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US President Joe Biden has sent Congress his requested budget for the 2022 fiscal year. Due to the timelines of a presidential transition year, there’s not a lot of detail yet, but there’s enough to answer one big question in the strategic policy sphere: there won’t be a big change to the defence budget.

The document’s preamble states that ‘America is confronting four compounding crises of unprecedented scope and scale all at the same time.’ For those of us in the national security community, it’s a useful reminder of Biden’s priorities that China’s increasing power and aggression is not one of the four; rather, they are the pandemic, the resulting economic crisis, a ‘national reckoning on racial inequality centuries in the making’, and climate change. Competition with China is mentioned, but Biden makes clear that it isn’t simply or even mainly a military problem. Instead, he seeks to outcompete China through ‘a comprehensive strategy to reimagine and rebuild a new American economy’.

On top of that, Biden wasn’t exactly dealt a great hand in terms of cash in the bank. The budget request is only for discretionary funding. The bulk of the US federal budget is mandated or non-discretionary funding, which includes things like Social Security (retirement and disability benefits) and Medicare (health care for seniors). Over the past 35 years, mandated expenditure has grown from rough parity with discretionary funding to more than twice as much. In 2020 it blew out even further, to around three times as much, because of unemployment benefits and other support payments made during the pandemic (discretionary spending was around US$1.6 trillion and mandated was nearly US$4.9 trillion). With that, the annual deficit, which had been approaching US$1 trillion, surged past US$3 trillion. That also brought the public debt to US$21 trillion, or around 100% of GDP.

Within the discretionary budget, there’s been a rough 50–50 split between defence and non-defence spending. With most of the federal budget essentially untouchable, it might have been tempting for Biden to take the razor to defence spending to find the discretionary funds to support his domestic priorities. But he hasn’t done that. His discretionary budget request maintains an almost even split between defence and non-defence spending, despite his intent to reverse the long-term trend of declining non-defence discretionary spending.

The total defence request is US$753 billion, around US$12 billion more than President Donald Trump’s 2021 budget. Of that, US$715 billion is for the Department of Defense itself. In comparison, the rest of the discretionary budget, which funds everything else from energy to education, is only slightly more at US$769 billion. Defence spending is around 3.2% of GDP—far more than America’s allies, including Australia.

It’s a budget that probably disappoints the doves who want significant readjustment of spending priorities, and it’s about as good as the hawks could have reasonably hoped for.

The request acknowledges that more detail is to come. Even so, the lack of specifics around the Department of Defense stands out. While other departments’ individual programs are described with dollars attached, the DoD has only high-level language with no dollars. Whether that’s because issues such as health, energy and the environment are higher priorities, or because the administration hasn’t yet been able get its arms around the elephantine problems facing the DoD is not clear. But the discrepancy between the boilerplate language on defence and the sense of urgency and renewal in other areas is striking.

What is there on defence largely gives an impression of continuity. Countering the threat from China remains the department’s top challenge. There’s a commitment to ‘a strong, credible nuclear deterrent for the security of the Nation and US allies’. The recapitalisation of the ballistic missile submarine fleet—the US Navy’s most expensive program—will continue.

The Biden administration’s conviction that the means to manage competition with China are not purely military ones is evident in the document’s emphasis on rebuilding the economy and working with partners and allies. Importantly, the request includes a substantial increase to the State Department budget. But the need to deliver military capability is also real.

The administration seeks to ‘reimagine’ the economy, and elsewhere Biden has proposed bold ideas that affect all departments, such as putting climate change into their core planning. But there are few clear signs in this document of imagination at work in the administration’s plans specifically for defence. However, doing business the same way is unlikely to enable the US to counter the threats it perceives around the world.

The army, navy and air force all face major recapitalisation challenges, with fleets ageing out and the mounting cost of replacements simply unaffordable. Meanwhile, Chinese military power grows apace, reflecting its role as the world’s factory. China’s shipyards are pumping out ships at a rate the US can’t match. Trump’s defence secretary grappled for a year with the problem of how to design a navy that could counter China before delivering a plan that was essentially unaffordable and unachievable.

Biden’s administration will have to wrestle with the same challenges, and the lack of detail in the budget request suggests it hasn’t resolved where, or indeed whether, it will make fundamental changes. The boilerplate language leaves some room for manoeuvring. For example, it doesn’t sign up to a target for the size of the fleet, such as the 355 ships that have been an unattainable and arguably distracting goal for years. There are references to innovation and emerging technologies, such as ‘remotely operated and autonomous systems’ and hypersonics.

The request also refers to divesting ‘legacy capacity and force structure’. Again, this is standard boilerplate, but potentially offers cover for some large force structure decisions, such as reducing the size of the army to reinvest in the maritime and air assets needed in the Pacific.

Biden’s decision to follow through on the withdrawal of US forces from Afghanistan suggests that he’s willing to make tough calls. One may not agree with the decision, but he broke with the status quo, even if the outcome is not clear. That decision will likely play well to a US public tired of ‘endless wars’, but it won’t by itself make much difference to the balance of power in the western Pacific. That will likely require a combination of more tough decisions and greater imagination than was revealed in this budget request.

The US Navy’s new low-yield submarine-launched ballistic missile, produced rapidly by the National Nuclear Security Administration, is intended to provide a proportional response to US adversaries’ concepts of ‘coercive, limited nuclear escalation’.

Proposed in the Trump administration’s 2018 nuclear posture review, the SLBM incorporates a variant of the W76-1 warhead called the W76-2 and lowers the explosive yield from 90 kilotons to an estimated 5 kilotons. The missile has been deployed on Ohio-class ballistic missile submarines.

Concern over Russia’s potential to use non-strategic or tactical nuclear weapons against NATO members demands that the US have a response other than high-yield weapons.

Until now, the US’s options were limited. Responding to Russian threats to use low-yield non-strategic nuclear weapons with a 90-kiloton nuclear warhead would be disproportionate and an adversary might well consider it not to be credible. Although the US fields the B61 low-yield gravity bomb and recently developed the B61-12, the aircraft carrying these non-strategic weapons would need to navigate advanced Russian integrated air defences to reach their targets. That raises doubts that high-yield warheads are a viable option.

Credible deterrence that reduces the risk of use of nuclear weapons requires credible responses. The low-yield SLBM is an additional deterrence measure designed to prevent war, not make it more likely.

President Joe Biden has inherited a situation where great-power competition will have significant global consequences and appropriate signalling to potential adversaries is critical for preventing war. During the election campaign, Biden signalled that he believed the deployment of the low-yield SLBM was a ‘bad idea’. He has also publicly supported a ‘no first use’ nuclear policy. A key presidential adviser, Bonnie Jenkins, has also advocated no first use. Jenkins has been nominated as Biden’s undersecretary of state for arms control and international security, which would place her in a strong position to influence this policy.

The increasingly aggressive behaviour of China and Russia, the risk that Iran will develop a nuclear arsenal and North Korea’s possession of intercontinental ballistic missiles make the world more dangerous and volatile. Biden needs to signal that all options are on the table when it comes to defending the US, its allies and its interests and that these options are dynamic, versatile and fit for purpose.

In the face of China’s nuclear modernisation, the US can’t afford to take options off the table and signal a weakness of resolve. In her 2016 book on Chinese nuclear proliferation, Susan Turner Haynes says China is moving away from a minimum deterrence nuclear strategy to one of limited deterrence. Her analysis is based on Chinese military documentation and the quantitative and qualitative modernisation of China’s nuclear structure, which suggests a progression to a warfighting nuclear capability.

The study also casts doubt on the likelihood of China adhering to a true no-first-use policy. Beijing’s long-term commitment to this policy has also been questioned by analysts including retired People’s Liberation Army major general Zhenqiang Pan, who stated: ‘China’s new strategic goal of achieving a most influential world power status by the mid-twenty-first century may envisage a greater role of its military force, including the role of nuclear weapons, and perhaps the need to revisit its no-first-use policy.’

Turner Haynes describes a number of differences between minimum deterrence and limited deterrence, but one distinction goes to the heart of the issue. She says that ‘minimum deterrence is achieved by having the ability to strike back after a first strike’, while ‘limited deterrence is achieved by increasing nuclear options’. For Biden to signal an intention to decrease the US’s nuclear options such as the low-yield SLBM in the face of determined nuclear modernisation by great-power competitors sends a dangerous signal.

His comments may prove to be rhetoric intended to appeal to his base, which includes nuclear abolitionists and the arms-control community, and the president may leave the nuclear policies and structure in place. But the issue is the power of the message.

With a new president signalling that nuclear weapons are not an option, aggressive dictators looking to exploit power vacuums and weakness may conclude that the time is right to push the envelope and invade Taiwan or close the South China Sea, invade the Baltic States or attack South Korea.

US nuclear policies and strategies have helped prevent great-power conflict through appropriate signalling and a robust, evolving nuclear posture. Now is not the time weaken our resolve when bullies are seeking to exploit global fear and hardship and gain an advantage. Let’s not be blindly idealistic to the point of weakening solid defence structures. There’s too much at stake.

Biden needs to signal to potential adversaries that the US has developed and produced flexible options for a reason, and that these options can and will be used proportionally.

The attack on the US Capitol on 6 January has been interpreted in multiple ways. The most common interpretation asserts that President Donald Trump’s narcissistic obsessions and highly inflammatory rhetoric were responsible for the sordid events of that day. A second interpretation attributes the mayhem to the high degree of party political and ideological polarisation in the country. Economic uncertainty and distress caused by the Covid-19 pandemic is cited as another major factor contributing to anarchy and political breakdown.

There’s truth in each of these assertions. But all of them discount the elephant in the room, namely, the deep sense of anxiety, indeed apprehension, felt by a sizeable portion of white Americans that their patrimony is being stolen from them. This deep-seated angst was why Trump’s assertions that the election had been ‘stolen’ from him touched such a sympathetic chord in so many. It also lies at the heart of the anti-immigration sentiment in the country that Trump stoked time and again both before and after taking office.

Trump’s nihilistic rhetoric and false claims only accentuated an underlying fear whose main cause has little to do with economics or political ideology and much to do with race. The predominantly white composition of the crowd that attacked the Capitol, chanting for the reclamation of their birthright and for the blood of House Speaker Nancy Pelosi and Vice President Mike Pence, whom they consider traitors to their cause, is clear testimony to this fact.

Whites constituted about 73% of the American population in 2017. But if one excludes Hispanic whites, most of whom identify as Latino rather than white, the proportion falls to 61%. It’s expected to fall below 50% by 2045 as a result of immigration and low birth rates. The anti-immigration and militantly white supremacist attitudes of many Trump supporters is a product of their fear of becoming a numerical minority—a feeling that Trump plays to with his virulent anti-immigrant rhetoric.

To white supremacists, Barack Obama’s election as president in 2008 and again in 2012 was a turning point; it seemed to signal the end of the US as a ‘white’ country and spawned the ‘birther’ movement, of which Trump was a part, that sought to discredit Obama as foreign born. Now, the election to the highest office of Obama’s vice president, Joe Biden, who’s seen as the inheritor of Obama’s political legacy, with African Indian American Kamala Harris as his deputy, has further increased the apprehension among a segment of white Americans that they are being deprived of their rightful place in the pecking order in the United States.

A dramatic increase in the African American voter turnout in the presidential election has added to those fears. The fact that black voters determined in large part the outcome of Georgia’s Senate runoffs on 5 January that led to the Republicans losing both seats has further enhanced the sense of ‘disenfranchisement’ harboured by sections of the white population. The prominent display of Confederate flags during the attack on the Capitol, confirms this conclusion.

Trump’s refusal earlier in the year to categorically condemn white supremacist groups and their attacks on Black Lives Matter protestors emboldened these elements no end. It’s a shame that the party of Abraham Lincoln has for the past four years been colluding with white supremacists, propagating their racist ideology and undermining the foundations of America’s constitutional democracy in order to achieve ephemeral gains. The backlash the party faces following the domestic terrorism of 6 January demonstrates the counterproductive nature of this strategy.

All these signs suggest that support for Trump’s fabricated claims is largely a product of the anxiety that the US is changing ‘colour’. In this sense it is a rerun of the scenario preceding the Civil War. One of the main drivers of that conflict was the threat that the emancipation of black slaves was seen to pose to white privilege. Let’s hope matters don’t reach the point of no return as they did in 1861 and that this rush to the precipice will be halted and reversed before it’s too late. A second impeachment of Trump is essential to bring the US back to its much-vaunted constitutional roots.

There’s much talk in Washington these days about the relative merits of accountability versus healing. This is a false dichotomy. Both can take place, simultaneously reinforcing each other. But for that to happen, it’s imperative that the Republican Party take the lead on both counts—by holding Trump accountable and by reaching out to the Democrats.

Only then can America’s body politic begin the process of healing from the severe wounds inflicted by a Republican president enabled by a collaborating GOP leadership several of whose members outpaced the president in their inflammatory rhetoric.

May wisdom finally dawn on Republican leaders in Congress and in the states that they must take responsibility for the horrendous mistakes that culminated in the attack on the Capitol and that they need to make amends for their errors quickly.

US President-elect Joe Biden’s income-redistribution and green-energy programs are set to be eviscerated by the US Senate, even if the Democrats gain a spare majority by winning both Senate run-off races in the southern state of Georgia.

The elements of his economic agenda most likely to survive are those with a protectionist flavour that could be supported by at least some of the Republican backers of outgoing President Donald Trump.

Biden went to the election promising to boost spending on social and environmental programs by US$5.4 trillion over a decade while raising an additional US$3.4 trillion in additional taxes aimed exclusively at top income earners and corporations.

It was not as wild as the US$30 trillion spending plan developed by former Democratic rival Elizabeth Warren or the US$40 trillion proposal of the other radical contender Bernie Sanders. But the Biden plan was calculated to keep the supporters of both those campaigns onside and voting.

Biden promised his administration would expand the coverage of President Barack Obama’s healthcare package while introducing free and universal pre-kindergarten education, minimum family paid leave and big boosts to social security and housing initiatives.

The election policy set a target of carbon-neutral US electricity generation by 2035, to be achieved by US$2 trillion of targeted spending initiatives, rather than through a carbon tax.

To partially offset these costs, the Biden team promised to raise the company tax rate from 21% to 28% and introduce a minimum company tax rate of 15% for businesses with incomes over US$100 million. There would be a penalty payroll tax on incomes above US$400,000 and an increase in capital gains tax.

There is no prospect of the Republicans supporting these tax increases. The president has some latitude to use executive orders to redirect spending and Biden will use that tool, but it won’t yield enough to finance a program of the ambition outlined to voters.

If the Democrats win the two run-off Senate elections, to be held on 5 January, the Senate will be split evenly with 50 seats each for the Democrats and Republicans, in which case Vice President Kamala Harris would have the deciding vote, delivering a Democratic majority.

However, it takes a 60% majority to force a US Senate vote on major tax and spending bills. Without it, the opposition can keep on debating in a filibuster until the proponents give up.

The only obvious wriggle room is provided by the Senate’s ‘Byrd Rule’, which allows three pieces of legislation to be passed each year with a simple majority, with one covering tax, another spending and the third the debt ceiling, with the proviso that they aren’t allowed to generate a lasting increase in the deficit.

If the Democrats win only one of the Georgia Senate seats, they will lack even a simple majority and will have to rely on luring Republicans to get anything through.

The Trump administration used the Byrd Rule to pass its tax reforms in 2017, so it can be used for radical measures. However, it will come down to what the Biden administration decides to prioritise.

Lifting the company tax rate is unlikely to be close to the top of the list, regardless of what happens with the Georgia vote. However, a border levy on the goods of countries with high carbon emissions could be.

Biden has described climate change as ‘the number one issue facing humanity’ and his climate policy suggests ‘carbon adjustment fees’ may be imposed on imports. Since a border tax would principally target China, it would have some Republican support.

The European Union is developing a border carbon tax that would target goods from nations that don’t have concrete plans to achieve carbon neutrality. There’s some risk to Australian steel and aluminium exports to both Europe and the US in the absence of a more forthright carbon mitigation policy from the Australian government.

Biden also advanced a set of ‘Buy American’ policies that had Trump complaining of plagiarism. These include a proposal to require US$400 billion in government procurement to favour US firms. Such a policy would, at first glance, contravene World Trade Organization requirements. Biden has said he would work with allies to reform the trade rules, saying it should be possible for the government to dictate that taxpayers’ dollars are spent in their own country.

Another proposal with a strongly Trumpian ‘America first’ flavour is to introduce a 10% surtax on imports from firms that had shifted manufacturing away from the US. This would be matched by a 10% ‘Made in America’ tax credit for companies bringing offshore manufacturing back to the US. While measures like these may win bipartisan support, they are novel tax law and may take time to design and implement.

One of the reasons Biden won the Democratic nomination was because he was seen as the best chance to win back the working-class voters in the mid-western manufacturing heartland who had deserted the Democrats for Trump in 2016.

Biden was indeed successful in winning back Pennsylvania, Michigan and Wisconsin but will be beholden to manufacturing lobbies in those states.

It’s difficult to envisage Biden investing much of his political capital in joining the Comprehensive and Progressive Trans-Pacific Partnership, which was formed at the initiative of Japan and Australia after Trump pulled out of the original Trans-Pacific Partnership negotiated by the Obama administration.

One element of the tax plan that Biden took to the election which may survive in some form is a proposal to strengthen the treatment of company profits recorded in tax havens. Biden proposed doubling the special tax on global intangible low-tax income to 21% and preventing companies from averaging their global profits.

These measures would be consistent with the OECD’s efforts to strengthen tax collections from global companies and would forestall European nations from pressing ahead with special taxes on the (mainly US-based) digital services companies.

While China is tightening its coercive campaign against Australia, now targeting the coal industry, its ambassador to the United Nations, Zhang Jun, last week led a protest of 26 nations against economic coercion by the United States.

‘We continue to witness the application of unilateral coercive measures, which are contrary to the purpose and principles of the UN Charter and international law, multilateralism and the basic norms of international relations’, he told the United Nations human rights committee. He spoke on behalf of a group of nations including the major targets of US sanctions: North Korea, Cuba, Venezuela, Iran, Palestine, Russia, Syria and Zimbabwe.

Zhang drew attention to the Non-Aligned Movement’s condemnation of unilateral coercive measures and urged their elimination to support the effectiveness of national responses to the Covid-19 pandemic.

The contradiction of calling out US economic coercion while implementing its own reflects China’s persistent refusal to acknowledge that it ever deploys its economic power over other nations for political purposes.

Even when it launched a concerted campaign against South Korea over its 2017 decision to host a US anti-missile system, China declared before the World Trade Organization that it had done nothing. The campaign, which included a ban on tour groups, a boycott of Hyundai and the forced closure of 70% of the Korean-owned Lotte supermarkets in China, was ultimately relaxed after South Korea negotiated a military deal to ‘normalise’ relations.

As I explain in my new ASPI report, Economic coercion: sanctions and boycotts—preferred weapons of war, released today, both the US and China have intensified their use of economic coercion over the past three years.

The two have radically different methods. The US structure of economic sanctions is highly formalised. A Treasury department, the Office of Foreign Assets Control, maintain lists of sanctioned organisations and individuals running to more than a thousand pages and imposing fearsome penalties for infractions.

China’s system is informal, relying on boycotts and regulatory interventions to deny access to the vast Chinese market. These practices have a long history. The first academic study of Chinese coercion was conducted in 1930, tracing successive boycotts of products from the US, the UK and Japan over the previous 25 years.

By denying that its actions are officially orchestrated, China both escapes accountability and encourages others to second-guess its wishes to avoid becoming a target of its retribution.

Since the Australian government displeased the Chinese government in April this year by calling for an inquiry into the origins of the Covid-19 crisis independent of the World Health Organization, prohibitive tariffs have been placed on Australian barley exports, beef imports from several of the largest Australian processors have been suspended for alleged health infractions, an anti-dumping investigation has been launched into Australian wine, and Chinese government advisories have warned students and tourists against travelling to Australia for safety reasons. Coal industry reports say the order went out last week to Chinese steel mills and ports to halt Australian coal purchases.

While Australia is unlikely to be the target of US sanctions, Australian businesses are at risk of suffering collateral damage. The US asserts extra-territorial power with its sanctions, saying someone may deal with a sanctioned entity or with the United States, but not both.

An Australian company that inadvertently sold goods to Iran, for example, could face prosecution in the US with the risk of heavy fines and a ban on transacting in US dollars. The largest fine for breaching US sanctions was US$8.8 billion imposed on France’s largest bank, PNB Paribas, in 2014.

The Trump administration has seen economic coercion as a much cheaper alternative to military intervention. Ahead of the 2016 election, Donald Trump declared, ‘War and aggression will not be my first instinct.’ Rather, he said, ‘financial leverage and sanctions can be very persuasive—but we need to use them selectively and with total determination’. Trump doubled the rate at which sanctions are imposed, while the level of penalty also increased.

The spread of countries affected by US sanctions has also widened. The US has even imposed economic sanctions on Europe, barring any firm that participates in a gas pipeline from Russia to Germany from any operations in the United States.

The increasing use of economic coercion by China has paralleled its growing economic power. It has been particularly marked this year as China deals both with attempts to allocate responsibility for the Covid-19 pandemic and with the emerging national security concerns in many nations about the risks of Chinese investment. Boycotts and other trade actions have been threatened, and in some cases implemented, against the UK, Germany, Canada, the Netherlands, the Czech Republic, Sweden and Australia.

Economic coercion has been rising as the institutional underpinning of international trade has become weaker. The WTO has lost its ability to adjudicate disputes, since its appeal panel no longer has a minimum quorum of judges after the US vetoed all appointments. Countries are imposing tariffs, trade quotas and anti-dumping penalties at a much greater rate, often outside WTO guidelines. In the face of rising trade barriers, the G20 has stopped calling on its members to resist protectionism.

It is a global trade environment that makes it easier for countries to use trade as a weapon. As a relatively small country, Australia’s strong interest is in preserving a global trade environment under the governance of the WTO. It will eventually be a loser in a world where trade relations are governed by the exercise of economic power.

While Australia needs to show resolve in the face of Chinese coercion, it should also strive to halt and if possible reverse the erosion of the global trade institutions, by working with allies and regional partners on reform.