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US President-elect Donald Trump has hinted that he expects NATO member states to boost defence spending to 5 per cent of GDP in exchange for continuing to support Ukraine while pursuing peace, raising significant questions about Australia’s own defence spending targets.
For much of its history, Australia’s strategic relationship with the Indo-Pacific has been shaped by two distinct yet often competing paradigms.
The first revolves around reliance on a strategic benefactor – a “great and powerful friend” – to ensure its security and influence. Historically, this role was filled by the British Empire, whose dominance in global and maritime affairs provided Australia with a sense of security as a loyal outpost of the Crown.
Following the Second World War and the subsequent decline of British imperial power, the United States assumed this mantle, solidifying itself as Australia’s primary ally under the ANZUS Treaty of 1951 and through shared commitments to Cold War alliances.
The second paradigm acknowledges the inherent vulnerability of being a relatively small power in a vast and geopolitically dynamic region. This has long compelled Australia to punch above its weight, adopting the role of a “loyal deputy” within the prevailing global and regional order.
From the Boer War to the World wars, the Korean and Vietnam wars, and more recent conflicts in the Middle East, Australia has demonstrated its commitment to the demands of its allies, often paying the price in both “blood and treasure”.
Throughout the 20th and 21st centuries, this loyalty translated into maintaining robust defence spending, aiming to ensure Australia could meet its obligations within alliances while safeguarding its interests. Governments from both sides of the political aisle have sought to sustain defence expenditure at or near 2 per cent of gross domestic product (GDP), a practice that gained even greater significance as the Indo-Pacific emerged as a focal point of global power competition.
The Indo-Pacific’s current strategic landscape is shaped by the rise of the People’s Republic of China, whose economic and military ambitions have shifted regional balances of power, and the re-emergence of Russia as a global player.
These developments are paralleled by the growing influence of emerging powers like India, Indonesia and others, each pursuing their own designs for the region. At the same time, the American-led global order faces mounting pressure from asymmetric threats posed by non-state actors, such as the Iranian-backed Houthi movement in Yemen, which disrupts vital international trade routes.
Amid these challenges, the United States, long viewed as the linchpin of global stability, finds itself stretched thin. Its allies, including Australia, are increasingly urged to shoulder more responsibility. This message was amplified during Donald Trump’s first presidency (2016–20), when he emphasised the need for allies to increase their defence budgets and take on a greater share of the burden.
Now, with President-elect Trump making a dramatic political comeback as the 47th President of the United States, his platform remains rooted in disentangling America from “wars of choice” and shifting the onus of regional defence onto its partners.
Adding an additional layer of complexity is recent claims by those within the Trump transition team’s foreign policy team, that the incoming administration will expect a floor of 5 per cent GDP defence spending from NATO allies, in exchange for continued US support for Ukraine and security guarantees across Europe more broadly.
For Australia, this underscores the necessity of not only balancing its historic alliances with the pressing reality of a volatile and contested Indo-Pacific, where it must navigate its role as both a loyal ally and a regional actor in its own right, while juggling its defence spending commitments at a time of increasingly constrained fiscal situation.
Equally, it raises a question about how much spending, both across NATO and in allies like Australia despite President Trump’s demands, will actually come to pass.
Spooking the horses to boost overall spending?
While Trump has remained consistent throughout the 2024 election campaign and building upon the precedent established during the first Trump administration, many an analyst has been quick to highlight that Trump’s approach is to immediately go to the worst possible outcome in order to “spook” an adversary or ally to achieve his desired objective.
Highlighting this is Lucy Fisher, Henry Foy and Felicia Schwartz in a piece for the Financial Times, titled Trump wants 5% NATO defence spending target, Europe told, in which the trio said, “Donald Trump’s team has told European officials that the incoming US president will demand NATO member states increase defence spending to 5 per cent of GDP, but plans to continue supplying military aid to Ukraine. The US President-elect’s closest foreign policy aides shared his intentions in discussions with senior European officials this month, according to people familiar with the talks, as he firms up his policies towards Europe and Russia’s invasion of Ukraine.”
It does need to be highlighted that Trump’s shift from what many have described as abandoning Ukraine towards a hybrid approach of continued support, diplomatic negotiations and enhanced direct European support – while conflicting with core campaign promises of extracting the US from costly, foreign conflicts – represents a far more pragmatic approach for the second Trump administration.
Equally, it serves to underpin Trump’s tried-and-true strategy that is best summarised by the title of his bestselling book, The art of the deal, to boost overall defence spending among critical allies.
Fisher, Foy and Schwartz highlighted this, saying, “But in a boost for allies deeply concerned over their ability to support and protect Ukraine without Washington’s backing, Trump now intends to maintain US military supplies to Kyiv after his inauguration, according to three other people briefed on the discussions with Western officials. At the same time Trump is to demand NATO more than double its 2 per cent spending target – which only 23 of the alliance’s 32 members currently meet – to 5 per cent, two people briefed on the conversations said...
“One person said they understood that Trump would settle for 3.5 per cent, and that he was planning to explicitly link higher defence spending and the offer of more favourable trading terms with the US.
“‘It’s clear that we are talking about 3 per cent or more for [NATO’s June summit in] The Hague summit,’ said another European official briefed on Trump’s thinking.”
This admission seemingly confirms Trump’s strategy of dealing with both adversaries and allies in order to achieve his objectives of a better deal for the United States and reinforces and expectation among allies that they will, irregardless, need to step up their defence spending as a percentage of GDP.
Spending implications for Australia
According to current plans, Australia’s Defence spending is expected to rise from its approximately 2 per cent figure (between 1.98 and 2.11 per cent of GDP) today to 2.4 per cent of GDP by 2033–34 or approximately AU$100 billion, an increase of AU$50.3 billion as outlined by Deputy Prime Minister and Defence Minister Richard Marles during the launch of the 2024 National Defence Strategy and Integrated Investment Program.
The Deputy Prime Minister said, “This financial year spending in Defence will be $53 billion. These increases will see annual Defence spending almost double over the next 10 years to $100 billion in the financial year 2033–34.
“It will see Defence spending as a proportion of gross domestic product projected to increase to around 2.4 per cent by 2033–34. Prior to the government commissioning the Defence Strategic Review in 2022, the previous trajectory of the Defence budget over the same period was to plateau at around 2.1 per cent of GDP.”
Keeping in mind that Australia’s defence spending is expected to hit AU$100 billion by 2033–34, a truly astronomical figure for the nation, it is worth acknowledging that it is still only a fraction when compared to programs like the National Disability Insurance Scheme which is expected to hit (at least) AU$200 billion over the next four-year forward estimates period.
Shifting to the “preferred” target seemingly confirmed by Trump’s foreign policy transition team, a 3.5 per cent target of defence spending would ultimately transform Australia’s defence spending, marking an increase that would to summarise what former defence minister and Australian ambassador to the United States Kim Beazley said in October 2022, “If our Defence spending were to receive around the US figure of 3.5 per cent, it would be transformative. It is unlikely to happen, but some movement towards it is essential. If we were at our Defence spending level achieved in the 1980s – 2.3 per cent of GDP – that would amount to $4 billion extra a year.”
Going further, Beazley stated, “Remember that we federated in 1901 to defend ourselves. Defence’s current share of 5.5–6 per cent of today’s federal budget doesn’t cut it.”
As a figure, the 3.5 per cent of spending in today’s dollars would amount to be worth approximately AU$90.5 billion and by the end of the 2034–35 decade would be worth AU$119 billion, either way marking a significant increase in Australia’s defence spending that would serve to transform Australia’s defence capability.
However it is worth nothing that regardless of such increases, Australia needs to get better at maximising our defence spending and ensuring that our “bang for buck” is truly delivered, after all, there is no point throwing more money at a problem and system that isn’t delivering.
Final thoughts
Despite the rhetoric, Australians seem reluctant at best or, indeed, even oblivious at worst that the world is increasingly becoming “multipolar” and our own home, the Indo-Pacific, in particular, is fast becoming the most hotly contested region in the world.
Declining economic opportunity, coupled with the rapidly deteriorating global and regional balance of power and the increased politicisation of every aspect of contemporary life, only serves to exacerbate the very reality of disconnection, apathy and helplessness felt by many Australians.
This attitude is only serving to be compounded and creates a growing sentiment that we are speeding towards a predestined outcome, thus disempowering the Australian people and, to a lesser extent, policymakers as we futilely confront seemingly insurmountable challenges with little-to-no benefit and at a high-risk/reward calculation.
Taking into account the costs and implications, it is therefore easy to understand why so many Australians, both in the general public and within our decision-making circles, seem to have checked out and are quite happy to allow the nation to continue to limp along in mediocrity because, well, it is easier than having lofty ambitions.
If both Australian policymakers and the Australian public don’t snap out of the comforting security blanket that is the belief in the “End of History”, the nation will continue to rapidly face an uncomfortable and increasingly dangerous new reality, where we truly are no longer the masters of our own destiny.
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