Whether Donald Trump’s new world requires a Plan B revision to Australia’s security strategy or simply a continuation of flexibility, it’s hard to deny that something important has happened. Either Trump has simply made us more aware of existing realities, or he has altered those realities. The “business as usual” response of both major political parties in Australia can’t be sustained.
As a country, we should use this moment of introspection to revisit the AUKUS strategy: much has changed since it was unveiled in 2021.
The chief focus should be on the uncertain supply of the core element – nuclear-power submarines. The 2023 “optimal pathway” set an ambition for Australia to acquire US Virginia class subs in the interim before the development of “AUKUS” class boats from the United Kingdom. The prospect for both are now so doubtful that retired admiral Peter Briggs is urging a revival of the French partnership, rancorous even before AUKUS delivered the deathblow.
It’s too early to abandon the Virginias. If they eventuate, their underwater speed and endurance would be valuable. They seem the only hope for a timely Collins-class replacement.
If the Virginias are uncertain, the AUKUS-class boats increasingly look like a mirage. UK nuclear shipbuilding is in a parlous state. The impact of Trump on European defence expenditures will push Australia further back in the queue.
But is the Briggs’ proposal, involving building the French boats in Adelaide, the way forward? The current AUKUS plan was never subjected to economic analysis. We should examine, belatedly, the economic case for building nuclear submarines in Australia.
It should pass four economic tests. First, comparative advantage: countries should do the things that they are best at. Second, opportunity cost: we’ll have to make hard choices between guns and butter – and between types of defence expenditure. Third, diversification: don’t put all your eggs in one basket. Fourth, optionality: the need to remain flexible and responsive in the face of changing circumstances.
How does a domestic build stack up against these economic criteria?
The proper cost of an option on the AUKUS-class nuclear subs should be tiny, reflecting the uncertain delivery.
Australia has no comparative advantage. True, we have made conventional submarines. But this was a long time ago and was a fraught process, with an acceptable outcome only after long delays and big cost over-runs. It has left no legacy capacity to build nuclear vessels.
As an example of capacity-building industrial policy, this is a dead end. There will be no market, other than the government. There are no competitive pressures on construction to keep it cost-efficient. The skills are specialised, with limited spinoff. Nuclear ranks high in the list of Big Projects with a high likelihood of failure.
Just as Afterpay can lull purchasers into unaffordable commitments, we fool ourselves if we see the enormous expenditure as acceptable because it is spread out over time. The reality is that, for decades to come, this will crowd out alternatives (including as-yet-unknown defence innovations) and civil projects which call on the same scarce skills. There are no easy exit ramps from this multi-decade commitment.
In short, Australia’s key defence project puts too many fragile eggs in one basket
The financial-markets notion of “optionality” is relevant here: it is not about committing to one option over another now but having the flexibility to choose later. The proper cost of an option on the AUKUS-class nuclear subs should be tiny, reflecting the uncertain delivery. Rather than commit to build in Adelaide, Australia should explore the option of off-the-shelf purchase of either UK or French nuclear-powered boats, leaving open the final decision until our strategic environment is clearer.
Part of this optionality would be to continue the current construction of the sustainment infrastructure. This alone will be a big enough challenge to Australia’s industrial and construction capacity without having to build any submarines. Finding the skilled labour force to carry out this huge task in a timely fashion will provide all the jobs that South Australia wants, and more. Such facilities would be valuable whatever the outcome on Australia’s submarine fleet. Operating these facilities will provide blue-collar and technical jobs in abundance, and the skill transference will have relevance elsewhere.
With America’s role in the region unclear, it makes less sense to prioritise Australia’s capacity to project power into Asia. Without the dead-weight commitment to the AUKUS-class subs, the alternative opportunities – more oriented to a defensive “Echidna-strategy” posture – could create a substantial defence industry with a high degree of domestic-capacity autonomy. Australia already has significant local capability in unmanned vehicles such as the Loyal Wingman and Ghost Shark. This embryonic industry is linked to formidable research capacity in the CSIRO and the universities. We have the institutional structure to provide support for private innovation if funding is available. The technical spinoff would be greater than for a trilaterally- designed and developed submarine.
Over time, Australia could develop the kind of deep autonomous capability seen in Sweden and Norway, small countries which have specialised in appropriate-sized technology and become world-leaders. This strategy has also allowed Ukraine to make a meaningful contribution to its own defence supply needs.
A serious effort to build up this defence-oriented industry in Australia would prove its worth if, as seems possible, neither the Virginia- nor the AUKUS-class subs arrive.
With the election behind them in May, whoever is governing the country will have the opportunity to set Australia on a better path.
