The primary aim of this paper is to discuss the re-emergence of China as a dominant power in the Asia Pacific and how this is perceived as a threat by the United States of America (US) and its allies in the Indo-Pacific region including Australia. The challenges for Australia are how to resist growing Chinese influence and therefore develop defence policies that protect Australia’s national interest and values whilst maintaining essential economic relationships. The paper articulate how China leverages its economic superiority to influence the Indo-Pacific region; how the region is experiencing strategic warning period and how Australia faces a major power adversary for the first time since the Second World War. Moreover, China, as Australia’s leading trade partner is a state that is not a strategic guarantor nor a security ally. The paper argues Australia acknowledges China’s strategic ambitions and understanding and considers China’s growing military presence as a threat. It is a commonly held belief, Australia has enjoyed decades of uninterrupted prosperity, Arguably, the key to this prosperity is the fact Australia has strengthened the financial alliance and increased the security relationship with the US. A quandary remains as to whether Australia should consider building a robust regional security alliance outside of or in partnership with, the US, to counter China’s emergence in the Indo-Pacific. To address these issues, the paper will discuss the reasons for escalating diplomatic clashes between Australia and China. In conclusion, the paper will demonstrate Australia should be considering to enhance the capacity of the Australian Defence Force (ADF) whilst reinforcing existing security cooperation with Indo-Pacific nations while at the same time working collaboratively towards building greater multilateral interoperable alliance in the region under the US leadership in order to defend the rules-based order.