No one is talking about the real cost of Trump’s brave new world

Historians have long chipped Winston Churchill for sending the Ottomans into the arms of Germany in the months leading to World War I.

The catalyst was his decision as the First Lord of the Admiralty to seize two British-built dreadnoughts that the fledgling Turk navy had paid for but not yet received.

Described as the most advanced weapons system of their time, the heavy gun battleships were pawns in a broader game of military strategy, diplomatic skulduggery and debt manipulation.

Churchill has forever been accused of helping turn an ally to foe and expanding the war beyond the confines of western Europe.

Australia is at no risk of falling into the arms of a modern-day Germany, but it has found itself in a similar predicament; beholden to an increasingly erratic and mendacious White House for its national security. 

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Trump would face ‘awful choices’ about honouring AUKUS 

Top US defence department official Elbridge Colby this week put the Albanese and potential Dutton administrations on notice that Donald Trump expects Australia to dramatically increase its defence spending.

Critically, Colby warned — echoing precisely the dilemma Churchill faced in 1914 — that should America be unable to produce enough Virginia-class nuclear-powered attack submarines for its own needs, to ensure “God forbid” that the boats are “not in the right place at the right time”, the president will face “awful choices” about honouring AUKUS.

Challenged on this danger, Defence Minister Richard Marles told 7:30 on Thursday that this is why it is so important for Australia to help the US expand America’s industrial capacity to deliver enough of those boats.

Which is exactly what the Turks thought.

Australia is far from alone in having to contemplate such potential betrayal.

Just this week, the US halted military aid to Ukraine and suspended offensive cyber operations against Russia.

Ukraine’s army relies on the Starlink satellite data system owned by Trump’s top sycophant-in-chief Elon Musk.

In an extraordinary Swiss newspaper interview this week the CEO of Airbus’s defence and space business revealed the stunning ways in which Europe is increasingly coming to understand that a high level of reliance on the US has its downsides.

For example, the Danes have realised that if they want to send their US-made F-35 jets westwards to defend Greenland, the Americans can withhold vital mission “software tokens”.

“Without those, nothing happens,” Michael Schoellhorn, a former German military officer and chopper pilot, told NZZ am Sonntag.

“For me it’s clear: If Europe wants to have a say over its own destiny, we need a strong German and European defence industry,” he said.

It’s a mark of the times, and investors are taking Europe’s quickening pivot away from the US seriously.

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‘Dependent on an ally that may decide to punish it’

American defence stocks have been falling since Trump’s inauguration, while European ones are surging as the continent’s governments announce sharp increases in military budgets.

“Even the smallest doubts that Trump could decide to harm friendly governments by blocking software updates to their military arsenals is enough to make such governments reconsider US military acquisitions,” wrote Atlantic Council fellow Elisabeth Braw in Foreign Policy.

The $350 billion AUKUS pact could leave Australia “dependent on an ally that may decide to punish it by withholding crucial technology”, she noted.

Trump’s defenders here and abroad claim the president’s bellicose threats are achieving their aim; spurring allies to spend more on national security.

But it’s not yet clear from either side of Australian politics whether they have the political will or fiscal wherewithal to come anywhere close to what Trump’s White house is demanding, let alone come clean to the Australian public about what that means for other priorities.

Colby said the president wants Australia to increase defence spending, which is currently “well below” NATO’s 3 per cent of gross domestic product target.

This year, spending on the military will reach $56 billion, or just over 2 per cent of GDP. Getting back to Cold War levels, which is what many defence specialists say is needed, would see that figure double to more than $100 billion a year in under a decade.

Australia’s political class wants little to do with such numbers, or the choices and trade-offs they imply. Certainly not in front of voters, who’ve been conditioned to expect government bailouts for almost every conceivable thing.

This election, we keep being told, is all about cost of living. Household electricity bill relief, and more money for things like Medicare bulk billing. Prime Minister Anthony Albanese now looks set to deliver a budget in a little over two weeks, but it’s unlikely to confront the real fiscal consequences of what has very rapidly become a more dangerous, splintering world.

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Neither side addressing budget holes

Budget expert Chris Richardson says the immediate budget balance is looking better than expected, with a third surplus appearing “tantalisingly within reach”.

“Though the reality of a last sprint ahead of an election — and the spending temptations that entails — suggests that’s where it will stay”.

But that doesn’t mean Australia’s fiscal good fortune of the past few years of surging commodity prices and income tax bracket creep can last. Especially against a significant 10 per cent surge in the size of government.

“Although that’s not Whitlamesque, it is the fastest and largest increase in the size of the federal government since Whitlam’s expansion half a century ago,” Richardson says.

“Australia is yet to figure out how to pay for that. Not that either side is addressing those issues in the current election campaign.”

And that’s before anyone mentions the gargantuan cost of attaining even a modicum of sovereignty in Australia’s defence posture.

The economic consequences of Trump’s threats to leave NATO and cut a deal with Russia over Ukraine have pretty much left global financial markets in a state of slow panic.

Upgrading defence and protecting Ukraine could cost Europe’s biggest economies an extra $US3.1 trillion ($4.9 trillion) over 10 years, according to Bloomberg Economics.

Jakub Janda, from the Centre for Security Policy in Prague estimated this month that defending Europe without the US will cost at least 7 per cent to 10 per cent of GDP in initial years and then “at least” 5 per cent. “When the hell are we starting?” he asked.

Such talk has put stock markets on edge.

From individuals to big funds, investors that supply indebted governments with money are already demanding higher interest rates, which is a sign they fear the coming surge in military spending will spur a fresh wave of inflation.

These are deeply unsettling developments, which political leaders in this country are loath to engage with.

The primary tools of government economic policy — fiscal and monetary policy — have for 40 years been deployed to balance the macro trade-off between stable prices, unemployment and GDP growth. Societies have flourished or floundered on getting the balance right.

But Trump’s revolution threatens to up-end that liberal world order, by weaponising what some analysts call “economic statecraft”, a concept that includes sanctions, tariffs and other forms of economic coercion and disruption.

Michael Every, an economist and market strategist at Rabobank, has been warning for years that America’s return to an “18th-century mercantilist approach” will unravel the post war “liberal world order” within a few years.

Australia is betting all its security chips on an ally turning inwards, not least because America’s own fiscal ability to fund a global security umbrella is limited.

The last thing Australia needs, as Winston Churchill can attest, is to be given the Turkish treatment.