Military Rearmament and the Defense Industrial Base

Dynamics Defining this Era

One of today’s defining geopolitical trends is global rearmament—which is arguably the most consequential shift in military affairs since the end of the Cold War. Accelerated by rapid technological advancement and an increasingly volatile geopolitical landscape, this transformation will have broad impacts to national economies and redefine the contours of great power competition. Defense procurement and modernization are poised to become key engines of domestic growth, influencing investment patterns, industrial policy, and workforce dynamics across advanced economies for the next decade or more. Three key dynamics are defining this era:

Technological superiority has always been a military differentiator—but today, its pace and impact are revolutionary. Artificial intelligence, autonomous systems, and commercial off the-shelf technologies are collapsing traditional kill chains (“see-assess-decide-act”) and empowering more agile, distributed forms of warfare.

• Ukraine has served as a proving ground: cheap drones and consumer-grade satellite imagery are being fused with Western-made precision weapons to challenge a larger adversary.
• Meanwhile, asymmetric conflicts like the Houthi campaign in the Red Sea expose a troubling cost imbalance: the U.S. regularly spends millions per intercepting missile (the SM-6 costs up to $4.3 million each) to counter Houthi drones that only cost between $2,000 to $50,000.

This innovation gap is shining a harsh light on the U.S. Department of Defense’s (DoD) longstanding procurement challenges—rigid budgetary cycles, protracted production JPMorganChase Center for Geopolitics An Era of Global Rearmament and the U.S. Defense Industrial Base 2 timelines, risk-averse contracting, and insufficient surge manufacturing capacity. The Pentagon’s traditional acquisition model struggles to adapt to commercial technology cycles measured in months, not years. Companies like Anduril, Palantir, and SpaceX have shown that dual-use tech firms can deliver cutting-edge capabilities at speed, but integrating them at scale remains an uphill battle. In this environment, the ability to adapt— to field, iterate, and mass-produce emerging technologies—will be as decisive as raw military power.

Strategic rivalry is back at the center of defense planning, with the U.S.-China competition as the primary axis. Beijing’s military modernization is not just about catching up—it is about leapfrogging the U.S. and neutralizing its long-held advantages. From hypersonic glide vehicles to anti-satellite capabilities and shipbuilding volume, China’s state-directed defense ecosystem is operating at a tempo the U.S. struggles to match. According to the Pentagon’s 2024 China Military Power Report, China now has the world’s largest navy by ship count and is rapidly expanding its nuclear arsenal.

Compounding the challenge is the tightening alignment among China, Russia, Iran, and North Korea—sometimes referred to as the “CRINK” axis. This emerging bloc is exchanging technology, intelligence, and access to critical resources, allowing mutual circumvention of Western sanctions and export controls. While U.S. regulatory tools like the CHIPS Act and ITAR restrictions can slow diffusion, they cannot prevent the strategic convergence of adversaries. For defense companies, this raises the stakes for secure supply chains, IP protection, and the geopolitical calculus of where—and with whom— they do business.

For decades, the U.S. has been the anchor of global defense cooperation. But that gravitational pull is weakening. Faced with the dual threats of Russian aggression and Chinese assertiveness, traditional allies are rearming at speed—Germany’s €100 billion Sondervermögen (its “special fund” freed of a debt brake) and Japan’s doubling of defense spending to 2% of GDP are just the beginning. Yet, this rearmament is not necessarily a boost to American dependency. Increasingly, allies are seeking strategic autonomy: national production lines, domestic R&D pipelines, and decoupled supply chains. The implications for U.S. defense firms could be profound. Arms sales—which topped $300 billion in 2024—have long benefited from the “Buy American” halo-effect and interoperability advantages. But if allies begin to view U.S. systems as expensive, slow to deliver, or politically unreliable, they may look elsewhere.

Already, there is growing interest in allied alternatives, such as the Franco-German Spanish Future Combat Air System (FCAS) and the British-Italian-Japanese Global Combat Air Programme (GCAP), or in homegrown solutions built with local content requirements. Certain products are already gaining traction, either because they are less exquisite (like Türkiye’s Baykar UAVs) or because they can leverage a robust domestic industrial supply chain (like South Korea’s Hanwha missiles). Japanese and South Korean defense firms are among the fastest growing in the world, with annual revenues rising by 25% since 2022 compared to American firms’ 15%. In this context, over time the U.S. defense industrial base risks losing market share—and with it, strategic influence.

Moreover, as technology increases range and precision, the U.S. may opt for a smaller overseas presence and more reliance on stand-off, unmanned operations. A shrinking footprint could reduce forward-deployed deterrence and the demand for host-nation integration, further accelerating a shift away from U.S.-led architectures.

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