Defense Budgets Reach All-time Highs, Bolstering Growth in Defense-Adjacent Industries

US defense spending has demonstrated a clear and substantial trajectory of growth in recent years, driven by renewed great power competition and evolving global threats. Following a period of relative constraint after the drawdowns in Iraq and Afghanistan, budgets began to rise notably during the latter half of the 2010s.

This trend has accelerated significantly in the 2020s, with the Biden administration requesting and Congress appropriating record peacetime budgets. For fiscal year 2024, according to independent sources such as the SIPRI suggest the military expenditure surpassed $960 billion, continuing a multi-year pattern of increases that consistently outpace inflation.

This growth is strategically directed toward modernizing the military to counter near-peer rivals, notably China and Russia, with significant investments flowing into next-generation technologies like hypersonic weapons, artificial intelligence, cybersecurity, and nuclear modernization, as well as into replenishing stockpiles depleted by support for Ukraine.

This budgetary expansion reflects a broad, bipartisan consensus in Washington on the need to bolster U.S. military readiness and technological edge, even amidst debates over fiscal priorities. The spending increases are not merely a reflection of inflation but represent real growth in procurement, research, and personnel costs.

Key drivers include the rising price tag of sophisticated weapons systems, the strategic pivot to the Indo-Pacific, which demands costly naval and aerial assets, and sustained support for allied nations. Consequently, defense spending has reclaimed a central place in federal discretionary spending, underscoring its role as a top-tier national priority.

This sustained financial commitment signals a long-term strategic shift, moving beyond counterterrorism to prepare for potential high-end conflict, thereby ensuring the defense industrial base remains a powerful and ever-evolving economic and strategic force.

China’s defense spending has grown steadily over the past decade, reflecting Beijing’s focus on modernizing its military and expanding its strategic capabilities. Beyond the official figures, SIPRI suggest actual Chinese military expenditure has increased year-on-year, rising from roughly US$185 billion in 2014 to approximately US$318 billion in 2024, with consistent increases of around 7.2 % in recent years as part of a decade-long trend of growth. This makes China the second-largest military spender in the world after the United States.

This upward trajectory reflects more than just inflation or routine budgeting: China has been investing heavily in advanced weapons systems, naval expansion, air force modernization, and new domains like cyber and space.

Over the last several years, growth rates have remained positive even amid broader economic slowing, signaling that defense remains a priority for the Chinese leadership. While defense spending relative to GDP has stayed relatively modest (around 1.5–1.7 % of GDP), the sheer scale of China’s economy means its military outlays have a substantial impact on regional and global security dynamics.

In recent years, Russia's defense spending has undergone a dramatic and sustained surge, fundamentally reshaping its national budget and economy in the context of its war in Ukraine and broader confrontation with the West. Following the annexation of Crimea in 2014, military expenditures began a steady climb, but this trend escalated exponentially with the full-scale invasion of Ukraine in February 2022.

For 2024, officially allocated defense spending reached approximately 6% of Russia's GDP, a Soviet-era level, with actual expenditures, including off-budget items, estimated to be significantly higher. This massive financial commitment reflects a wholesale shift to a war economy, with the state directing unprecedented resources toward arms production, troop salaries, and the procurement of munitions, drones, and armored vehicles. The growth is not merely incremental; it represents a top-priority, all-of-government effort to sustain prolonged, large-scale conventional warfare.

Driven by the profound shock of Russia’s full-scale invasion of Ukraine, defense spending across Europe has undergone a reversal from decades of post-Cold War decline. In 2014, following Russia’s annexation of Crimea, NATO allies agreed to the target of spending 2% of GDP on defense, but progress was slow and uneven.

The war that began in 2022 acted as a strategic catalyst, compelling nations to urgently reassess their security. Germany announced a transformative €100 billion special fund for its armed forces, and a commitment to meet the 2% target, a landmark shift in policy. Similarly, Nordic and Eastern European nations, already vigilant, accelerated existing modernization plans.

This collective response marked the end of the "peace dividend" era, as overall European NATO defense expenditure rose sharply due to governments passing substantial supplementary budgets to replenish stockpiles donated to Ukraine and to bolster their own capabilities.

This growth, however, is not merely a temporary spike but represents a fundamental, long-term recalibration of European strategic priorities. The spending increases are mainly due to tangible military readiness: advanced fighter jets, air defense systems (like Patriot and IRIS-T), battle tanks, and long-range artillery.

There is also a significant push to revitalize and secure the European defense industrial base, aiming to reduce fragmentation and ensure sustainable production capacity for munitions. While the aggregate rise is remarkable, challenges of coordination, bureaucratic delay, and inflation in equipment costs persist.

Nonetheless, the trajectory is clear: Europe is moving decisively toward higher defense spending as a permanent feature of its geopolitical landscape, signaling a new chapter of collective burden-sharing and a recognition that continental security can no longer be taken for granted.

Defense spending across the rest of the world, including major powers in the Indo-Pacific, the Middle East, South Asia, and Latin America, has seen a marked and sustained increase in recent years, reflecting a global trend of heightened regional insecurity and strategic competition.

Nations are responding to a complex mix of threats, including territorial disputes, terrorism, internal instability, and the desire to assert regional influence independent of great power dynamics. In the Indo-Pacific, countries like Japan, South Korea, Australia, and India have significantly expanded their military budgets, driven by concerns over China's assertiveness and North Korea's provocations, investing heavily in advanced naval, air, and missile defense capabilities.

Similarly, in the Middle East, despite fluctuating oil revenues, states like Saudi Arabia, the United Arab Emirates, and Turkey continue to prioritize sophisticated arms acquisitions, driven by ongoing regional rivalries and the perceived threat from Iran.

This broader trend underscores a global shift away from a unipolar security order, as middle and regional powers take greater responsibility for their own defense.

This growth, however, is not uniform and is often constrained by economic volatility and competing domestic priorities. While some nations, particularly in Asia and the Gulf, have pursued ambitious, high-tech modernization programs, others in regions like Africa and Latin America face more modest increases focused on internal security and counterinsurgency.

A key feature of this spending is its strategic diversification; many countries are actively seeking to reduce dependency on any single supplier (traditionally the U.S. or Russia) by sourcing from a wider array of partners, including South Korea, Turkey, Israel, and European nations.

Furthermore, the investments increasingly emphasize asymmetric capabilities—such as drones, cyber warfare, and long-range precision missiles—that offer disproportionate strategic impact for their cost. Consequently, the rise in defense expenditure across the rest of the world is reshaping the global arms market and strategic landscape, fostering more multipolar and self-reliant security architectures, even as it risks fueling regional arms races.