Trump pushes massive increase in US defence spending as world order dissolves

Following a brief “Peace Dividend” in the 1990s, when the defence budget contracted and the US scaled back force structures designed for superpower confrontation, Washington soon found itself re-engaged in major overseas operations.

While operations in the Middle East, Africa and Southern Europe proved to be more than manageable for the US military at the time, the terrorist attacks of 2001 spiked spending again as long and costly wars in Afghanistan and Iraq drove procurement, personnel and operations costs higher through the 2000s.

However, by the early 2010s, defence outlays, although still large in absolute terms, had begun to come down as a share of gross domestic product and federal expenditure, reflecting both the drawdown of large ground wars and broader fiscal pressures at home. Even as the Pentagon’s baseline budget remained near historic highs, its percentage of national output fell below 4 per cent, a far cry from Cold War peaks.

This redux of the “Peace Dividend” would ultimately give way to another pivot and a steady increase in defence spending, beginning in the mid-2010s and accelerating into the 2020s.

In large part, this shift was driven as a result of rising strategic competition with China and renewed tensions with Russia, serving to reshape defence priorities from counter-insurgency towards great-power deterrence and technological edge.

Investments surged in advanced aircraft, long-range precision fires, naval construction and space and cyber capabilities, alongside burgeoning funding for artificial intelligence and autonomous systems.

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The Russian invasion of Ukraine in 2022 and ongoing instability in the Middle East further reinforced calls for sustained or rising defence budgets.

As of 2024–25, the United States remained by far the largest single contributor to global military spending, accounting for roughly 37 per cent of the world total, and targeted significant allocations towards nuclear modernisation, missile defence and ally support in Europe and the Indo-Pacific.

As we move into 2026, defence spending sits near historic nominal highs even as political debate intensifies over the size and direction of future budgets.

In response to this combination of challenges, the returned Trump administration has envisaged a dramatic increase, potentially to US$1.5 trillion (AU$2.2 trillion) in 2027, up from the FY2025–26 budget allocation of US$831.5 billion (AU$1.2 trillion), driven by intensifying global instability, great-power competition and domestic industrial priorities.

So what does this monumental jump in spending mean for the US Armed Forces and, by extension, its allies, including Australia?

Transformative spending

First and foremost, an increase to US$1.5 trillion (AU$2.2 trillion) – approximately a 66 per cent increase on current levels – would effectively dwarf recent budgets and require congressional approval alongside intense fiscal and strategic debate in Washington.

Undoubtedly, this spending increase would transform the US Armed Forces at a time of increasing geopolitical competition across the globe and would seek to help America catch up to the Chinese in terms of industrial capacity, particularly when it comes to ship building and consumables manufacturing.

An almost doubling of current outlays would allow the US Army to fully resource its modernisation and expansion priorities, ranging from the Bradley Infantry Fighting Vehicle replacement program through to the acceleration of the Bell Textron MV-75 under the Future Vertical Lift program.

Additionally, the Army is investing heavily in long-range precision fires and networked capabilities: a roughly US$5 billion (AU$7.5 billion) contract for Precision Strike Missiles (PrSM) was awarded to deepen production of this new deep-strike system, replacing older Army Tactical Missile Systems with significantly longer range and lethality.

With vastly larger budgets, orders for PrSM and complementary hypersonic munitions could scale rapidly, improving multi-domain fires across brigade combat teams. More funds might also be used to accelerate Integrated Air and Missile Defense Battle Command System deployments, a digital sensor-to-shooter architecture intended to connect Army and joint assets for air defence and expand the 1st Multi-Domain Task Force concept to other formations.

Naval modernisation would be a clear beneficiary. As part of the FY25–26 request, the Navy planned 19 new ships, including Virginia Class attack submarines and Columbia Class ballistic missile submarines, with each tranche costing billions, along with the continued production of the Arleigh Burke Class, Gerald R Ford Class and work on the recently announced Trump Class battleship and FFX future frigate program.

An increase in spending would prove transformative to US Navy shipbuilding capabilities, particularly in the submarine domain, opening up new opportunities for Australia to receive its first Virginia Class submarines under the tripartite AUKUS agreement faster, should the US submarine industrial base be capable of expanding its production capacity to deliver the “Golden Fleet”.

This would also prove useful for managing and reducing industrial base bottlenecks with investments in AI-driven shipbuilding systems that dramatically cut planning times, for example, a US$448 million (AU$668.9 million) program that reduced submarine schedule planning from 160 hours to 10 minutes.

Additionally, it would also provide avenues for the US Navy to finally announce and subsequently accelerate the delivery of the service’s F/A-XX program to replace the ageing F/A-18E/F Super Hornet fleet with a sixth-generation air dominance and strike fighter, optimised for long-range engagements within the Indo-Pacific.

Equally, for the US Air Force, spending would scale up both high-end platforms and advanced weapons. The FY25–26 proposal includes funding for the B-21 Raider strategic bomber’s production and nuclear capability transition as part of the Sentinel Intercontinental Ballistic Missile program.

A larger budget could accelerate and expand B-21 buys, accelerate hypersonic strike and stand-off munitions like the Air-Launched Rapid Response Weapon and potentially bring forward development of the F-47 Next-Generation Air Dominance fighter program entering service later this decade.

Space Force programs such as President Trump’s ambitious signature “Golden Dome” space-based missile defence initiative, envisioned to counter hypersonic and ballistic threats, could receive sustained multi-year funding critical to delivering such a complex suite of sensor and effectors across the North American landmass.

Rebuilding the ’Arsenal of Democracy’

Achieving all of this requires significant investment in the ageing US defence industrial base, with the proposed increase in defence spending to provide a much needed shot in the arm for both the industry, the warfighter and the US economy.

A jump to US$1.5 trillion would transform the defence industrial base itself. Beyond service-specific buys:

• Shipbuilding capacity: expanded multi-year contracts and workforce development, including training regional skilled trades for submarines and other vessels, would mitigate chronic labour and supplier shortages. Investments like the >US$647 million (AU$965.8 million) submarine industrial base fund would scale wider across sectors.
• Launch and space industry competition: with Space Force emphasis on resilient space architectures, producers like Blue Origin’s New Glenn could gain increased participation in national security launches, broadening competition beyond incumbent players.
• Advanced manufacturing and emerging tech: expanded budgets would underwrite dual-use facilities for hypersonics, AI-enabled systems and microelectronics. Programs scaling low-cost unmanned aerial systems, AI integration and advanced communications would attract private investment and bolster resilience across the supply chain.

Overall, US$1.5 trillion would not merely sustain current programs but accelerate them: larger production runs of submarines, fighters, bombers and hypersonic weapons; deeper integration of AI and networked systems across domains; and a healthier, more competitive industrial base capable of sustaining prolonged high-intensity operations and technological edge well into the 2030s.

Taken together, this level of spending would not simply buy more platforms. It would rebuild America’s ability to fight, sustain and win a prolonged great-power war, restoring mass, resilience and industrial depth as central pillars of US military power and more broadly, re-establishing holistic American power at the core of contemporary deterrence.

Stephen Kuper

Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.