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What are Australia's options?

  1. Conscription & increase in Defence spend to 7+% of GDP;
  2. Pay Tribute to China instead?

Don't pretend that Australia can just continue as is without US protection.
It won't last long before someone else comes to demand tribute.
That has always been the way of the world.

The strong do what they can and the weak suffer what they must.

Thucydides c.455–c.400 bc
History of the Peloponnesian War bk. 5, ch. 89