Number of the day

44% 

That’s how far US purchases of fine wine have fallen under Trump's 15% tariff. It’s not just the tariffs to blame as the market has fallen three years in a row, with Bordeaux down 6.6%. Prices are now back to 2020 levels, thereby fully justifying your indulgent consumption of claret over the holiday period.

Do you really need those subs?

Welcome to part two of our special briefing on the Australia-UK-US defence tech pact known as AUKUS (you can read part one here!).

Where were we? Ahh yes… submarines.

The last time Australia faced an existential threat (during World War II), Imperial Japan expanded across Southeast Asia’s island chains in an attempt to control the Western Pacific and key sea lanes, while isolating Australia from the US and UK navies.

Australia now fears the same from an expansionist China, which is why the Aussies have hustled to preserve their maritime security: subs can help you lurk near and control key flashpoints and chokepoints, forcing foes to think twice and spread themselves thin.

So Australia initially turned to France for new diesel subs in 2016, but spectacularly dumped the French for proposed AUKUS nuclear-propelled (not armed) subs in 2021.

Why?

• Diesel subs are noisier, slower, need more refuelling, and have shorter range, all making them easier to track, and therefore less of a threat compared to…

• Nuclear subs, which can go further, longer, and quieter – you never really know where they are, meaning they create a 24/7 at-sea deterrent.

And while the French also have formidable nuclear subs, the more secretive US tech is unrivalled, which is why the US only ever shared it with the Brits to help counter the Soviets. Now 70 years later, they’re sharing it with the Aussies to help counter China.

But of course, developing futuristic floating death orbs powered by magic rocks is a massive undertaking raising all kinds of questions, like is AUKUS…

• Feasible? Massive defence projects are rarely on-time or on-budget

• Attainable? The US needs to pump out ~2.33 subs per year to meet its own needs plus these new AUKUS pledges, but it’s barely at ~1.2 per year right now

• Affordable? We’re talking $250B or beyond

• Enough? By the time Australia maybe starts getting 3-5 subs from the US (2030s) and then theoretically its own AUKUS subs (2040s), China will have 50-90 new subs

• Too much? The initial announcement rattled some of Australia’s neighbours

• Sovereign? Some Down Under fear adopting US tech binds Australia to DC

• Wise? Australia is arguably throwing its lot in with the US, just as the region’s doubts about US power grow louder

• Dependable? Trump’s views on alliances keep evolving, though this pact has now survived a Trump 2.0 review and he’s told Australia’s PM it’s all systems go.

Arguably the biggest question could end up being… might these subs soon be obsolete?

On the counter-sub front, China is already developing tech (like quantum and magnetic sensing) that could potentially detect ultra-faint submarine wake patterns, whether via a network of underwater drones and sensors, or theoretically even via satellites above.

And relatedly on the sub front, when your ultra-pricey kit is more likely to be detected and destroyed, this maybe shifts things back in favour of developing smaller, cheaper, and more plentiful arms platforms: eg, Japan is already developing lithium-ion battery subs that could rival nuclear performance, but without the weight, cost, or nuclear headaches.

Anyway, given the massive stakes and hurdles, work is already happening:

• Australia has pledged ~US$12B in infrastructure upgrades over the first decade so it can start hosting rotational US and UK nuclear subs from 2027 as an initial stopgap. It’s also invested another $2B (with another billion to come) to help expand US sub production so the US can sell the Aussies state-of-the-art Virginia-class subs as the next stopgap (those later new AUKUS subs will take a while).

• The United States is also investing $12B in reviving its own submarine industrial base across the current five-year defense budget period (potentially helped by South Korea now moving to build its own nuclear subs in the US too).

• And the United Kingdom is investing $5B in its own nuclear industrial base to ensure it can deliver those eventual “Built in UK, sent to Australia” AUKUS subs — Rolls-Royce is expanding its Derby UK factory site to (for example) build Australia’s nuclear reactors, while BAE is down for the main structural components.

“Developing futuristic floating death orbs powered by magic rocks is a massive undertaking”

So there’s lots happening already, but it’s a massive journey ahead.

And believe it or not, that’s only half the AUKUS strategy.

Maybe we’ll get around to briefing you on the other half next year? (hah okay dad joke, the final instalment will hit your inbox this Friday, January the 2nd)

Sound even smarter:

• Nuclear subs can remain submerged indefinitely, limited only by food supplies. They can also get to/from Asia’s maritime chokepoints much more quickly, meaning they can loiter there up to ~seven times longer than a conventional sub.

Meanwhile, elsewhere…