11 charts for understanding the escalating global arms race

The world is seeing a strong rise in military spending. According to data collected by the Stockholm International Peace Research Institute (SIPRI), global investment in this sector reached approximately $2.7 trillion (€2.3 trillion) in 2024 — an amount roughly halfway between the GDP of Italy and that of France. The increase compared to the previous year was 9%, the highest since the end of the Cold War.

All signs point to this trend, driven by intense geopolitical tension, intensifying in the coming years. A key role in this is played by the arms industry, which is becoming strategically — and even existentially — more important than in recent decades, while simultaneously facing demands for restructuring and prospects of significant profits. The competition is fierce.

According to SIPRI, the world’s 100 largest defense companies by revenue reported earnings of $632 billion in 2023, a 4% increase from the previous year. From 2015 to 2023, revenue grew by 19% (compared to a 37% rise in total military spending through 2024). Thus, the increase in revenue has been less intense than the overall growth in defense expenditure. However, this follows a natural market logic. It will take several years for governments’ renewed defense investments to fully translate into company revenues. This lag reflects the time needed to finalize contracts, expand capabilities, reorganize production processes, and ultimately collect full payments.

The difficulty in expanding capabilities due to supply chain bottlenecks has been a key factor causing the two largest companies in the sector — Lockheed Martin and RTX, both American — to experience a real-term decline in revenue compared to the previous year. Nevertheless, they remain at the top of the list. U.S. companies occupy the top five positions and 41 of the top 100, underscoring the continued global dominance of the United States’ defense industrial complex. Chinese, European, and Russian corporations make up the remainder of the major powers in the defense sector.

Supply bottlenecks for certain crucial materials represent one of the central challenges of this new era. China has a high degree of control over strategic minerals, both at the extraction and refining stages. The European Commission regularly produces studies on critical raw materials, and these reports reveal China’s disturbing dominance over a majority of these elements. A report from the International Institute for Strategic Studies at the end of 2024 highlighted the significance of China’s control over cellulose nitrate, a key raw material for propellants and combustible components.

The importance of this issue was underscored by a development last week. The U.S. company MP Materials, active in the rare earth sector, announced a novel cooperation with the Pentagon, which will include a $400 million investment from the Department of Defense aimed specifically at circumventing or reducing reliance on critical materials in the defense sector.

The competition for essential raw materials is just one facet of a massive power race to strengthen military capabilities. These capabilities have always been important, but they are even more so in this phase of unabashed abandonment of a rules-based order in favor of a world governed by raw force. In this new reality, the defense industry holds absolute prominence. Below is a look at the situation in four key centers of this race.

Europe

Europe is facing a dangerous geopolitical transition marked by Russia’s aggression against Ukraine and growing doubts about the strength of the U.S. security umbrella. In this context, there is broad consensus on the need to enhance defensive capabilities both to maintain a deterrent force against potential future aggressions and to support Kyiv in its resistance against Russian attacks.

Ukraine has an enormous need for military supplies. Its domestic industry is making significant progress and, in some sectors like drones, it already boasts excellent quantitative and qualitative levels. However, in others — such as air defense — it remains heavily dependent on external sources. Ukraine is the world’s largest importer of weaponry. Until 2024, the U.S. was its main supplier, but Donald Trump’s ambivalent position on the war disrupted supply flows throughout this year.

But while there is consensus on the need to increase defensive capabilities, there is no consensus on the strategy to achieve those goals.

A key point of debate concerns how much to invest in the European defense industry versus how much to purchase from abroad — and from whom. There is undoubtedly a broad willingness to foster European autonomy in the medium and long term, but the limits of the domestic industrial base mean that neither in the short nor medium term can it supply certain weapons (or in certain quantities).

Given this reality, countries like Poland emphasize the need to acquire capabilities as soon as possible, even if that requires buying from abroad and complicating efforts to homogenize and ensure interoperability among European forces.

Additionally, many European countries that possess U.S. weapons consider it wise to maintain a fluid relationship with the American defense conglomerate. Other countries, like France, place greater emphasis on developing the European industry, for example by attaching conditions to the use of European funds.

A clear example of these needs is the issue of Patriot missiles — U.S.-made weapons whose effectiveness at intercepting ballistic and cruise missiles makes them widely sought-after. Trump has leaned toward a solution where, instead of supplying them directly to Kyiv as aid (as Biden did), European NATO allies would purchase them and then deliver them to Ukraine.

The second debate centers on how the European defense industry should be organized. On one hand, some countries want to continue protecting their own national defense companies. On the other hand, there is a push to encourage cooperation between countries — such as joint projects or mergers — to create larger, more competitive companies that can operate effectively on a global scale.

“The defense sector is not subject to common market rules,” notes Giuseppe Spatafora, analyst at the EU Institute for Security Studies (EUISS). European governments have preferred fragmentation, with major countries supporting national companies that are the primary suppliers to their local armed forces.

“National champions aren’t a problem in and of themselves. Among them are quality and innovative companies. But market fragmentation means demand doesn’t reach scale, and that makes it difficult to acquire adequate scale to address the global context. Brussels is trying to correct this by promoting joint purchasing,” says Spatafora.

In addition to action on the demand side, steps can also be taken on the supply side. Europe has examples of trans-European champions like Airbus or MBDA, specialized in missiles. However, these are limited cases and difficult models to replicate or launch. Other options are ad hoc consortia, such as Future Combat Air Systems (FCAS), which involves companies like Dassault, Airbus, and Indra. Still, the major tensions arising show this is not an easy path.

Nevertheless, the European industry has made significant progress in recent years. In ammunition production, for example, manufacturing capacity has notably increased, with German company Rheinmetall playing a major role. The link between large military spending plans by the German government, the ongoing concept of national champions, and the company’s own quality has led to a spectacular rise in its stock market valuation.

Despite the progress made, the limitations are evident. In sectors such as air defense, advanced combat aircraft, hypersonic technology, and support technologies like artificial intelligence and quantum computing, Europe lags behind or depends on foreign suppliers in the international competition. The aforementioned EUISS report also highlights that in expansion plans, the problem lies less with the national champions themselves and more with the small and medium-sized companies that supply them, which struggle to secure enough human and material resources.

The European defense industry has a strong present and significant future potential, but the path to substantially reducing foreign dependence is long and winding.

United States

The U.S. defense industrial complex is the undisputed global leader, thanks to a unique combination of strong and sustained government demand, a deep and liquid capital market, the country’s advanced technological development, and continuous combat experience that has helped refine weapons design and production. With these advantages, U.S. companies account for 50% of the revenue among the world’s top 100 firms in the sector.

These characteristics, along with Washington’s unparalleled network of military alliances, have given the U.S. defense industry extraordinary global reach, making it the undisputed leader in exports.

Still, these achievements don’t shield the U.S. defense industry from serious challenges. The Guardian reported recently that the current inventory of Patriot missiles stands at just 25% of what the Pentagon’s plans require. The industry lacks the capacity to produce them in the desired quantities.

The significant strike against Iranian nuclear facilities demonstrates both unmatched capabilities and clear limitations: experts note that the stockpile of bunker-buster bombs used in that attack is very limited and difficult to replenish. The B-2 long-range stealth bombers employed in the mission are no longer in production, and restarting that line would be highly complex. Meanwhile, although 155mm ammunition production has increased, it still falls far short of matching Russia’s manufacturing pace in this segment.

Spatafora points to an underlying unresolved dilemma within the Trump administration: some members believe the U.S. should scale back support for certain allies to focus on itself and its hegemonic rivalry with China; others, from a different Republican faction, continue to view supporting allies and engaging in multiple theaters as a strategic asset. This internal divide naturally affects the defense industry, which could see more or less room to export certain products depending on the policy line adopted.

The reality is that the U.S. defense industrial complex is not structured for the kind of mass production that the war in Ukraine has shown to be necessary in a large-scale conflict involving a major power. In the case of Patriot missiles, for instance, a report by the Bruegel think tank provides some revealing data: in 2024, the estimated annual production capacity was around 700 units. The official goal is to reach 1,000 by 2027. For context, Russia has launched over 10,000 offensive rockets since the beginning of its invasion of Ukraine.

The U.S. defense industry faces the challenge of shifting from a model focused on ultra-high quality in limited quantities to one that emphasizes greater output. Policy will determine how far this shift goes, and where surplus production — which is not needed in domestic arsenals — should be directed. It’s a major unknown for all of America’s traditional buyers.

China

As in other areas, the Asian giant is also making strides in the defense industry. Helena Legarda, an analyst at the Mercator Institute for China Studies specializing in Beijing’s defense and foreign policy, explains that Chinese authorities are working to deepen what is known as the policy of civil-military fusion.

“The purpose of this policy is to encourage large companies in the Chinese defense sector, which are largely state-owned enterprises, to collaborate more with private companies. It aims to reduce duplication of efforts and facilitate the application of innovations emerging in the civilian sector to military applications and vice versa. Above all, it focuses on emerging technologies such as artificial intelligence and quantum computing,” says Legarda.

A second key objective is to expand China’s footprint in defense exports. The country has made progress in recent decades, but its market share remains modest and heavily concentrated in its main client: Pakistan.

“I think China can somehow take advantage of the vacuum left by Russia,” says Legarda, referring to the Russian defense industry’s inability — given the demands of the war in Ukraine — to maintain its traditional export levels. “But at the same time,” the expert continues, “I think it is suffering from the geopolitical competition with the U.S., because this creates a reluctance in many countries to purchase Chinese weapons.”

There is both certainty and uncertainty surrounding the quality of Chinese defense manufacturing. Legarda notes that China is clearly making progress. Its industry is gaining new qualitative capabilities. A decade ago, its first aircraft carrier was a refurbished Ukrainian vessel; today, it can build them independently. China has also demonstrated significant advances in hypersonic technology. And in some areas, its scale of production is astonishing — Chinese shipyards, for example, are producing naval vessels for the military at an impressive pace.

But Legarda points out that the lack of verified combat effectiveness of this weaponry leaves significant uncertainties about its true capabilities. The analyst notes that some aspects of the recent clash between India and Pakistan appear to indicate good performance by the Chinese arms used, but there is not enough reliable information to draw definitive conclusions.

Russia

The Russian arms industry is undergoing a massive process of growth and transformation, driven by the demands of the invasion of Ukraine, fueled by abundant Russian state resources, and supported by the essential supply of Chinese components without which the Russian war machinery could not operate. This effort is reflected in a strong increase in the revenue of Russian companies in the sector.

Despite the significant increase in Russian military spending, in nominal terms it remains much lower than that of the U.S. or China, and is roughly equivalent to the combined spending of France and the United Kingdom. However, it is important to note that, when adjusted for purchasing power parity, according to an EUISS assessment, Russian military spending is equivalent to that of the entire European continent. This is because the same nominal amount of dollars achieves different results in different places depending on local costs. This key factor, often overlooked in public debate, is one reason why Russia’s war industry has a production level that raises serious concerns among Western politicians.

A clear demonstration of this considerable production capacity is the series of recent attacks launched against Ukraine using record numbers of drones and missiles.

A report from the Royal United Services Institute highlights that Russia had well-developed plans for how to build its industrial complex, which facilitated the rapid escalation when the need arose due to the invasion of Ukraine.

In contrast, Europe had nothing comparable, making its response inefficient. According to the study, the very high level of centralization is another advantage for Russia. However, the cost of sustaining this effort is immense. Experts and historians frequently point out that the unsustainable military effort in the arms race with the U.S. was one of the reasons for the collapse of the USSR.

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