Arsenal at a standstill: three threats to U.S. defense dominance

U.S. arms sales in 2024 reached a record $300 billion, but the longstanding U.S. dominance in the defense market is now under threat, according to the JPMorgan Center for Geopolitics. In the report "The Age of Global Rearmament," analysts describe the systemic vulnerabilities of the U.S. military-industrial complex: technological lag, great power rivalry (in which the U.S. is losing) and the desire of allies for defense autonomy.

JPMorgan believes that U.S. military strategy is facing a systemic problem: the Pentagon has relied on rare and ultra-expensive weapons for decades, while now military conflicts will be won by those who implement and scale affordable technological solutions faster.

This problem has been exposed by the war in Ukraine, analysts say: Western precision systems are very expensive, while Russia combines hypersonic missiles with cheap drones, which reduces the cost of each attack. The cost imbalance is evident in other conflicts as well: "In the Red Sea, the U.S. routinely spends millions on each interceptor missile (the SM-6 costs up to $4.3 million apiece) to counter the Houthis' drones, which cost between $2,000 and $50,000."

Decades of post-Cold War consolidation have reduced the defense industrial base from 51 firms to the Big Five: Lockheed Martin, Boeing, Raytheon, Northrop Grumman, and General Dynamics. The industry's physical infrastructure is optimized for current orders, eliminating spare capacity. For the production of many critical systems, from rocket engines to nuclear submarine subassemblies, the U.S. often has only one active line remaining. The shortage of machine tools and equipment with long production cycles - from specialized castings to microelectronics - hinders the scaling of production.

Commercial companies Anduril, Palantir, and SpaceX are capable of rapidly delivering advanced technology solutions, but integrating them into a common system on a meaningful scale remains a challenge for the Pentagon. The U.S. procurement system, tied to budget cycles, is out of sync with the pace of commercial technology, which is measured in months, not years.

In addition, the U.S. is critically dependent on a narrow range of raw material suppliers - rare earth metals, rocket fuel, specialty chemicals, and semiconductors - leading to price spikes and unpredictable production schedules. Small subcontractors of the third and fourth tiers are often understaffed and lack the financial strength to pay for capacity expansion or equipment purchases for future orders on their own. As a result, any local disruption at their level - from component delays to worker shortages - disrupts the entire government program, turning small suppliers into insurmountable bottlenecks.

Severe labor shortages - of welders, machine operators, industrial maintenance specialists and other skilled workers - are also hindering manufacturing expansion. "By 2030, the U.S. could face a potential shortage of more than 2 million manufacturing workers, costing the economy up to $1 trillion annually," JPMorgan analysts said.

JPMorgan believes that in the strategic rivalry with China, the U.S. is losing ground because it cannot compete with Beijing in the pace of arms production.

China is actively pursuing technologies ranging from drone swarms to hypersonics and expects to reach nuclear parity with the US by 2035. China has already built the world's largest navy in terms of the number of ships: China accounts for 53% of global shipbuilding compared to 0.1% for the US. China's shipbuilding capacity exceeds that of the US by 200 times. The JPMorgan report emphasizes: "Beijing's military modernization is aimed not just at catching up, but at 'leapfrogging' the US and neutralizing its long-standing advantages."

The situation is exacerbated by the formation of the CRINK group (China, Russia, Iran, and the DPRK), whose members are sharing technology and resources to circumvent Western export controls. U.S. regulatory tools, such as the Chip Act, can only slow down this process, but not stop it, JPMorgan believes.

The desire of U.S. allies for autonomy in defense is weakening Washington's influence, which for decades was built on its partners' dependence on U.S. supplies. Europe and Asia are moving away from a "buy American" policy in favor of their own production lines and R&D.

"U.S. arms sales, which surpassed $300 billion in 2024, have long relied on the "halo effect" of the Buy American strategy and the benefits of deep interoperability. Over time, however, growing concerns about cost, delivery time, and political credibility could erode U.S. market share, and with it, strategic influence"

Japanese and South Korean defense companies are already more dynamic than U.S. firms: their annual revenues have grown 25% since 2022 (compared to 15% for U.S. firms). Europe's quest for autonomy also threatens U.S. export revenues. New EU funding mechanisms are designed to direct budgets toward domestic products, eroding decades-old ties with U.S. suppliers. This course deprives US contractors of familiar markets and access to shared resources. JPMorgan notes: short-term risks are small, but in the future, the loss of market share will deal a serious blow to U.S. strategic influence.

In addition, partners' attempts to lock defense spending within their borders pose global risks to collective security, JPMorgan believes: "If allied defense investments are fragmented across countries, the result may not be true autonomy, but reduced interoperability, duplicate spending, and weakened collective preparedness."

JPMorgan writes that Washington recognized a systemic crisis and launched a reform of the military-industrial complex in November 2025 to speed up equipping the troops. The new decrees give the Pentagon flexibility in procurement and pave the way for tech startups. The department is moving toward portfolio management and is now required to support at least two competitors in each key program to end dependence on monopolists.

However, JPMorgan believes that these measures are not enough as long as the U.S. procurement system mistakenly tries to work with available technologies and ultra-complex platforms under uniform rules. High-tech solutions that can be scaled quickly and replaced cheaply require a separate "high-speed" procurement track, analysts say. Now the main share of investments still goes to highly complex systems with a multi-year production cycle, which by definition cannot be mass-produced. And until the Pentagon brings investments in line with production realities, the U.S. military-industrial complex will not be able to produce weapons fast enough to respond to modern threats, the authors of the report conclude.

This article was AI-translated and verified by a human editor