How Russian aggression has changed military production in U.S. and Europe?

As a famous aphorism goes, "war makes money, and money makes wars." This means that war is also a business, albeit a bloody business, because in order to fight, factories that produce weapons and ammunition must be open. Espreso will explain how the war started by Russia has changed the defense industries of countries and led to an increase in arms production.

The article covers:

• A paradigm shift: from trillions in economic costs to returning to the warpath
• The United States is an unattainable example for other Allies in terms of defense spending
• How the defense industry in Europe has changed after the Russian invasion of Ukraine

A paradigm shift: from trillions of dollars in economic spending to a return to the warpath

Photo: US Department of Defense

Before the fall of the Berlin Wall and the collapse of the USSR, the main threat to NATO countries was a potential for real aggression from the Soviet Union. The Cold War between the United States and the USSR resulted in a huge amount of money and resources being spent on defense for decades. This had both positive consequences (e.g., progress in space exploration) and negative ones (production of thousands of nuclear warheads).

However, in the early 1990s, the political map of the world changed dramatically. Western politicians believed that they had won and redistributed the money they had previously spent on weapons to more socially important things, such as medicine, education, culture, and generally improving the welfare of the population. In turn, this led to a gradual reduction in arms production, modernization, and replacement. Accordingly, military depots began to sprout cobwebs. The world began to think in terms of regional conflicts, seeing terrorists as the greatest threat, not large armies.

This "lethargic sleep" for the military-industrial complexes of many countries lasted for almost 25 years until Russia attacked Ukraine in 2014. It was then that Western politicians, perhaps for the first time, openly wondered (or perhaps even earlier, in 2008 after Russia's attack on Georgia) whether they were doing the right thing, hoping to avoid a major war.

In September 2014, an important NATO summit was held in Wales. It was the first such summit since the end of the Cold War, where the Russian delegation was absent. It was agreed that member states should increase defense spending. The Alliance decided on the Wales Summit Declaration, which provided for an increase in defense spending to 2% of GDP over the next 10 years (while during the Soviet era, NATO countries were obliged to spend 3%).

"I think it was the first time that NATO was turning toward Europe, both operationally and philosophically. It was the first summit where NATO considered its core mission in Europe. The importance of the latter had not been at the top of the Alliance's priorities. ...The Wales Summit was the first in a series of summits where collective defense, nuclear deterrence, and Russia were discussed. And the trend continues to this day," French political scientist and military analyst Fabrice Pothier said in the summer of 2023 about the historical significance of the NATO summit in Wales.

However, in fact, until February 24, 2022, NATO wanted to believe that war with Russia was a distant prospect. Most member states did not adhere to the plan agreed in Wales, so in early 2022, they were surprised to find (except for the United States) that their military depots were not that large and their weapons were long overdue for renewal. This is one of the reasons why military aid from Europe took so long to come to Ukraine - because there was nothing to give, and what was there needed to be repaired.

Now NATO claims to be ready to defend the borders of all 31 member states, which together have increased national defense spending by about $200 billion since 2014. Meanwhile, Russia spent a total of over $500 billion on defense from 2014 to 2022. That is, while NATO was only agreeing to increase money for military activities, Russia was actively building up its military capabilities, which has allowed it to wage a full-scale war against Ukraine for two years.

"But that was the start of building back what had become a hollowed-out military network across Europe in the decades following the end of the Cold War, a process that still could take years, analysts say. That “peace dividend,” as the shift was called, diverted trillions of dollars from military budgets to increase spending on health care, education and housing. Europe’s defense industry also shrank as demand for battle tanks, fighter jets and submarines plummeted," the New York Times wrote in late January in an article titled "For Europe and NATO, a Russian Invasion Is No Longer Unthinkable."

The US is an unattainable example for other Allies in terms of defense spending

Photo: US Department of Defense

The development of any military-industrial complex requires money. The more it is targeted, the better military capabilities a country can demonstrate. The United States spends more on national defense than China, India, Russia, Saudi Arabia, France, Germany, the United Kingdom, Japan, South Korea, and Brazil combined. Moreover, if we compare the spending of the entire world, for example, in 2019, the United States still spent more money on defense.

However, this has not always been the case. Before the events of World War II and what happened afterward, the United States spent modest amounts of money on the military. After all, it had not yet become the hegemon of world politics and was more interested in domestic issues.

In the early 60s of the last century, President Dwight D. Eisenhower, in his farewell address to the United States, warned the people and the government about the need to create a powerful military-industrial complex. After all, in the modern world, war has become an industry, and whoever has the most developed one wins.

After President Eisenhower's departure, the expenditures and budget of the United States Army experienced significant growth, with military plants proliferating rapidly. Private companies engaged in high-precision technologies began to create military units and receive multibillion-dollar contracts from the US Army. Although most weapons for the United States are produced by private companies that can sell them to other countries, the government has the right to control the export of military equipment and machinery. Currently, Lockheed Martin (aircraft, missiles, warships, and drones), Raytheon (radar, missile systems, electronic warfare), Boeing (aircraft, helicopters, missiles), Northrop Grumann (aircraft, missiles, ships), and General Dynamics (armored vehicles, warships, submarines), AM General (military off-road vehicles and trucks), Smith & Wesson (firearms) are the largest arms manufacturers, making the United States the world's largest arms producer and exporter.

Hence, the United States continues to allocate and expend hundreds of billions of dollars annually on defense. Moreover, considering the current exchange rate, this figure can easily translate into trillions of dollars, especially when examining historical data such as 1953, when a record 14.2% of the U.S. GDP was dedicated to defense spending. Since 2005, the US military budget has been at least $500 billion annually. In 2023, it amounted to $860 billion, or 3.5% of the country's GDP. Given the unstable political situation in the world, we can expect annual spending to cross the trillion-dollar threshold in the coming years. No other country can come close to such figures. China is second on the list, but its spending only exceeded $100 billion after 2010, and in 2023 the Chinese will spend $224 billion on defense. However, it should be borne in mind that last year China spent only 1.6% of the country's GDP, so its potential is almost as good as that of the United States.

It's also noteworthy that a significant portion of the US defense budget is not solely allocated to weapons production but is also dedicated to research and development. Hundreds of billions of dollars are invested by Americans in the advancement of new technologies and the modernization of existing weapons systems. For example, the growth of the military budget over the past decade has been largely due to the production of new technologies, such as 5th-generation fighter jets. Research and development is one of the main areas of the US defense budget.

Undoubtedly, Russia's full-scale war against Ukraine has significantly influenced the allocation of funds and the prioritization of weapon production in the United States. The focus, in particular, has been on ammunition. After all, no one expected that the world could have another war in terms of the intensity of ammunition use, as it was during World War II. Both Russians and Ukrainians use thousands of shells every day. Last year, there was a short period when the Ukrainian Armed Forces outnumbered the occupying forces in this indicator, but now there is an acute shortage. According to Business Insider, Ukrainians currently use a minimum number of shells every day - about 2,000, while the Russians have again increased the number of strikes to 10,000.

In early February this year, Doug Bush, the head of the US Army's procurement department, said that by October, the Americans could double the production of ammunition used in Ukraine. There are plans to ramp up the production of 155-mm artillery shells in the United States, increasing from 28,000 in October of the previous year to approximately 37,000 by April, with a further surge to around 60,000 anticipated by October 2024. Subsequently, the US Army hopes to rapidly increase production in 2025 from just under 75,000 in April to 100,000 in October.

Due to problems with Republican votes, which have delayed the approval of US aid to Ukraine for 2024 for several months, Kyiv is experiencing a significant shortage of ammunition, which it wants to replace with the active development of cheap but highly accurate drones (“kamikazes” and ammunition carriers) of its own production. But while the election disputes in Washington continue, affecting the allocation of the promised $61 billion to Ukraine, the EU is also trying to help Kyiv with weapons.

How the defense industry in Europe has changed after Russia's invasion of Ukraine

Photo: army-technology

In early February of this year, EU High Representative Josep Borrell visited Kyiv, where he reported that since Russia's attack on Ukraine, the capacity of the bloc's defense industry has increased by 40% and continues to grow. He also promised that the EU would provide over 1 million pieces of ammunition to Ukraine by the end of the year. Although this was also mentioned last year, the European Union failed to fulfill its promise, delivering only a third of the promised amount. There are a number of reasons for this.

For decades, Europe has relied heavily on the United States for military support. With the US investing a significant amount in defense, it has served as a dependable ally capable of defending others when needed. However, this reliance has led to a weakening of Europe's own military capabilities. Consequently, prior to February 24, 2022, European nations gave little thought to military spending, only recently starting to increase it.

The biggest spenders on security in Europe are the United Kingdom (about $65 billion), Germany ($55 billion), and France ($55 billion). Ukraine is in fourth place, and because of the full-scale war, it is forced to allocate record money - more than a third of its GDP to defense, which amounts to over $40 billion. Interestingly, neither the United Kingdom, Germany, nor France allocate more than 3% of their GDP to defense. Their defense spending figures have consistently hovered around 1.5-2.5%. While Russia's aggression has influenced the distribution of funds for their respective armed forces, the impact has been relatively modest, reflecting an increase of several billion dollars rather than tens of billions. After all, governments have to balance to keep inflation and price increases in check, otherwise domestic discontent could lead to blocking aid to Ukraine. Societies that are not at war are hardly aware of possible threats.

"Europe is waking up to the urgent need to strengthen its own defenses — especially as Donald Trump seems poised to capture the Republican nomination and possibly even the White House in November presidential elections. And his public statements that he will not defend Europe and is ready to withdraw the United States from NATO are not encouraging," Politico experts note.

In other words, Europe has only recently begun to think about what alternatives it has if the United States suddenly says: "defend yourselves on your own" when Russia does attack another country. After all, the last two years of war in Ukraine have exacerbated fears in neighboring countries that share a border with Russia. Specifically Poland, Finland, Estonia, Latvia, and Lithuania. Moldova has no less fears, as they realize that if Ukraine falls, they will be next.

"One way of addressing this anxiety would be through a European-centered deterrence strategy, which seeks to assuage these fears without unnecessarily provoking Russia. After all, Russian security elites worry far more about U.S. troops on their borders than they do about European units. And having signaled their interest, France and Germany are now moving in this direction — albeit slowly. The German army brigade (4,000 personnel) to be permanently stationed in Lithuania in a few years’ time is one example of this," said Artin DerSimonian, a junior research fellow in the Eurasia program at the Quincy Institute for Responsible Statecraft.

However, for the EU to be able to defend itself, it must again allocate money to the defense industry to increase the development and production of weapons. Although the EU does not have its own army and central military leadership, as most countries are members of NATO and coordinate their actions at the level of the Alliance, the EU has the European Defense Fund and the European Peace Facility, which could be more involved in these processes.

The key is the participation of Germany and German defense companies. After all, in Europe, Germany has the greatest opportunities to increase arms production. The German government exported at least €11.71 billion worth of weapons in 2023, which is a new record. According to the government, arms exports grew by 40% compared to the previous year, and more than a third of approved exports went to Ukraine. In Europe as a whole, Germany has been leading the way in terms of aid to Ukraine since the start of the full-scale Russian invasion. In 2023, Germany allocated €5.4 billion to Ukraine and €2 billion in 2022. This year, Germany's budget provides as much as €8 billion for military support to Kyiv. However, so far, Ukrainian diplomats have failed to break through the Berlin Wall to supply Kyiv with long-range Taurus missiles.

Despite the large financial injections, German Defense Minister Boris Pistorius said at the end of last year that there was a delay in the supply of weapons to Ukraine because the industry could not keep up with demand. He added that the German defense industry is increasing capacity "wherever it can," but it will take time to open factories and build up the necessary stocks. Once these processes are in place, it will be possible to produce weapons quickly and smoothly.

The activities of Rheinmetall AG, one of Europe's largest arms manufacturers, have taken on particular significance. This company is probably Ukraine's most important defense-industrial partner, as it supplies military equipment, anti-aircraft systems, ammunition, military trucks and mobile medical equipment, as well as provides maintenance services. Since the beginning of last year, there have been statements that Rheinmetall will build a plant in Ukraine to manufacture modern tanks and armored vehicles. However, this issue is not being discussed publicly. Instead, the company has begun construction of a new plant in Lower Saxony, Germany. Again, given the high demand for ammunition, there are plans to increase the production of 155-millimeter artillery shells. In the future, the company wants to produce 200,000 artillery rounds annually. Earlier, Rheinmetall bought a plant in Romania that will help Ukraine maintain its Western military equipment.

Concerning France, President Emmanuel Macron announced in the summer of 2022 that the country was transitioning to a "period of war economy." However, a year and a half after the announcement, the French performance is still very modest. In October 2023, French Defense Minister Sébastien Lecornu said that while in January 2023 France could supply only 1,000 155-mm ammunition to Ukraine per month, in January 2024 production would increase to 3,000. Similarly, vehicle production escalated from 2 units per month at the beginning of 2022 to 8 units. The manufacturing of Mistral anti-aircraft missiles by MBDA saw an increase from 20 to 40 missiles monthly, and the production of Rafale fighter jets by Dassault Aviation rose from 1 aircraft to 3. Although these numbers may seem modest, if the current pace continues, they could potentially double by the end of the year.

The United Kingdom, which after leaving the EU began to emerge as an independent player on the international stage, also quickly realized the importance of building up its military capabilities. A year ago, former British Defense Secretary Ben Wallace said that his country had begun to "warm up" its production lines to replace the weapons sent to Ukraine. Hinting that His Majesty's government had begun to change its defense paradigm, including increasing defense spending by $2 billion last year. And recently, the leading British defense company BAE Systems signed a contract with the US Army to restart production of M777 howitzers, which are used by the Ukrainian Defense Forces in the war against Russia.

"BAE Systems will work with its supply chain in the UK and the US to produce the major M777 titanium structures, which form the basis of the gun. The first major structures are due to be delivered in 2025," the release said.

In addition, BAE Systems previously signed an agreement with the Ukrainian government to open a representative office in Ukraine to jointly produce L119 light howitzers and other military equipment.

Poland also does not stay away from arms production. Lacking the appropriate defense industry to manufacture their own tanks and aircraft, the Poles have been buying weapons from other countries for many years. However, according to Polish journalists, this approach will be abandoned by the current government and will focus on building its own powerful defense industry. Currently, the Poles have increased the production of firearms, explosives and ammunition, but they also plan to increase the production of howitzers and ships. For example, the Polish plant Huta Stalowa Wola, which produces Krab self-propelled howitzers and Rak automatic mortars, has been tasked with doubling its supply over the next two years. And at the Remontowa Shipbuilding and PGZ shipyards, the construction of three new generation Miecznik frigates was laid, which will cost the Polish budget $3.6 billion.

It is also worth mentioning a few words about another important player in arms production - Turkey. Turkey's military-industrial complex exports several billion dollars worth of weapons annually. The famous Turkish Bayraktars demonstrated for the first time how important the development of the unmanned aerial vehicle industry is. Therefore, the construction of a Bayraktar drone manufacturing plant in Ukraine may be of key importance in the future of the Russian-Ukrainian confrontation. This is especially significant given the production capacity of 120 drones per year. In addition, the Turks are building a new generation of military frigates for Ukraine. The first was launched in October 2022, and the next two are on the way.