The United States’ defence industrial base—Australia’s most significant source of military technology—is struggling ^[1] to respond to a new era of strategic competition.

Years of congressional budgetary instability and the US Department of Defense’s sluggish response to trends in the global diffusion of industrial power and research and development have left America ill-prepared for renewed competition with China.

In response, Congress made a legislative amendment in 2017 that expanded the ‘national technology and industrial base ^[2]’ to include Australia and the United Kingdom, alongside Canada. The move was premised on a strategic assumption that only some in the US system fully appreciate; namely, that for the US and its allies to maintain a military-technological edge over great-power adversaries, Washington must aggregate ^[3] the R&D and industrial bases of its allies, and provide the impetus for co-development of new defence systems.

But the law, while moving in the right direction, lacked the detail and full authority to break down enduring defence trade barriers, specifically American defence export controls.

These controls are incredibly burdensome, and they can apply anywhere in the world. For example, a new technology jointly developed in Australia—between Americans and Australians—can still fall under US defence export law. This is because US defence controls can be so extreme that they may be applied once a US person has imparted any form of knowledge—through a conversation, email or blueprint—to a non-US person that relates to a controlled technology.

This export control ‘taint’ can follow a technology or product through its entire lifecycle, forcing the company to return to the US State Department for a licence anytime it may want to use or sell that equipment.

Worse, this system largely treats close trusted allies like Australia the same as other countries. Canberra did ratify a defence trade treaty ^[4] with the US in 2012 that was meant to alleviate some of these bureaucratic burdens. But due to complex requirements for companies and technological areas that are still walled off from the agreement, it hasn’t fulfilled its ambition.

This defence control system—originating out of the Cold War when the US government was the lead funder of cutting-edge R&D—has long be a thorn in the side for close allies. In his last speech to parliament in 2007, Kim Beazley recounted his frustrations as defence minister when he personally ^[5] lobbied senior US government officials for the radar source code to Australia’s new F-18s to little avail.

But the global distribution of technology and industrial power has changed since the 1970s. The US government is no longer the leading funder of many technologies that will underpin the next wave of military modernisation, particularly in information and communications technology—the private sector is.

Where that research is taking place has also diffused. Close US allies have developed world-class capabilities in niche technological areas that are arguably as good or better than what’s being done in the United States. Australia’s burgeoning quantum computing sector ^[6] is but one example. The ongoing joint development between Australia and the US in hypersonic technologies based ^[7] out of the University of Queensland is another.

China is investing aggressively in industrial policies in emerging technologies and recruiting scientists from abroad in an effort to match the US as a scientific and research power. On current trajectories, Beijing is set to spend as much as the Five Eyes countries combined on national R&D in purchasing power parity terms by the mid-2020s. This will likely soon present a severe challenge to a pillar of Australia’s defence strategy: maintaining a regional military-technological edge.

America’s outdated defence export controls are causing growing opportunity and strategic costs for Australia and Australian industry. Some companies have begun to create two product lines—one for America and another for other partners—in an effort to avoid the US system. The longer it takes to make serious progress on implementing the national technology and industrial base within the US system—either due to bureaucratic inertia or political resistance—the more Australia and other allies will lack incentive to co-research, co-develop and integrate with the US altogether.

Ultimately, this hampers Australia’s ability to maintain its own competitive military advantage and keep pace as an effective strategic ally in the Indo-Pacific. A reformed defence trade regime should be progressive and incentivise the participation of small innovative companies in defence industry across allied borders. It should be a vehicle for the transfer of intellectual property and other knowledge to trusted allies in an effort to develop their own sovereign defence capabilities.

Australian leaders should be pressing the strategic case for reform to their American counterparts. Without it, both countries may find they are without the technological advantage when they need it.