Key takeaways:
AUKUS recently conducted a test of uncrewed aerial vehicles. AUKUS also reached an agreement on Australia's nuclear submarine expansion, which includes the transfer of existing submarines and technology, and the building of new submarines.
These events highlight increasing security competition in the Indo-Pacific against China and signal closer technological cooperation among AUKUS. KSG assesses that there are potential economic opportunities for defence and other Western companies as AUKUS continues down its current path.
However, KSG also assesses there are concerns about longer-term escalatory risks as AUKUS conducts similar tests and agreements. Namely, Japan’s potential inclusion in AUKUS’s Pillar II, and China’s potential retaliatory actions against Australia.
Further expansions in AUKUS’ naval presence may prompt China’s expansion into other theatres like Africa to combat being ‘contained’.
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Background:
Earlier this month, AUKUS conducted a test of uncrewed aerial vehicles (UAVs). This test marks “the first use of autonomy and AI sensing systems in a real-time military environment”. According to the UK government’s statement, this trial is part of a series of tests called “AUKUS Resilient and Autonomous Artificial Intelligence Technologies” or RAAIT. The US Defense Department also stated that a number of UAVs from the three states worked together with a “map-based software application” plug-in which helped in the detection of “opposing force locations using on-the-fly adjustments based on the data collected”.
Also, on 12 August 2024, AUKUS reached an agreement on Australia’s nuclear-powered submarines. The Australian government has stated that this agreement provides for the transfer of US Virginia-class submarines and UK equipment to Australia. The agreement also prepares for a rotational US and UK presence at the Australian naval base HMAS Stirling from 2027 – the Submarine Rotational Force – West – and that future AUKUS nuclear submarines will be built at Osborne in Australia.
AUKUS’s recent actions are indicative of the increasing security competition in the Indo-Pacific. They also signal that AUKUS partners are moving closer in technological cooperation.
Looking forward:
KSG assesses that in isolation, these recent events are unlikely to change ongoing security and economic competition in the region – but KSG also assesses that they are part of larger trends that have the following important economic and political implications:
Defence industry implications: KSG assesses this event further evidences the important role which remotely-piloted weapons systems are likely to play in Indo-Pacific security (see for instance, the US plans for the “project hellscape” defence of Taiwan, the Replicator Initiative, and innovations in autonomous sub-surface ships like the “Manta Ray”). Defence companies and technology companies which can provide hardware and software support for such systems are likely to receive increased business from AUKUS. For instance, defence companies like Northrop Grumman who construct the Manta Ray uncrewed submarines, technology firms like Shield AI, and private investment groups like the AUKUS Defense Investor Network are likely to play a prominent role in procuring and supporting military systems over the next five years.
Greatest Potential Escalatory Risk – Japan’s Inclusion in Pillar 2: KSG assesses that when/if Japan is included in AUKUS Pillar 2, there are likely to be increased risks to Japanese and AUKUS interests from China. China is highly likely to view Japan’s inclusion in Pillar 2 as a significant escalation in tensions as US allies become more interlinked around Chinese territory. Subsequent risks are most likely to include increased at-sea incidents between Japan and China around the Senkaku Islands. This means the United States’ role in directly managing regional disputes may increase.
Australian Economic Security: KSG assesses that these announcements are unlikely to increase Australian insecurity vis-à-vis China. However, as agreements, tests, and military acquisition for AUKUS becomes more commonplace, Australia is likely to become a greater consideration for Chinese military planning and economic warfare. KSG assesses Australia’s current strategy of trying to balance competing US and Chinese interests is unlikely to hold – Australia is likely to be compelled into working more closely with the US against China. Potential Chinese retaliation is likely to resemble the renewal of punitive economic sanctions on exports like coal. Furthermore, KSG assesses that as tensions between Australia and China increase, Australia is likely to be more motivated to move closer to allies like the US as a better market for its lithium mining - a general strategy it is already pursuing. This creates opportunities for Western companies which process lithium to expand in Australia.
Broader regional implications – China in Africa: KSG assesses that as AUKUS expands their naval presence over the next five years, China may seek to grow their presence elsewhere to avoid ‘containment’. A potential theatre for greater Chinese involvement is Africa, where China has financed several deep-water ports, where their nuclear submarines can operate from Africa’s Atlantic and Indian coasts. This likely poses longer-term risks to unfettered US naval access across the globe. It may also pose a future risk to Western companies’ access to African ports with significant Chinese influence.
By Joel Battle, Americas Analyst