The global defence industry is entering a new phase. For three decades after the Cold War, many countries treated defence as a necessary but controlled public expenditure. That assumption has changed. Continuous geopolitical tensions, the Russia–Ukraine war, conflict in West Asia, instability in the Indo-Pacific, cyber warfare, drone warfare, and supply-chain weaponisation have pushed governments to rethink defence not only as a military necessity but also as an industrial, technological, and strategic economic sector.

According to SIPRI, global military expenditure reached US$2.718 trillion in 2024, rising 9.4% in real terms over 2023 the steepest annual rise since the end of the Cold War. More than 100 countries increased military spending, indicating that defence expansion is no longer confined to active war zones but has become a global policy trend.

The defence industry must now be understood through three lenses: national security, industrial capability, and strategic autonomy. Governments are not simply buying weapons; they are trying to secure domestic supply chains, build high-technology manufacturing, reduce import dependence, and prepare for a world where alliances matter but self-reliance matters even more.

This policy research article examines how geopolitical tensions, wars, national security priorities, and the emerging multipolar world order are reshaping defence industries and government defence policies across major nations.

Why Defence Spending is Rising Globally

The first reason is the return of conventional war. The Russia–Ukraine war demonstrated that modern warfare can consume ammunition, missiles, drones, air defence systems, and armoured platforms at a pace much faster than peacetime defence industries were designed to supply. This created what may be called the “stockpile shock”: countries realised that having advanced platforms is not enough if ammunition and replacement capacity are inadequate.

The second reason is strategic competition among major powers. The United States, China, Russia, and NATO countries are no longer preparing only for counter-terrorism or limited interventions. They are preparing for high-intensity conflict, grey-zone warfare, cyber operations, and technology-driven deterrence.

The third reason is the emergence of a new world order. The post-Cold War assumption that globalisation would reduce conflict has weakened. Instead, countries are building parallel supply chains, friend-shoring defence production, restricting technology transfers, and investing in domestic manufacturing. Defence policy has become a form of industrial policy.

Global Defence Spending: What the Numbers Show

SIPRI’s Top 100 arms-producing and military services companies recorded US$632 billion in arms revenues in 2023, a 4.2% real increase over 2022. US-headquartered firms alone generated US$317 billion, roughly half of the Top 100 total.

This shows that defence is not only a budgetary trend. It is also a major industrial market, dominated by a few large producers but increasingly contested by new entrants in drones, cyber, AI, space, electronics, and autonomous systems.

This chain explains why countries that were earlier reluctant to spend heavily on defence are now expanding budgets and reforming defence production systems.

Defence Production Scale by Country (2025–26)

(USD Billion Approximation based on spending + industry output)

Key Data Insights

• The United States dominates global defence production, with a budget close to $950 billion, nearly 4× China
• China maintains second position with ~$250–300 billion, driven by manufacturing depth
• Russia remains a major defence producer due to wartime industrial mobilisation
• Europe (Germany, UK, France) is collectively expanding production due to Ukraine war pressures
• India is emerging as a production hub, with rising exports and domestic manufacturing push

United States:

The United States remains the world’s dominant defence-industrial power. Its defence ecosystem combines government procurement, private defence companies, university research, venture capital, and advanced technology firms. The US model is built around one central principle: military superiority depends on technological superiority.

The US defence industry benefits from scale. Major firms such as Lockheed Martin, RTX, Northrop Grumman, Boeing, and General Dynamics operate across aircraft, missiles, satellites, cyber systems, naval platforms, and electronic warfare. SIPRI data shows that US companies accounted for US$317 billion of Top 100 arms revenues in 2023.

The US policy direction is increasingly focused on next-generation warfare: AI-enabled systems, hypersonics, unmanned platforms, cyber defence, space assets, and resilient supply chains. The key challenge for the US is not demand, but production capacity. The Ukraine war revealed bottlenecks in ammunition and missile production, forcing Washington to expand industrial capacity and encourage allies to do the same.

Europe and NATO:

Europe is undergoing one of the most significant defence policy shifts since World War II. For decades, many European countries relied on the US security umbrella while maintaining relatively low defence spending. Russia’s invasion of Ukraine changed that calculation.

In 2024, the EU’s combined member-state defence budget had already risen significantly, and the European Defence Industrial Strategy (EDIS), unveiled in March 2024, aimed to strengthen Europe’s defence industrial readiness by 2035. The European Parliament noted that EU member-state defence budgets reached around €290 billion in 2023, but that major challenges remained in building sufficient industrial capacity.

NATO has moved even further. In 2025, NATO leaders agreed to raise defence-related spending toward 5% of GDP by 2035, including 3.5% for core defence and 1.5% for broader defence-related infrastructure and capabilities.

This is a major policy transformation. Europe is no longer thinking only about defence procurement; it is thinking about defence production sovereignty. The challenge is fragmentation. European countries have multiple tank models, aircraft programmes, procurement systems, and national industrial interests. The policy task is to convert higher spending into coordinated capability rather than duplicated expenditure.

China:

China’s defence policy is tied to its broader national strategy of technological and industrial upgrading. In 2026, China announced a 7% increase in its defence budget, taking the official allocation to around 1.91 trillion yuan, or approximately US$277 billion. Reuters reported that this increase, though slightly lower than previous years, still outpaced China’s expected GDP growth and reflected the goal of modernising the People’s Liberation Army by 2035.

China’s defence advantage lies in industrial depth. Shipbuilding, electronics, drones, missiles, space systems, and dual-use technologies are supported by a large manufacturing base. Unlike countries that import critical defence inputs, China has sought to control more of the value chain.

The policy logic is clear: defence strength depends on manufacturing ecosystems, not only defence budgets. China’s experience shows that the future of defence will be shaped by countries that can combine civilian manufacturing scale with military technology development.

Japan:

Japan represents one of the most important policy shifts in the global defence landscape. Historically constrained by post-war pacifist principles, Japan is now expanding defence spending and relaxing defence export rules. Japan announced a five-year defence build-up programme of around 43 trillion yen through FY2027, with the aim of moving defence spending toward 2% of GDP.

In 2026, Japan moved to revise defence export rules, allowing broader case-by-case arms exports while retaining restrictions on sales to conflict zones. Reuters described this as Japan’s most significant defence export overhaul in decades, aimed at strengthening its defence industrial base and supporting partnerships with allies.

Japan’s case shows that defence policy is changing even in countries with historically restrained military postures. National security concerns in East Asia, supply-chain risks, and alliance pressures are pushing Tokyo toward defence industrial normalisation.

India:

India’s defence policy is shaped by a complex security environment: border tensions, maritime security, terrorism, cyber threats, and the need to protect strategic autonomy. India has historically been one of the world’s largest defence importers, but policy has shifted strongly toward domestic production.

The 2026–27 Union Budget allocated around ₹1.39 lakh crore for procurement from domestic defence industries, with approximately 75% of the capital acquisition budget reserved for domestic procurement. The Ministry of Defence stated that these measures support domestic production, investment, and job creation.

India’s defence production reached a record ₹1.54 lakh crore in FY2024–25, while defence exports reached ₹23,622 crore in FY2024–25 and later touched ₹38,424 crore in FY2025–26, a 62.66% rise over the previous year.

India’s defence industrial strategy is built around Atmanirbhar Bharat, positive indigenisation lists, Defence Industrial Corridors, iDEX, private-sector participation, and export promotion. The constructive challenge is to move from assembly and licensed production toward design-led capability. India’s long-term defence competitiveness will depend on engines, sensors, semiconductors, propulsion, electronic warfare, AI, and systems integration—not only platform production.

Defence Industry as Industrial Policy

The defence industry has four features that make it different from ordinary manufacturing.

First, the buyer is usually the state. This means demand depends on public budgets and long-term procurement planning.

Second, technology is strategic. Governments rarely allow complete market freedom in defence because the sector involves classified systems, dual-use technologies, and national security implications.

Third, supply-chain resilience matters more than lowest cost. In normal markets, firms seek the cheapest supplier. In defence, countries increasingly prefer trusted or domestic suppliers even at higher cost.

Fourth, defence has spillover effects. Aerospace, electronics, materials science, shipbuilding, cybersecurity, drones, and advanced manufacturing often grow through defence demand and later spill into civilian sectors.

This is why many governments are treating defence not only as expenditure but as a technology and manufacturing accelerator.

Defence Policies Across Nations: Comparative View

Emerging Trends in Defence Industry

The defence industry is moving away from a platform-only model toward a technology-network model. Five trends are particularly important:

• Drones and autonomous systems: Ukraine and West Asia have shown that low-cost drones can disrupt expensive platforms.
• AI and decision systems: Defence advantage increasingly depends on real-time intelligence, targeting, and autonomous decision support.
• Cyber and space security: Satellites, communication networks, and digital infrastructure are now part of the battlefield.
• Ammunition and stockpile resilience: Wars have shown that quantity still matters.
• Defence supply-chain localisation: Countries want domestic or trusted access to critical components.

These trends create opportunities not only for large defence companies but also for MSMEs, start-ups, electronics firms, materials companies, and software providers.

Policy Way Forward

The global defence build-up brings opportunity, but also risk. Higher defence budgets can strengthen security, but if poorly designed, they can produce waste, duplication, fiscal stress, and corruption. A balanced policy approach is essential.

First, governments should avoid treating defence self-reliance as complete autarky. No country can produce everything efficiently. The better goal is strategic autonomy in critical systems and trusted partnerships in non-critical systems.

Second, procurement must become predictable. Defence firms invest only when demand is clear. Long-term procurement pipelines, transparent testing standards, and timely payments are essential for industrial confidence.

Third, MSMEs and start-ups need integration into supply chains. Defence production cannot be limited to public-sector giants or large private firms. Innovation often comes from smaller companies working in drones, sensors, software, robotics, and electronic systems.

Fourth, defence R&D should be linked to civilian spillovers. Countries that succeed in defence industrial policy convert military investments into broader gains in aerospace, electronics, cyber, materials, and advanced manufacturing.

Fifth, export strategy must be responsible. Defence exports can strengthen industry, but they require strict end-use monitoring and alignment with international obligations.

Defence Policy in the New World Order

The rise in defence spending across the world reflects a deeper shift in global politics. The world is moving from a period of economic globalisation toward a period of strategic fragmentation. In this environment, governments are rethinking defence policy through the lens of national interest, industrial capacity, and technological control.

The challenge is not merely to spend more. The challenge is to spend better. Countries that convert defence budgets into productive industrial ecosystems will gain long-term strategic advantage. Countries that rely only on imports or fragmented procurement will remain vulnerable.

For policymakers, the defence industry must be governed with seriousness, transparency, and long-term vision. For businesses, it offers opportunities in manufacturing, engineering, electronics, AI, cybersecurity, space, and materials. For citizens, the key question is whether defence spending strengthens national security while also supporting innovation, jobs, and responsible economic development.

In the new world order, defence capability is not just about weapons. It is about resilience.