The Defense Doesn't Rest

Two articles caught my eye this week, and neither was about the “Trump Kennedy Center,” the Netflix attempt to buy Warner Brothers Discovery, or anything AI-related. Instead, both concern defense spending, something I’ve been paying more attention to during the Ukraine-Russia war and China’s revamping of its military.

You'd think all that spending would buy us more. Credit: Peter G. Peterson Foundation

Today’s New York Times Editorial Board published Overmatched: Why the U.S. Military Needs to Reinvent Itself.  It is by no means the first such call; critics of the Defense Department have long accused it of being too slow, too expensive, too bound by tradition. The Ukraine war in particular has been a startling demonstration both of how war is being waged differently and how quickly tactics and weapons are forced to evolve. The U.S. military claims to be paying close attention to that struggle. It even has a Defense Innovation Unit aimed at speeding adoption of commercial technologies, and is trying to radically increase its drone capabilities.  

That’s all well and good, but the Editorial Board says: “Nearly four decades after victory in the Cold War, the U.S. military is ill prepared for today’s global threats and revolutionary technologies.” E.g., in war game after war game against China, even Pete Hegseth admits: “we lose every time.”

Gulp.

Don’t get it wrong: we spend more money on the military than the next nine nations combined, close to $1 trillion annually, devoting over 3% of our GDP on defense. We just aren’t necessarily spending it wisely. We like to spend it on fantastically expensive weapons systems (which are usually overbudget and years beyond schedule) that employ lots of people in many political districts. As Editorial Board noted: “There is also a conceptual failure: the idea that more sophisticated is always better. For decades the American military has relied on systems that are bespoke, complex and wildly expensive.”

We also can’t build those systems fast enough – e.g., ships, artillery shells or drones. China’s industrial capacity would turn any extended conflict into a disaster for the U.S. and our allies, which is exactly how the U.S. led the Allies to victory in WWII.

Credit: USN via The war Zone

The Editorial Board concludes:

Ultimately, a stronger U.S. national security depends less on enormous new budgets than on wiser investments. Spending heavily on traditional symbols of might risks shortchanging the true sources of American strength: relentless innovation, rapid adaptability and a willingness to discard old assumptions.

Meanwhile, Congress is considering a defense spending bill that would not only top $900 billion but also include more money than even the Trump Administration requested. Faster, smarter, cheaper? Probably not.

President Trump has long been demanding that NATO countries, as well as Pacific allies such as Japan, South Korea, and Taiwan, boost their defense spending. There are good reasons for that, but he also certainly expects that much of that increased spending will go to U.S. defense contractors. We do pride ourselves on having the most sophisticated weapons, be they F-35s, Patriot missiles, nuclear submarines, or tanks.  But, it turns out, Europe has a more robust defense than I’d realized, which leads me to the second article.

The Washington Post profiled German defense contractor Rheinmetall. WaPo reports that its shares have tripled in the last year, and its market value is almost $100b, from less than $5b before Russia invaded the Ukraine. “Before the war in Ukraine, I would have said Rheinmetall was one of those German arms companies becoming increasingly less important and likely to be displaced internationally,” Ulrich Kühn, head of arms control research at the Institute for Peace Research and Security Policy, told WaPo.  

Instead: “We are becoming a global defense champion,” says CEO Armin Papperger. Mr. Kühn agrees, adding: “It will very likely grow into one of the world’s leading arms companies, if it isn’t already in certain areas.” 

Rheinmetall is building plants across Europe, from Spain and Hungary to Ukraine and Latvia, along with its German facilities.

But it is not just Rheinmetall and not just Germany. The European defense industry grew 14% in 2024. In fact, five of the top 20 defense contractors in the world are European; the U.S. has 11, and China 4. And, of course, Ukraine leads the world in drone innovation and production  (although Russia has dramatically closed the gap).  

For example, for those of us old enough to remember Saab automobiles, its slogan was “born from jets. You won’t find many Saab cars anymore, but Saab is still a leading defense contractor.  Its Gripen fighter jet is drawing lots of attention. Canada is considering buying them instead of F-35s (no doubt in part due to recent trade wars instigated by the U.S.), and Ukraine has already ordered up to 150 of them.  The Gripen is considered not as advanced as the F-35, but it is much cheaper to buy and maintain.

Poland is buying submarines from Saab, and the Saab led MANGROVE consortium has been selected by NATO to lead the Allied Underwater Battlespace Mission Network project (AUWB-MN).

There’s also Airbus (France), B.A.E Systems (U.K), and KNDS (Germany), among others.

The U.S may have (by far) the biggest defense industry, with some of the most advanced weapons, but it is not the only game in town, nor are those weapons necessarily the ones best suited for fighting future wars.

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All this, of course, reminds me of the U.S. healthcare system and the U.S. tech industry. The U.S. has, by far, the most expensive healthcare system in the world, with some of the most advanced care and technologies. Our tech industry has led the world for decades (although we lost most of our actual manufacturing capabilities). They are both major drivers of our economy.  

But look at the NYT Editorial Board’s charge about our military: “There is also a conceptual failure: the idea that more sophisticated is always better. For decades the American military has relied on systems that are bespoke, complex and wildly expensive.” Tell me that substituting “healthcare system” for “military” wouldn’t be equally accurate.

Similarly, we take great pride in NVIDIA, but what is it -- and all those data centers -- going to do if/when China takes over TSMC? We love OpenAI, but China’s DeepSeek indicates that our approach to AI may also be bespoke, complex and wildly expensive.

We keep deferring regulating digital privacy, social media, and AI, claiming that would deter innovation, but the countries that are trying to do so may be reading the future better.

Bigger isn’t always better. More expensive isn’t always more valuable. Traditions aren’t always to be followed. Faster, cheaper, more flexible may be the ticket to the 21^st century.