The established economic and security order as we have known it for 80 years has been disrupted by President Trump, bringing into question long held assumptions about defence and security within America’s network of alliances.
At a time of geo-political hiatus*, now is the time to take a broader view of how we invest and build a defence capability and posture that strengthens sovereign manufacturing and development, projects credible deterrence and delivers economic multipliers domestically.
The outcome of the recent federal election reflected an Australian public opting for stability and a reluctance to countenance anything that could be further disruptive socially and economically.
With voters focused on the here and now and weekly household bills, both sides of politics went out of their way to downplay defence and national security as issues such that they were fleeting blips on the electorate’s radar.
This does not mean, of course, that the re-elected Albanese Labor Government can ignore global challenges that have been long in the making and which promise to impact government budgets, our quality of life and the security of our country into the future.
Already this year, the board of the Reserve Bank has warned on several occasions that the national economy will continue to reverberate from the impacts of continuing uncertainty and geopolitical instability.
What impact the current tariff war and Sino-American negotiations have on creating new trading arrangements between the two economic superpowers is yet to be seen.
We can be sure, however, that tariffs and other impediments to trade will not reverse China’s replacement of the United States as the major economic partner for most nations – including Australia.
US President Trump’s protectionist trade policy may dent China’s $1 trillion trade surplus, but it will also constrain international supply chains, destroy jobs, and put pressure on inflation.
At the same time, his transactional approach to alliances and international security suggests a new world order where America expects its allies to spend at least 3% of GDP on defence – much more than Australia’s current 2.03% of GDP.
The NATO and ANZUS compacts which saw an hegemonic America essentially provide a military subsidy to its western allies over many decades has ended.
This means Australia’s defence spending already at its highest since 2017 will have to be much more than the $59 billion currently.
Even getting it to 2.5% of GDP by 2030 would require at least an extra $15 billion a year.
During the recent election campaign the Coalition promised to do this with an extra $21 billion a year for the next half decade – but the announcement came almost as an afterthought in a contest they were already losing.
A recent analysis by the Institute of Public Affairs shows Australia lagging the OECD average of 2.42% of GDP and the global aggregate of 2.35% of GDP.
Defence is not the only big ticket item putting expansionary pressure on the bottom line.
Current projections have the National Disability Insurance Scheme with defence spending consuming at least 5% of GDP by the end of this decade.
Such is the magnitude of the required spending in these two budget priorities, the Federal Government will have to be much smarter and vastly more efficient in procurement, program delivery and in securing accountability along the supply chain for both items.
Having to compete in distorted trading markets internationally is nothing new for Australia’s primary industries, but Australian regions competing for limited Commonwealth funding in a budgetary context upended by escalating defence and welfare needs will impact us all.
So taking a different tangent, I suggest we learn from the Americans and rethink our approach to regional development by making the defence dollar work in strengthening our regional economies and capabilities.
Every one of America’s 50 states gets some defence spending in its backyard and roughly a third of the military budget or about US$350 billion annually is spent in ten key states like Texas and California.
As national priorities are reset in the volatile world of the next decade, Australia’s regions should ensure their investment and infrastructure arguments also include a much stronger emphasis on defence and security values.
Better roads, bridges and communications as well as housing and skilled regional economies are all part of a stronger more self-reliant Australia.
This benefits our defence capacity as well as our economic and social resilience.
After a summer of weather impacts in northern Australia, major Australian businesses have emphasised the importance of upgrading our regional rail and road infrastructure to strengthen what are “very vulnerable supply chains”.
Through such investment we also bolster our capacity to ensure communities can respond quickly to disruptions, for example, as in natural disasters.
The 2024 National Defence Strategy pointed to “a sovereign defence industrial base” as being “vital for developing higher levels of military preparedness and self-reliance”.
It is important that such an industrial base be not clustered just around a few capital cities but instead is developed strategically in different parts of regional Australia to create regional employment opportunities and stronger more complex more capable economies there.
ABS figures released in April 2025 reported that in in 2023-2024 the Australian defence industry, in contrast to the need for greatly expanded sovereign capability, was still largely undeveloped – contributing $11.9 billion in gross value added to the Australian economy, growing by 12.4 per cent and employing close to 70,000 people – mostly in South Australia, New South Wales and Victoria.
Defence industries are complex and highly technical, boosting scientific, technological and engineering capacity.
ABS reports the two largest sectors within the industry are professional, scientific and technical services ($5.4 billion) and manufacturing ($2.0 billion).
We are a long way from being able to claim sovereign capacity in either sector.
A substantial expansion of defence industries requires also that governments at all three levels heed the Productivity Commission and overhaul our planning, development and construction sectors to ensure an adequate infrastructure base.
The Productivity Commission’s most recent figures show labour productivity declined by 1.2% over the past year reflective of a trend extending back more than a decade.
It’s ridiculous to talk about economic transformation when modern Australia now takes twice as long and spends three times as much to build a house as it did a generation ago.
One can reasonably ask how as a nation we will be up to the challenges before us when critical bridge, rail and road building projects close for summer holidays.
The times demand a different Australian mindset one that is up to addressing with urgency the dynamic context in which we find ourselves and the associated long-term, structural challenges demanding resolution.
In sum, a sovereign Australia must rely less on others to do the heavy lifting and accept primary responsibility for ensuring our future security and prosperity – and we do that best by developing our regions.
*The original draft and a much shorter version of this article appeared in Queensland Country Life, 27 February 2025 p 15 as “Changing world to drive regional progress”
Professor John Cole 