AUKUS: Navigating Investment Opportunities and Challenges in the Incoming Trump Administration

Key Takeaways 

• U.S.-China tensions to rise, UK uncertain: The incoming administration is signaling a hardline approach to Beijing, highlighted by proposed 60% tariffs on Chinese imports and the nomination of several prominent China hawks to senior Cabinet roles. This stance aligns with the President-elect’s anticipated focus on the Indo-Pacific and countering China’s influence, suggesting he may support AUKUS, provided Australia and future Pillar II participants contribute their fair share. However, the UK government’s “economic realist” strategy toward Beijing could present challenges, potentially clashing with both the Trump administration’s approach and London’s own strategic commitments to AUKUS. 

• Pressure to keep defense spending up: President-elect Trump’s past criticism of NATO allies for not meeting the 2% GDP defense spending target suggests his administration will expect AUKUS allies to make significant defense investments to sustain U.S. engagement. This aligns with his historically transactional approach to international partnerships, even in the absence of explicit spending thresholds within the AUKUS framework. For businesses, this could mean opportunities in emerging defense sectors across the three member countries. However, identifying and accessing these entry points remains challenging without insider expertise, and the landscape is likely to be shaped by shifting political priorities and potential turbulence in defense strategies. 

• AUKUS fits the “America First” agenda: The Trump administration’s “America First” foreign policy approach may lead to a shift in U.S. strategic commitments, but key Republicans in the new administration—such as Sen. Marco Rubio (Secretary of State) and Rep. Mike Waltz (National Security Advisor)—are likely to push for a robust foreign policy stance to counter China and focus on security in the Indo-Pacific. AUKUS currently enjoys strong bipartisan support in Congress, bolstered by initiatives like the bipartisan AUKUS Working Group, which underscores the U.S.’s ongoing commitment to security and defense partnership in the region. However, the long-term viability of this support is not guaranteed. As new faces enter the administration, it will be crucial to establish new relationships and adapt lobbying strategies to ensure that AUKUS initiatives remain relevant to broader U.S. strategic interests. 

Initial Reactions from AUKUS Partners 

Australia 

Following the U.S. election results, Australian officials moved quickly to reaffirm confidence in the stability of AUKUS under the incoming Trump administration. Australian Defense Minister Richard Marles emphasized the strong foundations laid through months of diplomacy with both presidential candidates, highlighting the longstanding bipartisan support for AUKUS within the U.S. Congress and underscoring its importance as a cornerstone of Indo-Pacific security. Prime Minister Anthony Albanese also engaged promptly with President-elect Trump, discussing shared national security concerns during their first post-election conversation on November 6. 

Despite this swift reassurance, there remains lingering concern in Australia about the future of AUKUS under an administration that may prioritize domestic interests first. Canberra is heavily invested in the agreement—estimated at USD $245.8 billion by 2055—demonstrating a commitment to the deal as Trump has historically required allies to “pay their way.” The challenge for Australian officials will be to continue making the case that AUKUS serves the U.S.’s strategic interests. The 2025 federal election is going to be very tight. Polls suggest there could be a change in Australia’s government and prime minister, though it is unlikely to disrupt support for AUKUS in Canberra. Peter Dutton, the Liberal Party opposition leader and former defense minister, shares closer political alignment with the Trump administration, which could further stabilize AUKUS in the longer term. 

United Kingdom 

Given the depth of U.S.-UK defense relations, UK Prime Minister Keir Starmer was quick to congratulate President-elect Trump and express confidence in the future of the so-called ‘special relationship’ between the two countries, although AUKUS was not publicly mentioned during their initial exchange. 

The UK stands to benefit significantly from AUKUS, with its funding injection aimed at bolstering domestic shipbuilding and joint development of new nuclear-powered, conventionally armed submarines. The UK government is focused on establishing clearer leadership within AUKUS, recognizing the importance of continued UK involvement as a more distracted White House could shift attention away from the agreement. The appointment of Sir Stephen Lovegrove, the former UK National Security Advisor, to lead a senior cross-government advisory review of AUKUS is a positive step, potentially providing the political leadership needed for near-term opportunities. 

However, momentum has slowed as London conducts a wider Strategic Defence Review scheduled for next spring. The outcome of this review could be influenced by the status of the conflict in Ukraine. President-elect Trump’s promise to end the conflict “in one day” could lead to a recalibration of some trilateral AUKUS programs. Conversely, indications that President-elect Trump may reduce U.S. aid to Kyiv could place a greater burden on the UK to maintain resources for AUKUS, potentially impacting strategic prioritization. 

Top Issues to Watch 

Pillar I 

For businesses engaged in Pillar I-adjacent capabilities under AUKUS, the return of Trump to office introduces increased uncertainty regarding U.S. shipbuilding backlogs and defense priorities. With a likely shift in focus from meeting AUKUS deadlines to countering China, companies should prepare for a more dynamic and complex landscape influenced by “America First” policies, including supply chain constraints. 

The production of Virginia-class submarines requires a steady pace of two new boats per year to avoid significant impacts on U.S. capabilities while meeting AUKUS commitments. The House Armed Services Committee has authorized USD $3.9 billion for one Virginia-class submarine, with incremental funding for a second, within the National Defense Authorization Act for Fiscal Year 2025 (H.R.8070), passed in December 2024. However, if U.S. shipbuilders are unable to meet domestic targets, the delivery of SSNs to Australia could be deprioritized under Trump’s administration. To navigate these challenges, businesses should establish an early understanding of the Trump administration’s defense priorities and build strong relationships with key defense officials to ensure relevance and secure opportunities amidst shifting priorities. 

Pillar II  

It is likely that additional U.S. allies and partners will be invited to contribute to Pillar II streams of AUKUS. In October 2024, Washington announced a new joint vice minister-level defense committee with South Korea, which appears to be the basis for exploring the country’s participation in the agreement. Seoul has become a significant defense industry player and exporter in recent years, especially in Eastern Europe. In November 2024, defense leaders in Canberra and Washington also announced closer military cooperation with Japan, and there has been strong domestic support in Canada and New Zealand to participate as well. The additional investment and capabilities brought by these partnerships are a net positive for AUKUS and are unlikely to be significantly affected by changes in the U.S. administration. 

Pillar II Progress

AUKUS partners also announced the landmark Hypersonic Flight Test and Experimentation (HyFliTE) Project Arrangement (PA) in November, a huge step in a key Pillar II capability. It joins a steady stream of prize challenges and training initiatives designed to boost collaboration and create new procurement opportunities across all three nations.

However, industry stakeholders continue to express frustration over unclear entry points into the purported benefits of AUKUS Pillar II. Providers of dual-use technology are unsure how to effectively engage with both the U.S. and Australian governments, suggesting a need to demystify the process from the top down. With new priorities and the introduction of fresh levers of influence under a new Trump administration, there will be both challenges and opportunities for industry participants looking to contribute to these advanced capability streams. This highlights the critical need for improved government-industry collaboration and enhanced communication to ensure stakeholders can effectively navigate these complex relationships. 

U.S. export control reform 

The 2024 NDAA introduced changes to the U.S. International Traffic in Arms Regulations (ITAR), effective September 1, 2024. These reforms exempted 70-80% of trilateral defense trade between AUKUS partners from licensing requirements and streamlined Pillar II progress, offering faster clearance times for many transactions. While significant, these changes are not an immediate game changer. Companies should note that certain critical technologies remain on an Excluded Technology List, which continues to create challenges for both industry and government officials and could hinder the development of key Pillar II dual-use technologies. 

Republican leaders have called for further export control reform, but it is uncertain how the incoming administration will prioritize this issue. Given Trump’s history of scrutinizing international agreements, progress on export controls may stall, exacerbating challenges for AUKUS partners and industries reliant on streamlined trade and collaboration. 

Ultimately, these reforms could open new opportunities for technology firms in sectors like cybersecurity, artificial intelligence, and aerospace. However, they may also intensify competition among companies vying for limited defense contracts, underscoring the need for firms to strengthen partnerships within the trilateral AUKUS ecosystem. 

Implications for Businesses 

The incoming Trump administration could present significant opportunities for businesses in the defense and technology sectors looking to engage with AUKUS. Leaders in cutting-edge dual-use industries such as cyber, artificial intelligence, and quantum computing are well-positioned to benefit from the expected investments aimed at maintaining a U.S. competitive edge. 

However, stricter protectionist policies or preferential treatment towards U.S. contractors could challenge trilateral collaboration under AUKUS. Companies involved in joint ventures or reliant on global supply chains may face increasingly complex regulatory hurdles under an “America First” policy framework. This adds to existing Pillar II barriers, including issues with technology interoperability, a playing field largely limited to defense primes, and limited access to U.S. and UK licensing regimes. 

Firms dependent on international supply chains in the defense and technology sectors should begin auditing their operations for vulnerabilities related to potential tariffs or trade restrictions. Additionally, localizing production within AUKUS countries can help reduce friction caused by changes to export controls. 

Furthermore, while countering China’s influence in the Indo-Pacific is likely to remain a priority, the incoming Trump administration’s shifts in defense spending and diplomatic relations could disrupt steady investments in AUKUS technology and projects. Businesses in relevant sectors will need to be proactive in understanding and responding to potential changes in export controls, intellectual property policies, and intergovernmental agreements to maintain competitiveness and regulatory compliance.