Anthony Albanese, other world leaders ‘understood’ why Donald Trump ditched G7 meetings: White House

Press secretary Karoline Leavitt says the US expects its Asia-Pacific allies to raise defence spending like European nations, as she said Anthony Albanese and other world leaders ‘understood’ why they were snubbed by Donald Trump at last week’s G7.

US President Donald Trump and PM Anthony Albanese.

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The US expected that its Asian allies could also raise their defence spending if European allies can do it, the White House said.

Press secretary Karoline Leavitt would not say whether Australia and other countries in the Asia-Pacific could face higher tariffs if they refuse to comply with Donald Trump’s demand to lift defence spending.

The US President this week threatened to double tariffs on Spain after its Prime Minister Pedro Sanchez rejected the new NATO defence spending target of 5 per cent of GDP by 2035.

Asked how the NATO result impacted negotiations with Asia-Pacific allies, Ms Leavitt said on Friday: “I mean, look if our allies in Europe and our NATO allies can do it, I think our allies and our friends in the Asia-Pacific region can do it as well.

“But as for our specific relations and discussions, I will let the President speak on those.”

The Australian government is considering increasing defence funding from its current 2 per cent of GDP and lifting its 2033 target of 2.33 per cent, but has resisted the 3.5 per cent Mr Trump is demanding.

White House press secretary Karoline Leavitt speaks during a press briefing at the White House in Washington.

Ms Leavitt added that Mr Albanese and other world leaders “understood” why they were snubbed by President Trump at last week’s G7 meeting.

Responding to a question about whether the President had plans to reschedule meetings he missed at the Canadian summit, Ms Leavitt said Mr Albanese and other leaders “understood the situation happening in the Middle East and the urgency and the need for the President to get back to Washington to monitor that situation”.

“And obviously that was the right call,” she said.

“But he has made up a couple of those meetings and he has had direct phone calls with some of those leaders he was supposed to meet with as well…not all.”

Earlier this week Mr Albanese said Australia and the US had agreed the two leaders would “have a meeting and that will take place at a time that’s convenient for both of us”.

Mr Albanese is on a collision course with Mr Trump on defence funding after the US President warned Spain’s Pedro Sanchez – who has refused to lift military spending above 2.1 per cent of GDP – that his country faces higher tariffs for free-riding off America.

The threat stands as a warning to Australia as the nation’s total government interest bill comes close to exceeding the defence budget for the first time, crimping its ability to meet growing costs across the board.

Mr Trump was triumphant as NATO’s annual conference wound up in the Netherlands on Thursday AEST, sealing a deal with member states to raise their defence budgets to 5 per cent of GDP.

Spain was the outlier, with its Prime Minister complaining the US funding demand was “incompatible with our welfare state and our vision of the world”.

Mr Trump said the position was “terrible” and vowed to retaliate by hitting the country with higher tariffs.

“They want a little bit of a free ride, but they’ll have to pay it back to us on trade, because I’m not going to let that happen,” he said.

Defence Minister Richard Marles, who represented the government at the NATO gathering, said the alliance’s new defence funding agreement was “very significant” but it was “fundamentally a matter for NATO”.

“We’ve gone through our own process of assessing our strategic landscape, assessing the threats that exist there and the kind of defence force we need to build in order to meet those threats, to meet the strategic moment and then to resource that,” he said.

Former defence minister Joel Fitzgibbon said Australia’s defence budget would inevitably need to rise, but nominating an arbitrary percentage of GDP was the wrong approach.

“The real issue is whether we are spending enough to provide what has been demanded by the (2023) Defence Strategic Review,” he said.

“The government has significantly increased funding but given the evolving geostrategic situation it will need to spend more.”

The prospect that Australia could be hit with punitive tariffs for refusing to budget on defence funding comes as the government scrambles to secure a first meeting for the Prime Minister and Mr Trump to plead Australia’s case on AUKUS and tariff exemptions.

President Donald Trump returns to the US after a win on defence funding at the NATO summit in the Netherlands. Picture: AP

Ex-prime minister Scott Morrison’s former chief of staff John Kunkel, the senior economics adviser at the United States Studies Centre, said the writing had been on the wall for Australia that Mr Trump could link tariffs to his defence spending demands.

“We cannot delude ourselves that these things like trade and economics and security policy are on different tracks,” he said.

“Those days are gone, and particularly under President Trump. He just doesn’t think like that.

“I think we’ve all had ample notice that these sorts of linkages can get made.”

Australia’s combined state and federal government interest bill is sitting at about 1.4 per cent of GDP, but Westpac projects it will hit 2.2 per cent by the 2027-28 financial year.

“The rising interest burden is requiring a return to fiscal discipline,” Westpac economist Pat Bustamante said.

Former RBA economist and now chief economist at Challenger, Jonathan Kearns, said when dead money interest payments were higher than the defence budget it signalled government finances were strained.

“Interest payments exceeding defence expenditure implies that the government has less flexibility in its expenditure,” he said.

“You would hope that governments make some priorities. Does that mean giving up on some parts of social welfare such as the NDIS? Or do they just increase taxes?”

Mr Kearns said the government was unlikely to budge on some of the Trump administration’s demands on Australia, such as winding back the Pharmaceutical Benefits Scheme or axing the media bargaining code. But he said making a concession on defence funding could be a different matter.

“I think the one thing they might be able to compromise on is defence spending,” he said, adding rising military tensions in the Indo-Pacific could prompt a rethink.

Mr Kearns said governments could only consider a few levers when it came to reducing their interest bill including cutting spending and or increasing taxes, or inflating their way out by issuing more debt.

“These are some of the concerns people in Canberra will have right now,” he said.

Opposition defence spokesman Angus Taylor said Labor’s defence budget was not credible given escalating strategic threats, calling for “a clear, costed pathway” to get military spending to 3 per cent of GDP.

“Much like Spain, Labor is sending a clear message that protecting Australia is a second order priority,” he said.

As the US conducts a snap 30-day review of AUKUS, Mr Taylor said the submarine program was “at risk”, and Australia needed to respond by rapidly proving the pact’s value to the US by investing in Western Australian facilities to service American subs.

Writing in The Australian, he said Australia also needed to make it clear “we would stand with the US in the event of a Taiwan contingency, not with rhetoric but with serious capability and commitment that means any use of force is destined to fail”.

Finance Minister Katy Gallagher defended the government’s spending priorities amid growing pressure on the budget from health and welfare programs including the NDIS.

“It is a balancing act, but the government’s job is to make sure that all areas of government are funded properly, including defence,” she said.

Most NATO countries pledged to spend 3.5 per cent of GDP on defence and another 1.5 per cent on defence-related infrastructure.

The NATO summit was choreographed to please Mr Trump, who the alliance’s Secretary-General Mark Rutte referred to as “daddy” for clamping down on Iran and Israel over their ceasefire violations this week.

Mr Albanese, who took 24 hours to back Mr Trump’s strikes on Iran and is yet to meet face-to-face with his US counterpart, has refused to make concessions to win Mr Trump’s favour, declaring last month that Australia would determine its own defence policy, not the US.

In 2024, American taxpayers spent $US882bn ($1352bn) on national debt interest payments, marking the first time interest payments exceeded defence spending, which hit $US874bn.

Economist Niall Ferguson said this was historically the signal for the end of an empire, with the threshold known as “Ferguson’s limit”.

Australia’s defence spending has been mostly below 2 per cent of GDP since the end of the Cold War, and was only consistently above 2.5 per cent of GDP around the Korean and Vietnam wars.

Former deputy chief of mission at the US Embassy in Canberra, Jim Carouso, said many countries were “still re-evaluating how they will approach trade talks (with the Trump administration)”.

“Australia should wait to see how all this plays out before arriving at a strategy. As always with Trump, he must be seen to ‘win’ somehow,” he said.

Robert Dohner, who as a deputy assistant Treasury secretary helped establish the Strategic Economic Dialogue with China under the Bush and Obama administrations, said the best strategy for Australia right now was to keep its head down.

“For Australia and other countries like it, I think the best strategy is to adopt a very low profile,” he said.

“I don’t think an Australian concession really helps much if any. It would create public outcry in Australia, and Trump has a tendency to pocket concessions (‘wins’) and then ask for more.”