18 Feb 2025

NZ faces dilemma as Trump demands more defence spending

2:14 pm on 18 February 2025
(FILES) US President Donald Trump speaks to the press after signing an executive order in the Oval Office of the White House in Washington, DC on January 31, 2025. Trump is imposing steep tariffs on major US trading partners Canada, Mexico and China, with a lower rate on Canadian energy imports, said the White House on February 1, 2025. Washington will impose a 25 percent levy on imports from Canada and Mexico, with a 10 percent rate on Canadian energy resources, until both work with the United States on drug trafficking and immigration. Goods from China, said the White House, would face 10 percent tariffs. (Photo by Mandel NGAN / AFP)

Donald Trump. Photo: MANDEL NGAN / AFP

Analysis - Everywhere Trump's "eye of Sauron" lands, ructions follow - Gaza, Ukraine, Europe.

Next up, will it be this side of the world, as the US doubles down on the Indo-Pacific as its number one theatre of what the Pentagon calls the "Great Power Competition"?

US President Donald Trump's playbook envisaged partners and allies spending much more on defence, while the US spends much less, and differently.

Prime Minister Christopher Luxon on Tuesday said the New Zealand Government would be cracking on - and smartly.

"We will be spending more on defence. We will be getting as close to two percent as we possibly can," he told Morning Report.

Two percent of GDP spent on defence - the lowest threshold the US approves of - would require New Zealand almost doubling its outlay to $10 billion a year, though that could be via billions of capital outlay on, say, two or three new frigates, and stretch out the payback over decades.

"But more importantly," Luxon said, "as we put more money in I want to make sure we have got a really good strategy, and part of that is making sure we are very interoperable with Australia, for example, that we've got some real capability that is respected around the world."

How to get the respect of new US Defence Secretary Pete Hegseth has already been indicated.

Hegseth's first message when he took over the Pentagon in January was that the new priority was spending on AI, drones and counter-drone systems. The aim was to get "emerging technologies" to "warfighters" at a rapid clip - a catchphrase now cropping up locally, at trans-Tasman defence research meetings, along with "asymmetric and disruptive technologies", papers show.

Reports this weekend said Hegseth would tell the US military to cut its budget by a whopping 8 percent from next year, and shift funds into the high-tech frontier, including buying into commercial AI much more.

For New Zealand, the way forward - and the pace of it - would come from the Defence Capability Plan, Luxon said. But the plan has already been delayed for months, and might be complicated still further by what the Defence Minister Judith Collins heard at the Munich security conference over the weekend.

"There's more money that needs to go into the system," Luxon told RNZ on Tuesday. "But equally... as a small country, it's very important that we are very choiceful about where we are going to build that capability."

Budget 2025 should give some sign about the choices. Cabinet might wonder how they will align with Trump and Hegseth. A key goal they have expressed is to make the US military and its partners more "lethal"; they also want it to deter Chinese aggression in the Indo-Pacific.

Hegseth immediately laid out his agenda:

  • "Reviving our defence industrial base"; US and NATO-led groups have recently formed to boost weapons manufacture, maintenance, and smooth supply chains in the Indo-Pacific. A US law already designates New Zealand, the UK, Australia and Canada as "one national technology industrial base".
  • "Reforming our acquisition process" to speed up; in space, for instance, the US Space Force last week laid out how it would meet guidance coming from Hegseth for accelerating weapons system development.
  • "Passing a financial audit"; Trump has said he expected Elon Musk's DOGE taskforce to find billions of dollars of fraud and abuse at the Pentagon.

New Zealand has had its own work going on domestically, to line up companies in the military sector with the yet-to-be-revealed capability plan.

"Along with rocket launches and the supporting ground-based infrastructure, New Zealand companies are deploying asymmetric and disruptive technologies to study and tackle some of the world's biggest challenges," Collins told the industry last year, as she encouraged them to team up with the NZDF.

Internationally, the country has joined the IP4 NATO-Indo-Pacific liaison group, while the number of military technology-sharing agreements have been multiplying.

Judith Collins discusses changes to New Zealand's Crown Research Institutes on 23/1/2025.

Defence Minister Judith Collins and Prime Minister Christopher Luxon. Photo: RNZ / Marika Khabazi

New Zealand has at least five of these deals now, and papers show multilateral meetings about the 'memorandum of understandings' or MOUs, taking place almost every fortnight.

One MOU is about 'Square Dance'. This programme undertakes research up to top-secret level among the Five Eyes intelligence group, including helping with a US-led programme to launch many more small satellites in a military version of Musk's Starlink satellite web, US papers said.

Collins had a briefing on Square Dance from Australia's defence tech unit last July. The New Zealand Defence Force (NZDF) withheld details of this and the other MOUs on security grounds.

Briefings showed NZDF's meetings with Australia's defence research wing last year had a "strong space theme", and that the New Zealand Space Agency based within Ministry of Business, Innovation and Employment (MBIE) was being kept in the loop.

Australia recently announced a strategy that engages hundreds of workers to try to speed up its notoriously "slow and sclerotic" development of new defence tech.

What Luxon and Collins do about AUKUS Pillar Two remains a big question, and growing in size under the US's Indo-Pacific focus.

Luxon stressed the ability to fight alongside Australia was a top priority. Australia has focused on similar "interoperability" with the US.

If Aukus sets up a defence innovation accelerator and fund (DIAF), as some high-level US advisers have pushed for, the possibility of falling out of step grows.

Europe fell out of step, and now it is scrambling. Poland was an exception. Its defence spending is at 4.8 percent, and its Foreign Minister Radek Sikorski told a Wellington security studies professor, Roberto Rabel, in an interview last year: "Look, if everybody else in the West did for Ukraine what we've done, it should be winning."

Rabel told RNZ the new White House had set a dramatic change in tone.

"We are seeing... a very different approach to alliances, a transactional one rather than one based on partnership and shared values."

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