U.S. Third Offset Has Profound Implications for Indo-Pacific

America’s military-technological advantage, an aspect of its strategic power since the end of the Cold War, is eroding. In response, the Pentagon launched the third offset strategy in 2014—a department-wide effort to find new ways, both technological and institutional, to leap ahead of its competitors. In a new report for the United States Studies Centre, I argue that for the U.S. the third offset is partly an answer to matching its stagnating defence budget with its strategic ambitions.

Further, technological funding and innovation have shifted from government labs to the private sector, particularly in critical technologies like artificial intelligence. The increasing focus on dual-use technologies, investments in new start-ups and technical talent reflects new areas of geostrategic rivalry. This trend has even been evident in Australia, particularly in the higher education sector.

Finally, the cost to the U.S. of maintaining its lead is growing. This is occurring along two fronts. First, the U.S.’s existing platforms and capabilities are unable to adequately and cost-effectively defend themselves in a ‘salvo competition’. Second, Washington is likely to continue to face budget caps that will hamper its ability to compete with China on a platform-for-platform basis. This is evident from the range of priorities that are competing for limited resources, including nuclear modernisation, army procurement programs and military readiness.

Rather than a single strategy, the third offset is more accurately described as a set of three interrelated efforts. The first involves placing bets on current and future technologies that will, in theory, allow the U.S. military to maintain its ability to project power into contested environments. The second looks to some of the new technologies, like AI, unmanned systems and solid-state lasers, to permit the U.S. to economically compete with great powers and simultaneously maintain its global military posture. The third effort involves reforming and building on the way the Pentagon procures and develops new technologies to take advantage of private-sector developments.

The Pentagon is largely continuing these efforts under Secretary of Defense James Mattis, even if ‘third offset’ has been dropped from the official lexicon. New organisations like the Defense Innovation Board, headed by Alphabet chairman Eric Schmidt, continue to meet, and others, like the Defense Innovation Unit Experimental (DIUx), have increased their presence in Silicon Valley and are starting to see some successes. The Pentagon has continued to increase its research, development, testing and evaluation budget requests; appropriation increased by 11.2% in fiscal year 2018 compared to 2017. Another study has estimated that individual budget lines and projects for a range of third offset technologies increased by 43% between fiscal years 2015 and 2017, representing a ‘serious strategic uplift’.

While these individual budget increases are positive signs, there appears to be little consensus or movement to raise the Budget Control Act caps in an effort to move some third offset capabilities from prototype to production. One recent example is the U.S. Navy’s electromagnetic railgun technology: resources started shifting away from it towards more conventional-powered artillery as it neared the final testing and evaluation stage.

For Australia, the third offset’s success or failure will have profound implications for the U.S.’s future military posture in the Indo-Pacific. The third offset can’t replace Washington’s political will or national interest in maintaining the U.S. alliance system, but it can provide a degree of reassurance for allies that worry about the effectiveness of U.S. forces in a high-end conflict. As the third offset will benefit from an exchange of defence science information and coordination, as well as input from multiple allies on new operational concepts and innovation, Australia is well positioned to contribute in a meaningful way.