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The trials ahead for Pete Hegseth

21 February 2025

Donald Trump’s new defense secretary, Pete Hegseth, has enormous challenges ahead of him—challenges that could seriously affect Australia by upsetting key elements of our ally’s defence position, including its ability to deliver the Virginia class submarines that are so crucial to our AUKUS plans.

At the heart of problem is Trump’s hallmark tax cuts and the space he needs to clear in the federal budget to enable the cuts without driving the deficit much deeper into the red. The Republicans are aiming to get their program through Congress by bundling everything together into one or two big omnibus bills. This should help them manage their narrow majorities in the Senate and the House of Representatives, but it creates potential problems among the deficit hawks on their own right flank who will be stripped of the ability to debate the cost of individual programs.

This group of Republicans insist that changes to taxes and spending must be at least budget neutral. They are deeply disturbed by the fact that, since the end of the Cold War, government debt has grown from about 40 percent of GDP to 123 percent today and is still rising at about 9 percent per annum. Unchecked, it could get to about 195 percent of GDP by 2050.

The principal threat to an ability to balance the budget is Trump’s desired tax cuts. The Committee for Responsible Federal Budget calculates that they would cost between US$5 trillion and US$11.2 trillion through to 2035, counting both the permanent extension of Trump’s first term tax cuts—which are due to expire at the end of this year—and new cuts he has promised. These have both been flagged as top administration priorities.

Although Trump seems intent on using tariffs to boost revenue—unlike in his first term, when he was motivated by protecting American industry—it is clear his tariff policy will not resolve his deficit problem should he press his tax changes.

The Tax Foundation, an independent non-profit organisation, estimates that a universal 10 percent tariff would raise $2 trillion through to 2034 and a 20 percent tariff $3.3 trillion—though it would be less if, as expected the tariffs shrink the US economy. This would ‘fall well short of what is needed’ to cover the permanent extension of Trump’s first term tax cuts, let alone the new cuts.

Meanwhile, Trump has outsourced the task of cutting spending to self-proclaimed ‘first buddy’ Elon Musk and his Department of Government Efficiency, or DOGE. It reportedly is staffed mostly by young men Musk has brought across from the tech sector who have the job of eliminating programs and public servants. Musk suggests that any serious problems arising from haste will be fixed later. Sometimes, as with the sacking of many of those assigned to the supervision of the nuclear weapons stockpile, they have had to be fixed sooner rather than later.

This is one part of the headache Hegseth will soon have to deal with. He is responsible for the most complex and expensive department outside those that handle social payments. Defence also has the deepest and strongest cultural disciplines—particularly in the armed services—and the most complex and expensive technologies in the world. Going into the November election, the approved outlays for defence were US$895 billion. Trump promised an increase but has since pointed the DOGE directly at defence.

In an interview on Super Bowl day, Trump said he expected to find ‘billions, hundreds of millions in fraud and abuse’ in defence. His national security advisor, Mike Waltz, suggested in a separate interview that ‘the Pentagon in general is full of unnecessary bloat’ and directed aim particularly at shipbuilding, which he said was ‘a mess’. Yet that program is at the heart of American power. It is also quantitively, and increasingly qualitatively, challenged by Chinese programs. The shipbuilding industry and the systems supporting the United States Navy are among the most sensitive that the US has.

They are also particularly vital for Australia. The rate at which the US can build submarines needs to improve if they are to deliver Virginia class boats to the Royal Australian Navy in the 2030s, as planned under AUKUS. Australian Defence Minister Richard Marles made a $500 million down payment to enhance the US submarine industrial base as part of the AUKUS package during his positive meeting with Hegseth in early February—the first Hegseth had with a foreign counterpart. Hegseth committed himself to the AUKUS programme including the sale of Virginias, which will be a formidable deterrent and a critical part of Australia’s defence.

Senior Pentagon official Robert Salesses said in a statement this week that Hegseth had launched a review to find 8 percent of the defence budget for the 2026 financial year—about $50 billion—in offsets that would realign spending towards priorities such as border security, an Iron Dome-style aerial defence system. Hegseth had also ordered an end to ‘diversity, equity and inclusion’ type programs. The Washington Post reported the existence of a memo indicating these offsets—which the news report called ‘cuts’—would continue for five years, though it noted that submarine acquisition was among the categories listed for exemption.

The US submarine output rate has been gradually coming up to the levels of production necessary for the AUKUS timetable. What will happen now?

The shipbuilding program, the assertive posture of DOGE and any cuts to the Pentagon overall, represent for Hegseth a massive difficulty. A defense secretary doesn’t have to be loved, but he or she does have to be respected. This includes respect for the values the armed services evince. The military is proud of its capacity to incorporate women and people of colour in all facets of command and recruitment. Above all is a requirement that its manifold security arrangements cannot be put in the hands of people not qualified and cleared. The youngsters of DOGE are not. The Pentagon will look to Hegseth for that protection—as indeed will we and all the military allies of the US.

If it is thought in the Pentagon that Hegseth can’t cope with the need to protect both secrecy and capability, he will be lost. For any defense secretary, such a failure would be intolerable. It will be particularly so for congressional Republicans who have had to swallow a great deal to approve the appointments of Trump’s choices in the national security area.

All this will be playing out in an environment in which one or two omnibus bills will be hotly contested in Congress.

It has to be remembered that the US is not at the peak of post-World War II spending. Were that to be the case, defence spending would not be at $895 billion; it would be closer to $2 trillion. Chinese and Russian expenditures are at least as great as they were during the Cold War.

The US is looking for a massive increase in allied spending. Trump has set targets of at least 3.5 percent of GDP, hopefully 5 percent. The allies are nowhere near these targets. Australia is increasing to 2.4 percent of GDP—far short of what Trump wants. We can expect the US administration to come at us. But our challenge is miniscule compared to that facing Hegseth.

AUKUS: Beyond submarines, a blueprint for allied Industrial Integration

16 January 2025

The AUKUS defence partnership of Australia, the UK and US has made remarkable progress since its establishment in September 2021, though it also faces emerging challenges. After decades of frustrated attempts at reform of US defence-technology export regulations, the past three years have demonstrated what bipartisan congressional courage and masterful diplomacy can achieve when aligned with strategic necessity.

This was highlighted at a recent Center for Strategic and International Studies roundtable featuring Representatives Joe Courtney and Michael McCaul and Australian Ambassador to the United States and former prime minister Kevin Rudd.

In an era where metrics often oversimplify complex realities, Courtney’s reframing of the US shipbuilding debate deserves particular attention. While critics focus on vessel count, Courtney presents a more nuanced picture: US shipyards are already operating near peak Cold War production levels when measured by tonnage. More significantly, AUKUS will drive production over the next decade to exceed even World War II levels, though in fewer but substantially larger and more sophisticated vessels. This shift in measuring capability rather than quantity reflects the evolution of naval warfare and industrial capacity, and underscores the advantage of Australia building an additional allied shipyard.

However, this industrial renaissance faces immediate challenges. The most pressing concern lies within the Defense Department, where mid-level officials are wrestling with decisions about adding certain submarine technologies—particularly in propulsion and acoustics—to the exclusion list of the US export rules, called the International Traffic in Arms Regulations (ITAR). These seemingly technical decisions could have outsized implications for AUKUS’s first pillar. While McCaul reports reassurances from Deputy Secretary of State Kurt Campbell that these exclusions will ultimately align with AUKUS requirements, the situation highlights the complex interplay between bureaucratic processes and strategic objectives.

The congressional AUKUS Caucus of supporters are confident that the partnership’s durability extends beyond current administration priorities. McCaul’s confidence in AUKUS’s Trump-proofing stems from the former president’s role in its genesis, suggesting a rare point of bipartisan consensus in US foreign policy. Donald Trump’s candidate for secretary of state, Marco Rubio, on 15 January predicted strong support for AUKUS in the incoming administration.

Yet the alliance’s true resilience may lie in what Rudd astutely identified in its second pillar: the de facto creation of an AUKUS free trade agreement.

This emerging defence technology marketplace represents perhaps the most revolutionary aspect of the partnership. The deterrent effect of a unified, innovative defence industrial base across three continents could prove as strategically significant as the submarine program itself. However, realising this potential requires more ambitious steps toward market integration.

The current framework establishes key technological verticals but leaves crucial questions about the stages of innovation and company growth unanswered. A more comprehensive approach would better define the span from basic research to mature companies, which could lead to the creation of a genuine AUKUS innovation ecosystem. This could include shared acceleration programs, coordinated investment strategies, and unified contracting vehicles—all while drawing upon each nation’s unique investment and industrial strengths.

Such integration would require modest personnel commitments, targeted investment to back agreed winners and unprecedented transparency about capability gaps across the three nations. Yet these challenges pale in comparison with the strategic advantages of a truly integrated defence industrial base. This would not only accelerate innovation but also create redundancy and resilience in critical supply chains, a lesson brought into sharp relief by recent global disruptions.

The AUKUS partnership represents more than a submarine deal or even a defence agreement; it is a blueprint for deep industrial integration among democratic allies. As geopolitical competition intensifies, particularly in the Indo-Pacific, this model of alliance-building through industrial policy could prove as significant as traditional security arrangements.

Success will require sustained attention to seemingly mundane details: export control reforms, procurement harmonisation and investment coordination. These unglamourous tasks might not capture headlines like submarine announcements, but they will determine whether AUKUS fulfills its transformative potential.

Moving forward, policymakers should focus on three priorities. First is resolving the ITAR exclusion list challenges in a way that enables rather than constrains technology sharing. Second, there needs to be a comprehensive framework for market integration across all stages of technological development. Finally, we must establish the institutional mechanisms needed to coordinate investment and procurement across three different national systems.

The progress achieved in just three years suggests these challenges are surmountable. More importantly, it demonstrates that democratic nations can move with relative speed and unity when faced with clear strategic imperatives. As AUKUS evolves from concept to reality, maintaining this sense of urgency while attending to crucial technical details will be essential.

The ultimate measure of AUKUS’s success will not be in submarine counts or even tonnage produced but in whether it creates a new model for alliance-building through industrial integration. Early indicators suggest it is well on its way to doing exactly that.

Design is the key to achieving an Australian sovereign shipbuilding capability

18 August 2017

During his speech at ASPI last month, Minister for Defence Industry Christopher Pyne reinforced the government’s commitment to the 2016 Defence Industry Policy Statement and its intent to foster an export-focused defence industry. The policy statement says that, over the next two decades, ‘Australia will embark on one of the most extensive and ambitious shipbuilding programs anywhere in the world to modernise the Royal Australian Navy’.

The challenge will be balancing the capability requirements of the Australian Defence Force with the aim of developing a genuinely sovereign industrial capability. There’s also a need to incorporate an effective intellectual property strategy, achieve skills and knowledge transfer to an Australian workforce, and develop an Australian supply chain that covers whole-of-life considerations—all without prejudicing foreign direct investment and capability development from companies that are ultimately foreign-owned.

To frame the debate, we need to define what ‘sovereign shipbuilding’ is. One definition, offered by Australian shipbuilder Austal, is ‘the ability to design, build, sustain, upgrade and export Australian built vessels, in Australian shipyards by Australian workers’. That’s an ambitious definition, but anything less would arguably constitute only partial sovereignty and therefore lead to only partial fulfillment of the ambitious nation-building objectives sought from Defence’s multibillion-dollar investment in new ships and submarines.

Developing an indigenous design capability is critical. Without it, the industry won’t be able to create the intellectual capital necessary to export and drive local research and development. It also won’t be able to create the enduring industrial capability that would come from integrating local equipment and products into ship design. The Australian government and the Royal Australian Navy buy ship designs, not ships. And almost invariably they’re seeking local production, just as Australia has done with its Sea 1180 and Sea 5000 projects, and the shipbuilding programs before them. If we want to develop an export capability like that of the UK, Spain, France, Germany, Italy or the Netherlands, then we’ll eventually need our own ship designs. Otherwise, we’ll simply remain a builder of another country’s designs that have been exported to us.

When given the opportunity, Australian industry has proven its ability to meet and exceed world’s best practice in shipbuilding, as evidenced by the improvements achieved in both the air warfare destroyer build and the Collins-class submarine sustainment program. Austal, too, has shown what Australian-owned companies can achieve. It has proven its credentials on an international stage, and cracked the elusive export formula on a significant scale, by being the only foreign shipbuilder to construct ships for the US Navy.

Local design is the pathway to developing a true and enduring Australian industry capability for shipbuilding. When we buy a foreign ship design, it comes with a foreign supply chain. Equipment and components in a ship get selected during design, not during construction. We may get some local industry involvement by requiring design changes and specifying Australian content, but that alone doesn’t develop a true enduring design capability.

On the other hand, a locally developed ship design can incorporate local equipment and products and, importantly, encourage local research and development, particularly if the investment is supported by significant export opportunities. If we then export that design, the primary beneficiary will be local Australian companies that receive orders from the overseas shipyards for the equipment and products specified in the design.

A local design can be optimised for efficient production in Australia by being matched to the shipyard’s capabilities and production processes, resulting in lower overall cost. The latest technology and production innovations can be quickly and efficiently incorporated into the design locally, delivering immediate capability and cost benefits.

A truly sovereign shipbuilding capability will deliver significant benefits to our navy. It will allow Australian research and development to be focused on solving Australian problems. The solutions can then be integrated into Australian designs to ensure they are aligned with the navy’s requirements and operational environment.

The three designers selected for SEA5000 are their countries’ sovereign naval shipbuilders and highly experienced global companies. The ship designs they offer are all highly capable, so the question is how can this opportunity be best utilised to develop a true sovereign shipbuilding capability? The answer is, by allowing Australian companies to gain the build experience needed to develop design skills.

We are a smart country and developing an indigenous design capability is well within our abilities. Just look at what Navantia has achieved with the support of the Spanish government and navy, going from builder of foreign designs in the 1980s to exporting its own local designs in the 2000s. Without full support for this ambitious goal, the Australian shipbuilding endeavour could become nothing more than a labour and parts supplier program.

The award of the SEA5000 contract and the soon-to-be-released defence export plan provide a once-in-a-generation opportunity to position Australian industry to gain the skills and experience needed to become a sovereign ship designer, builder and exporter. That can only be achieved if the federal government and the Department of Defence back Australian industry.

The combination of Austal’s design and export experience and the experience gained by the ASC in its journey to world’s best practice in complex naval shipbuilding provides the government with a great opportunity to position Australian industry to develop a sovereign design and export capability for the future.

Milestone marks considerable progress on the AWD program

25 November 2015

The keel-laying ceremony held last week for the third destroyer, Sydney marked significant progress for the Air Warfare Destroyer Alliance. This is the latest in a series of important achievements across the project with this particular milestone marking the start of the hull consolidation phase for Sydney while, at the same time, the first ship, Hobart, enters her Combat System activation phase in advance of sea trials next year. The second destroyer, Brisbane, remains on track towards the completion of its hull consolidation, with stern-release performed last week.

The culmination of those events provides an appropriate opportunity to take stock of the considerable progress made on the AWD program and the challenges that the AWD Alliance has overcome.

It has been natural that the high profile nature of the largest defence project in Australia would put every construction issue on public display. It’s in this context that the significant challenges of the AWD project have all been amplified. However, what hasn’t been heard as clearly are the many accomplishments of the program including:

progress through functional design;
establishing and starting-up the Osborne shipyard facilities from a ‘brown-field’ site;
procuring significant quantities of equipment;
developing the support system for three ships;
burning-down the system integration risk through development and use of the various shore facilities; and
the launch of the first ship, Hobart, in May this year.

Of equal significance have been the people-related aspects of those achievements, in particular, the coming together of vast numbers of skilled individuals from various backgrounds to forge a focussed and highly performing AWD Alliance team.

The extent of those achievements should be recognised in a clearer context when it’s understood that many of the AWD’s challenges were inevitable given the nature of the construction of a first-of-class ship being built by a new workforce in a new shipyard. I have been constantly impressed by the resilience with which those working within the AWD Alliance have been able to meet the challenges, sometimes in the face of open and public criticism, and in a situation where we’ve actually welcomed the scrutiny that our project has attracted.

The AWD Alliance has worked alongside the Government to address issues on the program. We were active participants in the Australian National Audit Office performance audit of the project, concluded early in 2014, as well as the Winter White Independent Review that took place shortly thereafter. Such activities have been beneficial in identifying what has transpired in the project and in prioritising the things that needed to improve.

We subsequently conducted the Comprehensive Cost Reviews, or ‘forensic audit’ as it became known, which revealed amongst other things that the projections for final costs across the overall program had risen by a total of 22%. The information gleaned from the Comprehensive Cost Review led to the strong decision by the Government to contribute a further $1.2 billion to the program, announced at the same time that the first ship, Hobart, was launched in May.

This figure of 22% is significant, and should provide a sober yet realistic perspective on the challenges the project has faced.

Now, almost a year after the Government announced the interim stage of its AWD reform strategy, I can confidently say that the AWD Alliance is on a stable path towards delivery, with a firm understanding and commitment to the cost and schedule outcomes, and detailed plans in place to drive further improvements. The Alliance has also been a large part of the solution to the program’s challenges. Our work has continued apace as we welcomed the injection of experts from BAE Systems, Navantia and Raytheon Australia, who have provided a broad range of recommendations to improve performance.

The Alliance should be proud of all that is being achieved—in particular, the substantial ship-over-ship performance improvements. Productivity has improved by more than 30% from Ship 1 to Ship 2 and a further 10% from Ship 2 to Ship 3. The work being carried out on Ship 3 is particularly important, as the most productive work of the Alliance will be demonstrated here, based on the lessons from her sister ships.

It’s against this backdrop of substantial program improvement that I announced last week a number of leadership and governance changes being enacted within the AWD Alliance. As part of these changes, I have decided to step down from the role of AWD Alliance Chief Executive and have been promoted to the AWD Project Board as the representative of Raytheon Australia.

Lloyd Beckett, another Raytheon employee, who has been with the Alliance since the beginning of the year, has been appointed to the role of AWD Alliance General Manager.

Lloyd brings a wealth of global experience in the shipbuilding industry. The AWD project will be his fourth first-of-class ship build, following his involvement with major shipbuilding projects in the US including the CG-47 guided missile cruiser, the DDG-51 Arleigh Burke destroyer and LPD-17 class of amphibious ships. He has nearly 35 years of experience, working on some of the world’s largest defence projects including the Patriot air and missile defence system and the Zumwalt DDG 1000 guided missile destroyer. Lloyd has extensive knowledge of Aegis-equipped ships and I’m confident that he’ll maintain the stable path that we’ve set for the project.

It has been exciting for me to have been a part of the AWD project for ten years and a special privilege to have led the Alliance team for the last six years. As someone who has contributed to the program for such a period, enjoyed the successes and worked through the challenges, I remain committed to the concept of the Alliance and its potential to generate strong program outcomes through effective relationships and behaviours built upon collaboration, cooperation and trust.

Last week’s keel-laying for Sydney, together with the launch of Hobart earlier in the year, are reminders that the most important thing about the endeavour of the AWD Alliance is the ability to work together with the common purpose to deliver the most technologically advanced and potent capability the Royal Australian Navy has ever possessed.

Robots in naval shipbuilding productivity

13 October 2015

The so-called ‘valley of death’ in Australian naval shipbuilding is already upon us, but we also have the means to reduce the severity and then to build on this traumatic experience to create a productive, innovative and sustainable industry that provides a strategic resource to Australia.

Recent debate on Australian naval shipbuilding culminated in the unprecedented announcement that future programs would be run on a continuous production basis for frigates and offshore patrol vessels. A similar approach has been mooted for the future submarine program.

This has been motivated by the detrimental effects on the skilled workforce of discontinuous shipbuilding programs. Even with the most expeditious progress on naval programs, there have already been shipbuilding workforce reductions in Newcastle and Williamstown.

Fortuitously the national expertise in new robotic technologies, combined with new design processes that are readily applicable to shipbuilding, presents an extraordinary opportunity over the coming two or more decades for the massive shipbuilding programs announced by government. To meet new challenges to our naval shipbuilding program, we need to retain highly skilled shipbuilding staff for engagement in a focussed research and development program to extend the current state-of-the-art technology.

I recently attended a full-day workshop run at the laboratory of the Australian Centre for Field Robotics (ACFR) at the University of Sydney, in collaboration with the Australian Centre for Robotic Vision (ACRV) at the Queensland University of Technology. The two prominent themes of the day were:

Human–robot collaborative working, whereby a human provides the insight for understanding new complex problems and tasking for solutions. The implication here is that with disruptive technology such as robotic systems, it’s important to retain the more expert human workers to mentor the robotic capability and to deal with new and novel challenges. Evidence for this principle was presented by ACFR staff from the Mine Automation program for Rio Tinto in Western Australia that began in 1997 and is still under active research and development.
Renewed interest in application of robotic automation in less structured environments such as building construction sites and shipyards. Currently robots work well in exclusively automated environments where the safety risk is mitigated either by excluding humans completely or by anchoring the robots as in automotive production lines. An example of what could be done in shipbuilding is Thales using robotic welding machines for the Bushmaster armoured vehicles built in Bendigo.

At the workshop, I mentioned the $90 billion commitment made recently to continuous build programs for ships and submarines, and I urged the robotic R&D community to bid for research funding from that investment to develop world-leading construction robotic systems for building and ships.

The workshop has recently toured Australia, including Mackay, Wollongong and Adelaide where ASC staff participated. Others engaged in shipbuilding have reported interest in the use of robotic welding systems. This confirms the robotics expertise in Australia is already significant and has the capacity for redirection to new areas.

The Australian recently reported that robotic bricklaying is being introduced to housing construction; shipbuilding has many similar skilled trades where repetitive accurate work is required and similar technology could be applied.

The current turmoil in the shipbuilding workforce presents the opportunity to initiate a significant shipbuilding automation research and development program based on Australia’s current robotics capabilities. This will have three beneficial outcomes for the nation:

We will leverage the already advanced level of national robotic expertise in the direction that’s already been identified for further research, namely unstructured sites such as buildings and shipyards.
We will gain greater technology transfer from the shipbuilding investment program into major Australian industries, including building and infrastructure construction.
We will retain in the industry the most expert shipbuilding workers to collaborate with robotic systems as key to the next stages of automation.

I urge each of the contending SEA 1000 CEP teams to include a research and development program in their submission that includes the above proposal. ACFR and ACRV have been alerted to this opportunity so access to greater details of capability and future directions can be readily obtained.

More importantly, this approach can be applied more effectively now than at any other time in the forthcoming naval shipbuilding programs. To attempt to retrofit robotic technology into a program for which detailed design is complete would be counter-productive. It’s better to design for automated manufacture, rather than to modify design intended for manual work.

The technological developments will also have significant export potential, both internationally and to other industries. The international exports will be assisted by the presence in the naval shipbuilding programs of international companies engaged precisely for their design capabilities and international supply chain participation.

Finally, this approach will engage shipbuilding workers who are currently facing a bleak period until the initiation of the naval programs. Those workers should now be reassured that there’s a role for some of them in the near term to engage in the research and development programs and to work as collaborators for the robotic systems that will be introduced in the near future.