the evolving crisis, both in terms of communicating respective interests and perceptions of threat and intent, and in coordinating policy responses across the DIME framework utilised in the simulation (diplomatic, informational, military, and economic tools).

One domain in which policy preferences diverged, however, was with respect to economic statecraft. Early in the simulation, the US and Japanese teams were willing to implement economic sanctions in response to Chinese provocations generally, and Chinese economic coercion specifically. These included export controls, tariffs, legal action in the WTO, and the suspension of permanent trade relations.

Team Australia, on the other hand, and likely reflecting its aforementioned preoccupation with economic stability, was generally more reluctant to engage in such offensive economic actions. Instead, Team Australia favoured economic responses that emphasised harm minimisation and de-escalation. Such measures included highlighting to international bodies the risks of economic warfare, building resilience to Chinese economic coercion through import substitution, and pushing the trilateral to scale back offensive economic statecraft. In turn 1, for instance, Team Australia suggested promoting international economic stability by supporting China to stabilise its faltering housing market, whereas Team USA was discussing opportunities to exploit China’s economic vulnerability.

Ostensibly, this Australian assessment of its economic vulnerabilities regarding China bled into other elements of the Australian DIME. For example, Team Australia was initially reticent to join the US and Japanese teams in a passing exercise (passex) through the Taiwan Strait. Further, Team Australia was generally less active than the US and Japanese teams in bolstering Taipei’s diplomatic and military position in response to indications of a Chinese intent to alter the cross-Strait status quo.

Interestingly, the policy gap between Team Australia and the US and Japanese teams shrunk as the simulation progressed and the scenario escalated. For example, Team Australia eventually agreed to participate in the passex, and by the final turn had agreed on the need to ‘impose high economic costs on China’ and to ‘align economic measures’ with the United States and Japan, including through the consideration of Australian export controls against China.

Taken together, these findings suggest that, at lower levels of conflict in particular, Australia’s risk tolerance and responses to economic coercion from China could well diverge from those of the US and Japan. Specifically, the Australia-US and Australia-Japan dyads could disagree on the appropriate response to grey zone economic activities by China, with Australia judging that the impact of some US/Japanese policy measures would be too escalatory or destabilising. This raises important questions about the ability of the trilateral states to absorb economic costs or impose economic security measures, and what options might exist to distribute the costs of Chinese economic coercion evenly across partners. One approach utilised in the simulation involved the United States and Japan making assurances of economic support to Australia in the event of Chinese import controls against Australian goods and services. These assurances included campaigns to promote domestic consumption of Australia’s import-controlled goods and negotiation of an ‘Economic Article V’ to ‘mitigate the impacts of economic coercion and retaliate on our partners’ behalf.’

During the simulation, Taiwan predictably emerged as a key trilateral interlocutor in cross-Strait crisis management. Multiple Taiwanese data points and actions fed directly into trilateral decision making, for example the level of Taiwanese resolve to resist Chinese aggression; if and how Taiwan intended on changing the cross-Strait status quo; Taiwanese cross-Strait preferences, e.g. international recognition vs non-recognition of Taiwanese independence; and practical Taiwanese needs in a crisis, e.g. search-and-rescue or temporary ceasefires to evacuate Taiwanese citizens from crisis-affected zones. In addition to sourcing these data, clear communication channels with Taiwan were also seen as a useful instrument to manage escalation by counselling restraint in Taiwanese foreign policy. This suggests that states with a relatively low diplomatic presence in Taiwan, such as Australia, should consider expanding this presence to provide them with more agency in a cross-Strait crisis.

Above all, the simulation demonstrated the challenges of establishing effective, multilateral, US-led deterrence in a cross-Strait crisis. During intra- and inter-team negotiations, Team USA was compelled to undertake forceful responses to Chinese provocations to demonstrate the credibility of its security commitments to regional allies and partners, in particular Japan and Taiwan. At the same time, Team USA was compelled to exercise restraint in responding to Chinese provocations, for example to avoid entrapping regional allies into a confrontation with China, to avoid providing a pretext that China could use to justify wider military action, and to avoid stumbling into great power war in Northeast Asia. Attempts to navigate these competing incentives in the simulation led to debates on policy making, indecision in relation to some actions, and surprise between teams regarding some US policy choices.

In the debrief, participants raised as an implication of this policy dilemma the need to establish a range of escalation options that allow for more finely calibrated responses to regional provocations that can be squared with the diverging preferences and risk tolerances of US allies and partners. In the simulation, for example, the majority of the discussion around responses to major Chinese provocations rested on changes to respective states’ One China Policies, with some participants observing that the prior announcement of such changes could be effective in deterring Chinese provocations. However, some participants noted that other options that were not considered in the simulation may have proven more tractable in a trilateral framework, for example a US-Japan Mutual Defence Pact, establishing the rudiments of an ‘Asian NATO’, trilateralising discussions around extended deterrence, enhancing Taiwan’s political presence in international organisations, and public increases in US force posture in Taiwan.

Responding to a North Korean nuclear crisis

The second pillar to the crisis scenario was a North Korean nuclear crisis constituted by a series of successful North Korean tests of strategic weapons systems culminating in an atmospheric test of a tactical nuclear warhead.

As with the cross-Strait crisis, the North Korean nuclear crisis revealed divergence in the interests driving each team’s response. Discussions in Team USA were focused on preventing nuclear proliferation in South Korea and signalling a resolve to respond forcefully to North Korean provocations. Discussions in Team Japan were focused on halting further development of North Korea’s strategic weapons systems and bolstering deterrence against North Korean nuclear threats. Discussions in Team Australia were focused on preventing North Korea from distracting the US from the China threat.

Despite diverging interests, policy preferences for all three teams emphasised the need to strengthen economic sanctions against North Korea, including through an expansion of the current sanctions regime; strengthening sanctions enforcement; and, for the US, imposing secondary sanctions against foreign entities assisting North Korea’s nuclear weapons development.

Intra- and inter-team discussions on economic sanctions against North Korea yielded two notable observations. First, only one team—Team Japan—advocated for taking the case for stronger economic sanctions against North Korea to the UN Security Council. That only a minority of participant teams carried such a view reflects growing scepticism about the role of the UN Security Council in North Korean non-proliferation in light of recent obstructionist behaviour from veto-wielding Russia and China.⁴ However, all three teams did support engagement with Russia and China at the bilateral level to encourage them to ‘rein in’ North Korea, specifically by impressing upon them the risks of further inaction on North Korean nuclear proliferation, i.e. nuclear dominoes in Northeast Asia.

The second notable observation was that support for stronger economic sanctions appeared to be a reflex response untied to a broader strategic logic. The teams, for example, did not dwell on whether economic sanctions were ultimately intended to facilitate regime change, or North Korean nuclear renunciation, or were simply intended to further throttle North Korea’s nuclear weapons development. This raises the question as to whether there is a clearly conceived ‘win condition’ for the North Korean nuclear issue that resonates across the trilateral states.

Strategic simultaneity

The simultaneous China-North Korea crisis demonstrated the challenges associated with ‘strategic simultaneity,’ or the interconnectedness of strategic conflicts across multiple regions and domains.⁵ First, it demonstrated the constraining effect that strategic simultaneity can have on foreign policy decision making. For example, when facing an escalating cross-Strait crisis, the three teams were presented with a ‘simultaneous’ scenario involving a shipment of missile guidance systems to North Korea via a Russia-flagged vessel. Team USA ultimately elected not to interdict the vessel in order to ‘avoid simultaneity,’ a decision that surprised both the Australian and Japanese teams. A participant from Team USA later recounted in the debrief that they were ‘balancing how much the United States could take on at any one moment.’

Another challenge of strategic simultaneity observed in the simulation related to threat prioritisation. While all teams regarded both crises in Taiwan and North Korea as strategically significant, they differed in the priority that they attached to responding to each. For example, deliberations in Team Japan were initially focused on responding to the North Korean crisis, though became more engaged with the cross-Strait crisis as the simulation progressed and supply chain threats emerged. Deliberations in Team USA were initially focused on the cross-Strait crisis, though became more engaged with the North Korean crisis as the simulation progressed and the threat of a South Korean nuclear breakout emerged. Team Australia remained focused on the cross-Strait crisis throughout. Such inconsistencies have the potential to confound trilateral planning and joint action in a situation of strategic simultaneity, for example by fomenting disagreements regarding the allocation of resources or levels of risk acceptance in responding to respective crises.

Given the interconnectedness of contemporary strategic challenges, the trilateral states must anticipate facing multiple crises simultaneously, and therefore must plan for reconciling diverging threat prioritisations in jointly responding to simultaneous crises.

Attracting international support for crisis response

Throughout the simulation, all three teams repeatedly emphasised the importance of engaging other international actors in responding to the crisis scenario. International actors not immediately involved in the crisis scenario that were raised as potential interlocuters included the UK, Canada, the Netherlands, India, the Philippines, Indonesia, ASEAN, the EU, the UN General Assembly, the UN Security Council, the G7, the G20, the WTO, the Quad, and NATO. There were multiple strategic logics underpinning Australian, Japanese, and US proposals to engage third parties in addressing the crisis scenario.

The first was capability aggregation, in which the trilateral coordinates with likeminded international actors to enlarge their collective diplomatic, informational, military, and economic resource base for addressing Chinese and North Korean threats. The most-cited need for capability aggregation within the crisis scenario involved enlarging economic punishments against Chinese provocations by securing sanctions from the EU, though participants were sceptical of broad EU support for such measures.

The second was to cultivate a permissive international environment for trilateral actions in the crisis scenario. ASEAN, for example, was identified as a critical actor in terms of providing the trilateral with operational access and overflight in countering Chinese area denial operations.

The third was to coordinate contingency planning. Team USA, for example, noted that ASEAN may be engaged in a major Taiwan contingency to coordinate the evacuation of the hundreds of thousands of southeast Asian workers based on the Island.

The fourth was to draw international attention to Chinese and North Korean provocations and their implications for international security. Participants argued that doing so would both increase international pressure on China and North Korea to cease provocations while legitimating resolute responses by the trilateral.

The fifth was to encourage international participation in efforts to repudiate Chinese and North Korean provocations. Team USA was particularly attuned to this logic, noting that securing international demarches, sanctions, etc. would disarm Chinese/North Korean claims of US unilateralism.

The sixth related to signalling. Specifically, by increasing public outreach to international stakeholders in countering Chinese/North Korean provocations, the trilateral could signal opposition to Chinese/North Korean provocations without imposing major escalation risks.

Recognising the multifaceted strategic logic of engaging other international actors in crisis response evidenced in the simulation, the trilateral should be considering now how best to enable strategic engagement with key international stakeholders in future contingencies. For example, trilateral states might draft with such stakeholders joint policy statements in support of the Indo-Pacific status quo that will serve as a reference point in developing joint responses to future Chinese/North Korean provocations. Alternatively, trilateral states might incorporate into other existing international fora instruments (working groups, standing agenda items, etc.) on Indo-Pacific security that serve as a forcing function for these international bodies to engage with Indo-Pacific crises as they emerge.

US leadership in the Indo-Pacific

The simulation demonstrated the ongoing importance of US political and military leadership in the Indo-Pacific. In responding to the crisis scenario, Team USA demonstrated leadership across two functions. First, it provided a critical mass of capability to affect outcomes that other likeminded states, even working in unison, would not be able to muster. Accordingly, the Australian and Japanese teams premised many of their foreign policy choices on the engagement, if not leadership of the US. This was most apparent when discussing military options; both the Australian and Japanese teams saw US leadership as a sine qua non of any military response to Chinese and North Korean provocations. Second, US leadership provided direction to the foreign policies of the other teams. Team Australia in particular relied on US assessments to guide its own decision making on Taiwan.

These US leadership functions evidenced in the simulation reinforce the requirement that US allies and partners can readily access US intent, operational planning, foreign policy decision making, and net assessments in guiding their own decision making in a crisis.

US leadership did, however, ostensibly overshadow Australia-Japan cooperation, with the Australian and Japanese teams cleaving more closely to a ‘hub-and-spokes’ model of security cooperation than the ‘latticework’ framework that has seen greater currency in recent strategic policy debates as well as US policy.⁶ In general, the Australian and Japanese teams did not pursue bilateral foreign policy initiatives or innovations, prioritised the pursuit of foreign policy alignment with the US over that with each other, and predominantly framed their foreign policy choices with respect to the US (see Figure 1).

This finding suggests that there is some imperative—strategic, operational, or cultural—that drives US allies and partners to revert to hub-and-spokes security-seeking in a crisis, potentially undermining the realisation of the force-multiplying benefits of ‘spoke-to-spoke’ security cooperation.

Domestic politics

The domestic politics of each state did not exert a strong influence on that team’s decision making. The scenario included multiple domestic political ‘pain points,’ including protests and elections, though participants rarely pre-emptively modified their foreign policy recommendations to accommodate these challenges. This is perhaps expected within the framework of the simulation, in which teams were charged with making expert recommendations to their respective political leaderships (simulated by the Control Team), the latter of which took responsibility for political decision making. That being said, the three teams were attuned to the likely constraints that their respective political leaderships would face in the crisis scenario, with potential pitfalls raised including legislative gridlock and popular pressures for isolationism in the United States; popular backlash against military development and mobilisation in Japan; and partisan opposition to confrontation with China in Australia.

Interestingly, to the extent that domestic politics did influence decision making, it was mostly across teams. In one example, Team USA was unreceptive to suggestions from Team Japan that Japan could host US tactical nuclear weapons due to the former’s own judgements as to how the Japanese public would react to such a measure. This example reinforced how perceptions of aligned-states’ domestic politics shape approaches to security cooperation. In context of the trilateral, this implies that greater fluency with the domestic politics of the other states will improve decision making.

Strong trilateral foundations

The simulation demonstrated a significant level of trust between all three teams, where the enormity of the shared strategic challenges appeared to override parochialism and the pursuit of intra-trilateral advantage. Both the Australian and Japanese teams made concessions to support US objectives in the crisis, for example Team Australia eventually agreeing to economic retaliation against Chinese provocations. At the same time, Team USA routinely sought input from the Australian and Japanese teams and was reluctant to act without their support. Inter-team disagreements were raised and discussed, but there was little subversion or hedging. Teams were also willing to bring their own internal debates to the trilateral to enrich the debate and workshop solutions. To the extent that these simulated interactions reflect the true nature of the trilateral enterprise, there is strong cause for optimism that the trilateral can meet emerging regional challenges in a manner that is efficient, constructive, and resilient.