NATO member nations have agreed to spend five per cent of their economic output on defence, and security more broadly, following demands by US President Donald Trump.
The US has called on Australia to massively increase the defence budget by tens of billions of dollars to 3.5 per cent of gross domestic product.
But Anthony Albanese is standing firm and has maintained Australia will decide its spending.
Former ambassador to the US Arthur Sinodinos said the best strategy for Australia was to engage with the US on extra capabilities that would best complement the two countries' aims for the Indo-Pacific.
"The pressure from the US for allies and partners in the Indo-Pacific to increase defence spending will continue, particularly in the light of commitments made at the recent NATO summit," he told AAP.
Mr Albanese is trying to secure his first face-to-face meeting with Mr Trump, after planned talks on the sidelines of the G7 summit earlier in June were cancelled due to the escalating conflict between Israel and Iran.
Analyst Andrew Carr said the federal government was very aware the Trump administration represented a more "vindictive" ally in Washington.
"Access to Australian facilities has often been to the Americans far more important than Australia's own military capabilities," he said.
"If we're being seen to kind of 'play ball' on a whole range of political intelligence, basing and other areas, then the spending is going to be a small part of that story."
The Pentagon's 30-day review of its nuclear submarine deal with Australia under the AUKUS partnership is under way.
Mr Sinodinos said there was strong support for the security pact within the state department and Congress.
Defence analysts believe Mr Trump is unlikely to scrap the $368 billion submarine program altogether but might demand a bigger contribution from Australia for the US submarine industrial base.
Australia has already made a first $800 million down-payment of a total $4.7 billion for its plan to acquire nuclear-powered submarines.
7°C