For the past half century, the United States has maintained a military that was capable of fighting two large wars while also being flexible enough to scale down to deal with low and medium-level contingencies (such as peacekeeping and counterinsurgency). But this era is coming to a close.

The US is entering a time when it will no longer be able to respond to the full spectrum of security threats, wherever and whenever they arise.

This year, the US will spend roughly 3.5 per cent of its gross domestic product on defence - down from 4.8 per cent in 2010. This reduction will have a dramatic impact on its strategic commitments around the world.

The US military is already cutting the number of its ground forces by about 15 per cent and scaling back its combat aircraft by 10 per cent. And these reductions may only be the start. Unless Congress can agree to a plan to cut the deficit before January, sequestration provisions will automatically kick in and a further reduction of $600 billion will be made to the defence budget over the next decade.

According to US Defence Secretary Leon Panetta, sequestration would mean a 20 per cent across-the-board reduction in defence spending, resulting in the smallest ground force since 1940, the lowest number of combat ships in the navy since 1915, and the fewest tactical fighters in the history of the air force.

Even without sequestration, the announced cuts in the defence budget mean the US will no longer be able to do everything itself. Over the coming years, alliances will become increasingly important to Washington - it will have no option but to depend on others more deeply and frequently.

Last week, Washington's frustration begin to float to the surface over Australia's own defence cuts. Many in Washington believe the country can no longer afford to subsidise the free riding of its allies. Within this context, the cuts announced in the Gillard government's May budget were bound to rub the wrong way.

The recent comments by the US Pacific Commander, Admiral Samuel Locklear, and former deputy secretary of state Richard Armitage, that Australia is not pulling its weight are simply an expression of this frustration.

However, this sentiment is misdirected. Rather than simply pressuring its allies to spend more, the US should be working with them to spend smarter.

It is time for a fundamental rethink of the defence relationship between the US and Australia.

If the US and Australia can no longer afford to respond to the full spectrum of defence contingencies, then they have little choice but to agree on a new division of strategic labour that draws on each nation's competitive advantages.

For its part, the US has lost all appetite for low-level operations. More than a decade of continuous war in Afghanistan and Iraq has left Washington with no stomach for peace building, peacekeeping, counter-insurgency or stabilisation operations. Nevertheless, these kinds of operations will continue to be necessary, and if not the US, who will conduct them? It is likely the US will expect allies, such as Australia and its NATO partners, to lead the way on lower-level operations in their particular neighbourhoods.

Australia should move to specialise in low and mid-level contingencies in the Asia-Pacific region. The conventional threat to Australia is low and will remain so for the foreseeable future. Australia should prepare to conduct the sort of operations that it does well, such as in Cambodia, Bougainville, Somalia, East Timor, Solomon Islands and Afghanistan.

In contrast, the US is well placed to continue to prepare for large-scale operations against regional powers, while leaving lower-level operations to its regional friends and allies, such as Australia.

The US continues to possess a significant competitive advantage in high-end military operations. For example, even with the cuts to defence, in a decade the US will still possess 15 and 20 times the number of aircraft as China and Russia respectively, and America's planes will continue to be technologically far superior. Washington has traditionally been far more confident focusing on high-end contingencies that can bring its unmatched potency in technology intensive conventional warfare to bear.

How would this division of strategic labour occur? First, Australia and the US should explicitly state that they agree each will take responsibility for different types of contingencies. This might take the form of a redrafting of the ANZUS treaty to clarify what each nation can expect from the other in different situations. More likely, however, it would take the form of a joint defence white paper that outlined a shared vision for the alliance over the coming decades.

Actions can then follow words. Australia can redirect its defence acquisitions and doctrine to concentrate on the low and mid-range spectrum of military operations. The US would station in Australia extra high-end assets, such as advanced combat aircraft and naval assets.

Time has arrived for a deepening of the American-Australian alliance that draws on each nation's strengths.

Dr Adam Lockyer is a lecturer in US politics and foreign policy at The University of Sydney.