NICOLA SMITH: Rough waters ahead for Australia with AUKUS decision, Trump tariffs due as China watches on

The Government will face fresh foreign policy tests next week as a verdict looms on US trade tariff rates and the 30-day snap Pentagon review of the AUKUS nuclear-powered submarine program nears its conclusion.

The hiccups in Australia’s ties with its closest security ally will set the backdrop for an expected meeting between Prime Minister Anthony Albanese and Chinese President Xi Jinping later this month, where defence and trade would also be high on the agenda.

Beijing fears the Trump administration’s new trade regime is attempting to squeeze China out of Asian supply chains – a concern compounded by the preliminary pact struck between Washington and Hanoi this week to lower levies on Vietnam.

China has previously suggested it could work more closely with Australia to counter the impact of tariffs, with Ambassador Xiao Qian last year urging Canberra to maintain close trade ties at a “critical time”.

Writing in the Australian earlier this week, Mr Xiao also warned Canberra against bowing to demands to increase its military spending, which he said would inflict a “heavy fiscal burden” on the national budget.

A US request for Australia to lift its defence spending to 3.5 per cent of GDP has been viewed with suspicion by China, which also considers AUKUS a project driven by a “Cold War mentality” to contain its growth and influence.

Mr Albanese must be able to diplomatically weave through the objections and demands of China, Australia’s biggest trade partner, while also contending with the actions of an unpredictable White House that make the job even harder.

The AUKUS review, which began last month and is led by Pentagon policy chief Elbridge Colby, is expected to wrap up next week.

Former home affairs secretary Mike Pezzullo said the final report may reflect Pentagon concerns about the availability of Virginia-class submarines due to be sold to Australia in the early 2030s as well as the need to prioritise Indo-Pacific security and a collective effort to deter Chinese military ambitions.

He also suggested Australia could face growing pressure to step up its commitments to support US force posture, particularly on access to facilities and installations for conducting future military operations.

The “huge commitment” of rotating American nuclear submarines through Perth from 2027 would also presumably be part of the review, Mr Pezzullo said.

“This is something that the Americans want to pursue for their own reasons, in terms of changing their force balance in the Indo-Pacific,” he added.

But ultimately the final direction of the AUKUS appraisal would hinge on the views of the “decision-maker” president, argued Mr Pezzullo.

“If the President decides that it’s in the interest of the United States to pursue us on this question of planning, submarine availability and spending, then I think it will be very challenging for Australia,” he said.

“Then the government’s faced with a choice. Do they defy that pressure and just simply say, ‘no, we’re not going to spend more, we don’t want to do the planning, and we expect our submarines’, then that potentially creates quite a significant rift in the Alliance.”

Alternatively, if the president decided not to pursue Australia on these key questions, the impact of the review “will be minimal,” he said.

Speaking at the Australia’s Economic Outlook event on Friday, Mr Albanese played down the potential economic impact of the pending ten per cent tariffs and appeared confident about the outcome of the AUKUS review.

“AUKUS is a good deal for Australia, and it’s a good deal for the United States,” he said.

“We are contributing to the industrial capacity in the United States right now. We need to be really proud of ourselves,” he said.

“When it comes to defence and national security, we’re not people who don’t pay our way.”

The Prime Minister’s comments to the Sydney forum projected a relaxed Friday afternoon vibe, but as crunch time approaches on both issues, the Government may face choppy waters ahead.