Trump may push Albanese on defence spending, but Australia has leverage it can use, too

Ahead of a prospective meeting between Prime Minister Anthony Albanese and US President Donald Trump at the G7 Summit Canada, two key developments have bumped defence issues to the top of the alliance agenda.

First, in a meeting with Deputy Prime Minister Richard Marles late last month, US Secretary of Defence Pete Hegseth urged Australia to boost defence spending to 3.5% of gross domestic product (GDP).

This elicited a stern response from Albanese that “Australia should decide what we spend on Australia’s defence.”

Then, this week, news emerged the Pentagon is conducting a review of the AUKUS deal to ensure it aligns with Trump’s “America First” agenda.

Speculation is rife as to the reasons for the review. Some contend it’s a classic Trump “shakedown” to force Australia to pay more for its submarines, while others say it’s a normal move for any new US administration.

Read more: Trump may try to strike a deal with AUKUS review, but here's why he won't sink it

The reality is somewhere in between. Trump may well see an opportunity to “own” the AUKUS deal negotiated by his predecessor, Joe Biden, by seeking to extract a “better deal” from Australia.

But while support for AUKUS across the US system is strong, the review also reflects long-standing and bipartisan concerns in the US over the deal. These include, among other things, Australia’s functional and fiscal capacity to take charge of its own nuclear-powered submarines once they are built.

So, why have these issues come up now, just before Albanese’s first face-to-face meeting with Trump?

To understand this, it’s important to place both issues in a wider context. We need to consider the Trump administration’s overall approach to alliances, as well as whether Australia’s defence budget matches our strategy.

Trump, alliances and burden-sharing

Senior Pentagon figures noted months ago that defence spending was their “main concern” with Australia in an otherwise “excellent” relationship.

But such concerns are not exclusive to Australia. Rather, they speak to Trump’s broader approach to alliances worldwide – he wants US allies in Europe and Asia to share more of the burden, as well.

Trump’s team sees defence spending (calculated as a percentage of GDP) as a basic indicator of an ally’s seriousness about both their own national defence and collective security with Washington.

As Hegseth noted in testimony before Congress this week, “we can’t want [our allies’] security more than they do.”

Initially, the Trump administration’s burden-sharing grievances with NATO received the most attention. The government demanded European allies boost spending to 5% of GDP in the interests of what prominent MAGA figures have called “burden-owning”.

Several analysts interpreted these demands as indicative of what will be asked of Asian partners, including Australia.

In reality, what Washington wants from European and Indo-Pacific allies differs in small but important ways.

In Europe, the Trump administration wants allies to assume near-total responsibility for their own defence to enable the US to focus on bigger strategic priorities. These include border security at home and, importantly, Chinese military power in the Indo-Pacific.

By contrast, Trump’s early moves on defence policy in Asia have emphasised a degree of cooperation and mutual benefit.

The administration has explicitly linked its burden-sharing demands with a willingness to work with its allies – Japan, South Korea, Australia and others – in pursuit of a strategy of collective defence to deter Chinese aggression.

This reflects a long-standing recognition in Washington that America needs its allies and partners in the Indo-Pacific perhaps more than anywhere else in the world. The reason: to support US forces across the vast Pacific and Indian oceans and to counter China’s growing ability to disrupt US military operations across the region.

In other words, the US must balance its demands of Indo-Pacific allies with the knowledge that it also needs their help to succeed in Asia.

This means the Albanese government can and should engage the Trump administration with confidence on defence matters – including AUKUS.

It has a lot to offer America, not just a lot to lose.

Australian defence spending

But a discussion over Australia’s defence spending is not simply a matter of alliance management. It also speaks to the genuine challenges Australia faces in matching its strategy with its resources.

Albanese is right to say Australia will set its own defence policy based on its needs rather than an arbitrary percentage of GDP determined by Washington.

But it’s also true Australia’s defence budget must match the aspirations and requirements set out in its 2024 National Defence Strategy. This is necessary for our defence posture to be credible.

This document paints a sobering picture of the increasingly fraught strategic environment Australia finds itself in. And it outlines an ambitious capability development agenda to allow Australia to do its part to maintain the balance of power in the region, alongside the United States and other partners.

But there is growing concern in the Australian policy community that our defence budget is insufficient to meet these goals.

For instance, one of the lead authors of Australia’s 2023 Defence Strategic Review, Sir Angus Houston, mused last year that in order for AUKUS submarines to be a “net addition” to the nation’s military capability, Australia would need to increase its defence spending to more than 3% of GDP through the 2030s.

Otherwise, he warned, AUKUS would “cannibalise” investments in Australia’s surface fleet, long-range strike capabilities, air and missile defence, and other capabilities.

There’s evidence the Australian government understands this, too. Marles and the minister for defence industry, Pat Conroy, have both said the government is willing to “have a conversation” about increasing spending, if required to meet Australia’s strategic needs.

This is all to say that an additional push from Trump on defence spending and burden-sharing – however unpleasantly delivered – would not be out of the ordinary. And it may, in fact, be beneficial for Australia’s own deliberations on its defence spending needs.