The world has never spent more on weapons, and has rarely struggled harder to build them. Global military expenditure hit a record $2,887 billion in 2025, the 11th consecutive annual rise, with European spending surging 14%, the fastest pace since 1953. Yet across the West, the money is arriving faster than the shells, missiles, and magnets it is meant to buy. The defense sector's central crisis is no longer demand; it is the industrial plumbing beneath it.
The evidence is stark. Washington pledged to produce 100,000 155 mm. artillery rounds per month by October 2025 after Ukraine drained American stockpiles. As of March 2026, the US Army was managing just 36,000, and a Pentagon Inspector General report found that a new $469 million metal-parts plant in Mesquite, Texas, had failed to produce a single conforming projectile component. The bottleneck is not money or will, but forging capacity, tooling, and expertise hollowed out by decades of just-in-time procurement.
The malaise is systemic. A 2025 Roland Berger survey found 64% of aerospace and defense companies still facing supply chain disruption, with 65% citing personnel shortages. The US Government Accountability Office warned in July 2025 that the Pentagon, reliant on over 200,000 suppliers, has almost no visibility into where its raw materials and parts actually originate.
That blindness matters most where China holds the cards.
Beijing controls roughly 70% of rare earth mining, 90% of processing, and 93% of high-performance magnet manufacturing, inputs essential to the F-35, submarines, radars, and precision munitions. In October 2025, China imposed its harshest export controls yet, automatically rejecting license requests tied to foreign militaries. By mid-2026, the US defense industry held just a two- to three-year supply of samarium, a magnet material with no domestic source, while CSIS analysts estimate China is expanding its munitions capacity five to six times faster than the United States.
Yet the counteroffensive has begun. Germany's Rheinmetall built Europe's largest ammunition factory in Unterlüss in just 15 months, a €500 million plant scaling to 350,000 shells annually by 2027, part of a network targeting 1.5 million shells per year with new sites in Lithuania, Romania, and the United Kingdom. In the United States, the Pentagon took the extraordinary step of becoming the largest shareholder of MP Materials, injecting $400 million and guaranteeing a decade-long price floor and full offtake for a new magnet plant designed to break China's grip.
The most striking response comes from technology companies treating manufacturing itself as a software problem. Anduril invested nearly $1 billion in Arsenal-1, a five-million-square-foot Ohio "hyperscale" factory that began producing Fury combat drones in March 2026, built to turn out autonomous weapons the way Detroit once built cars. Palantir's Warp Speed, an AI-driven "manufacturing operating system," is being adopted by a growing cohort of defense manufacturers to compress engineering, materials planning, and production into a single data layer.
Hadrian, backed by $260 million from Founders Fund and Lux Capital, builds AI-powered autonomous factories, including a $200 million Arizona site, that come online in under six months, while Exiger's AI maps multi-tier supplier networks to expose the hidden dependencies the GAO flagged. Investors have noticed: venture funding for defense tech hit a record $49.1 billion in 2025, with manufacturing-focused deals nearly doubling to $4.7 billion.
Israel offers perhaps the sharpest lesson. Squeezed by embargoes and Red Sea shipping disruptions, Jerusalem launched a National Armament Council and a "blue and white" localization drive for munitions independence. Elbit Systems, which openly reported component shortages and elevated transport costs, responded by stockpiling materials and automating production with robotics and AI. Its order backlog crossed $30 billion for the first time in early 2026. Resilience, it turns out, sells.
The lesson of this decade is uncomfortable but clear: arsenals are won in peacetime, on factory floors and in mineral refineries, years before the first shot is fired. Budgets are the easy part. Rebuilding the industrial sinew beneath them - the furnaces, forges, magnets, and skilled hands - is the war before the war. Those who wait until the emergency to invest will find, as the Pentagon did in Mesquite, that money cannot buy back lost time.