US demands Australia lifts defence spending by $40b a year 'as soon as possible'

The United States has demanded Australia lift its defence spending to almost $100 billion a year "as soon as possible", saying Australia must do more to support the US in the Indo-Pacific.

US Defense Secretary Peter Hegseth conveyed that to Defence Minister Richard Marles on the sidelines of the Shangri-la Dialogue in Singapore, where the pair met amid increasing US tension with China.

Over the weekend China accused the US administration of making "groundless accusations" that China's army was rehearsing an invasion of Taiwan.

The US demand comes as President Donald Trump says he will increase economic punishments on Australia by doubling the tariffs on steel and aluminium, which the prime minister described as "inappropriate" and "economic self-harm".

Defence spending currently sits at about 2 per cent of GDP, and an immediate lift in ambition to 3.5 per cent would amount to about $40 billion extra a year — about as much as the Commonwealth's annual aged care spending.

Prime Minister Anthony Albanese said the country would not be dictated to on defence spending, noting that it was already due to increase from 2 to 2.33 per cent of Australia's GDP over the next eight years.

"What we'll do is we'll determine our defence policy, and we've invested just across the forwards, an additional $10 billion in defence," Mr Albanese said on Sunday.

But Mr Hegseth warned Australia must lift spending faster with a "real and potentially imminent" threat from China.

The United States spends almost $US1 trillion ($1.5 trillion) a year on defence, 3.4 per cent of its GDP and more than the next nine highest-spending countries combined.

The Coalition promised an extra $21 billion over five years on defence above current levels at the federal election, with an "aspiration" to reach 3.5 per cent of GDP being spent on defence over time.

Shadow Finance Minister James Paterson told Nine spending should be lifted further.

"We live in the most dangerous and precarious times since the end of World War II. And right now, we're not spending enough to defend ourselves," Senator Paterson said.

On Friday, Defence Minister Richard Marles indicated he was open to an increase in defence spending, acknowledging the demand by Mr Hegseth.

"I wouldn't put a number on it, the need to increase defence spending is something that he definitely raised," Mr Marles said on Friday.

"You have seen the Americans in the way in which they have engaged with all of their friends and allies asking them to do more and we can completely understand why America would do that.

"What I made clear is that this is a conversation that we are very willing to have, and it is one that we are having."

The Australian Strategic Policy Institute warned last week Australia had underinvested in defence and risked a "brittle and hollowed defence force", which Mr Albanese criticised as a "predictable" report from the think tank.

Mr Albanese is expected to meet with Mr Trump during his visit to Canada this month for the G7 leaders summit.