TRUMP'S GEOPOLITICAL SHIFTS WILL RESHAPE THE GLOBAL DEFENCE MARKET

by Xavier Cardenas Conio

THE IMPACT OF TRUMP´S DECISIONS ON EUROPEAN SECURITY

Many others have made an impact on world geopolitics in a short time. Bismarck's Realpolitik was instrumental in achieving German unification. Kissinger successfully used shuttle diplomacy to bring a proper end to the Yom Kippur War while maintaining détente towards Russia and now, US President Donald Trump virtually put the world upside down in a way that not even the fall of the Berlin Wall was able to, but with a difference. Other leaders have followed a line or a way of thinking, but Trump changes his speeches and actions in unpredictable ways that it is almost impossible to guess what he is going to do next. He and his triumvirate are following so many unforeseen routes that some leaders still don’t know how to react.

His actions are causing reactions, the eternal cause-effect, and he is producing changes in several aspects of how the world works, including the defence market.

The stance against those who have been its allies for more than a century has changed dramatically, creating the damaging impression that the US is not reliable anymore, and it will take a toll on US defence companies. Also, his friendly actions against who has been his enemy for almost a century left everybody aghast, making it difficult to understand what he is doing. By reinforcing ties with his former enemy, he is creating a monster and paving the way for future Russian aggressive actions against Europe.

THE EU TAKE ACTION AND PLANS THE FUTURE OF ITS DEFENCE

The common consensus that the US is not reliable anymore grows by the day among EU leaders, who are indicating that buying from the US is not to be trusted. French President Emmanuel Macron openly said: "Don’t buy American, buy European." Trump is not only abandoning Europe’s defence but also closing the gate for US companies to sell to the EU.

And now Europe is turning on itself to cover its defence equipment needs and has to address some challenges:

The high-tech equipment they manufacture is not as good as US-made. Some projects are underway but they are due to be delivered in 2030.

The quantity of companies is not able to cover all the demand.

Some items can’t be found in Europe as no manufacturer produces them.

Trump and Elon Musk’s approach to Russia endangers satellite communications and Intelligence capabilities.

But a very good sign is the recent release of the EU White Paper where the key points are:

How the budget will be allocated.

What are the priorities for spending.

How to involve the private sector.

Fostering of joint procurements to achieve economies of scale.

So, in the end, this defence spending may include companies that are currently quite remote to defence issues.

Now, what will the EU buy? EVERYTHING. From combat socks for the Infantryman to aerial defence systems. This spending might come in waves according to the defence urgency. The EU White Paper establishes the priorities. 

And I think they will not buy only equipment but will also create new defence organizations. Intelligence services of several countries have informed of the hybrid warfare Russia is doing against the whole world, so the EU needs to create a structure to counteract those actions.

Accordingly, the defence spending will increase the military capabilities in different stages. The first stage of the plan is to be achieved in four years where I expect to have full readiness for the increase in standing Armies. Poland plans to increase its Army by 300.000 soldiers and equipping and training such a force is quite a challenge that will take several years. Full defence capabilities will be reached in five years and readiness to enter battle with offensive capabilities will be reached in more than five years. So this is not a stopgap solution. It is a long-term plan to achieve and then, maintain a strong enough military force to deter Russia. But Russia is Russia and they will attack Europe at any moment no matter the European defences. You can take that for granted.

Perhaps the Third World War hasn’t started yet but Europe is fully entering a new Cold War and the objective is to keep it cold throughout the years to come. Civilians must continue with their normal lives but all those involved in defence such as politicians and soldiers must have a war mindset from this very moment ready to deploy to the battlefield in no more than 48 hours.

And, I prefer to put this in short: defence against nuclear weapons must be reinstated to protect the population. Russia likes to attack but when it is attacked it can react in unforeseen ways.

CHALLENGES IN THE SUPPLY CHAIN: POTENTIAL DISRUPTIONS IN DEFENCE DEALS

As the EU will be busy and the US turns unreliable, countries will look to manufacturers in other regions, and foreign companies will take the opportunity to fill the vacuum created by both parties.

I don’t believe in the “kill switch” idea, but even so, the uncertainty remains. Trump is ruling his country like an emperor and can block any defence sale at any moment.

In case the US is still open to EU defence imports, countries won’t forget Trump’s actions, so they will take safety measures such as:

The US company will request payment in advance, but to do so, EU countries will include new clauses in the contract to protect them from any disruption in the sale. So, to start, contracts will change. In case the project is stopped, the client will enforce the insurance to have its money back. Performance bonds will be cashed becoming another loss for the US manufacturer.

EU countries will request bonds of guarantee of different types to the US manufacturers to be cashed in case any disruption occurs, whether from causes internal or external to the company.

New types of foreign trade insurance policies will need to be created.

The prices of the insurance will rise.

Shipping companies will raise their prices.

Warehousing and port costs will rise and increase.

Warranties for after-sales service will have to be requested to ensure the provisions of spare parts, programmed maintenance, training for users, mechanics and technicians, software upgrading, replacement of defective items on reception, and many others.

Even if Trump says everything is fine, the EU won’t purchase from US companies and if it does it will require the warranties stated above.

For five to ten years, the European defence industry will be so busy covering EU necessities that it won’t take orders from other continents.

So, problems that may appear in the supply chain are:

US Presidential order to stop the sale at any stage of the project. Why? Trump doesn’t need reasons. He just does what he wants.

The production will stop halfway through, leaving the EU client without the goods it purchased and the manufacturers with finished and unfinished goods in their factories plus a big stockpile of inputs for manufacture.

If the disruption happens at the moment of delivery, it might mean hundreds of containers laden with defence products for Europe baking in the sun for months in some American port.

Having the ship already loaded gives no guarantee either, as it may not receive permission to set sail or even be stopped before leaving the 200 miles of territorial waters. So, the ship can be at anchor off Savannah for two months, causing more costs for everyone involved: the producer, the client, the freight forwarder, the shipping company, the insurer, and, above all, the soldier who is waiting for its kit.

THE SOCIAL AND ECONOMIC IMPACT: THE RISK OF JOB LOSS IN THE US DEFENCE INDUSTRY

In the US, the defence industry employs 2.2 million people. If the EU doesn’t buy you know what follows. I don’t have the real numbers, but I am sure for most companies, the EU and/or NATO are their biggest buyers. Poland is the biggest spender in defence but buys 80% of their military equipment from the US. If the European markets get closed for them, they won’t sell, revenues will drop, and many workers will have to be laid off. So Trump's decisions will endanger the jobs of hundreds of thousands of people, causing a social problem of huge proportions.

Some US companies, seeing that their sales can be blocked at any minute, may move their production to other countries or sell through third parties.

US companies will try to find other markets, but all international markets together don’t make the size of the EU, so sales will drop anyway.

European companies are manufacturing in the US. Rheinmetall has three plants producing vehicles. What will happen to them? It’s an EU company, but will it be allowed to produce for the EU or not?

All other countries non-EU, non-NATO, and non-anything are also looking at what is going on, so they will also be unwilling to make deals with US companies. If he created sanctions against Mexico and Canada, he could create sanctions against anyone.

In some countries that have important quantities of EU-made material, this will cause uncovered needs in terms of maintenance, spares, and many others. Chile, for instance, has two armoured divisions that include 200 + Leopard tanks, Marders and others, and they will require logistic support. If the EU is busy, where will they go? If they need a German RENK transmission or an MTU engine, will they be available? This one has a solution, and its name is Turkey. But Chile also has F-16 fighter jets. Will the US be open to providing technical support? What if Chile sends its fighters for an upgrade and Trump creates a conflict and doesn’t return the planes making them political hostages?

Consequently, if the US is unreliable and the EU is manufacturing for itself there will be a shortage of war materiel all around the globe and that will affect almost all countries for many years.

However, the US may lose their overseas clients but the internal demand will still be high so it could be expected they will focus within borders.

THE FUTURE OF GLOBAL DEFENCE MARKETS: POTENTIAL NEW ALLIANCES AND INVESTMENTS

The investment in other companies could be made with like-minded countries, but perhaps not only companies will be interested in partnerships with the EU. Also governments might be interested in joint ventures. EU Ambassadors and Defence Attachés in all countries should start now to see if they can find reliable defence partners where they are.

Other actors will enter the arena of the defence market. Some countries are ready to do so, and others will see the opportunity and act.

Many countries have important defence manufacturers. Some state-run, others private. Some of them are:

Brazil.

Embraer builds aircraft, perhaps not fighters, but others that can be used for other roles. Iveco builds wheeled armoured vehicles that have been sold to over 30 countries, and Avibras builds rockets and artillery systems.

Chile.

Enaer builds aircraft, and FAMAE makes rifles, rockets, and ammunition of all calibres. In this moment, it is manufacturing Galil rifles for the Chilean Army in a joint venture with IWI.

Colombia.

This country has very good defence companies that produce military uniforms, bulletproof vests, and tactical helmets and they sell worldwide with excellent standards of quality.

India.

Some countries may not rely on India, but it shouldn’t be so. India has an Intelligence-sharing partnership with the US and this last country is the biggest seller of defence equipment, followed by France, so it is a reliable supplier. Some companies are:

Hindustan Aeronautics Limited (HAL): Aircraft manufacturing, including fighter jets and helicopters.

Bharat Dynamics Limited (BDL): Produces missiles and defence systems.

Ordnance Factory Board (OFB): A major producer of small arms, ammunition, and armoured vehicles.

Australia produces many kinds of equipment, including the Bushmaster vehicle made by Thales Australia.

Thailand, Indonesia, Singapore, South Africa, Canada, and Mexico all have important defence companies.

In the Emirates, there is also a player who may want to enter the stage. The EDGE Group, composed of 25 defence manufacturers, is seeking to produce military equipment, and backed by the government, may have a strong position to participate in the EU market.

If some businessman producing anything in any country is clever enough, they can consider partnering with an EU company. If he manufactures work clothing, he might turn his production to military uniforms.

But there are also other geopolitical factors to consider.

There are threats of conflicts in several areas that can affect the defence market. Many companies worldwide manufacture in Asian countries. There are a few American wholesalers that sell all around the globe whose products are 90% Asian-made, and at least one that I know imports almost everything from China. We all know that the slant-eyed soldiers will invade Taiwan as soon as they finish their naval building programme. If so happens, that company will not be able to buy and will have to find other solutions quickly, because this will happen at any moment. Will Trump allow that company to buy in China? I know that the Chinese move their activities in different channels. Waging war is one thing, and commerce is another, so the invasion should not interrupt commerce except with the US and the EU.

But the Chinese naval advance will also include the islands they are contesting in the South China Sea, and naval clashes between several navies might happen and that will disrupt the shipping lanes in the region, breaking the supply chain in many ways. So, for EU or EU-provider companies, they will have to make a contingency plan, like moving their production to other areas that are not affected by a conflict in Vietnamese waters. My first guess for this is India, Turkey, or Latin America.

The Red Sea is already a hot zone and it is better to avoid it. Before, it was the Somali pirates who had rifles. Today, we have the Houthis, who have rifles but also have rockets, missiles and drones and have attacked several ships in front of their coasts. So, traffic through the Suez Canal will be almost impossible unless there are warships to provide protection. The lane around the Cape of Good Hope will be the only choice, and this will increase several aspects of the supply chain.

The Emirates has a love-conflict relationship with Iran that changes from time to time. From Iran, anything can be expected, so if the EDGE Group begins to sell to the EU, the Iranians might come up with the initiative of disrupting Emirati shipping lanes, thus denying the EU the possibility of receiving their goods, and the ACLED will have to put another red zone in their maps. 

FIVE ADDITIONAL POINTS TO CONSIDER

The Role of Non-Western Suppliers.

The rise of non-Western defence suppliers could reshape the global market. After partnering up with some EU company, other continent’s manufacturer, will keep an important know-how that will enhance their production and sales capabilities.

Hybrid Warfare Threats.

As the world increasingly relies on digital technology, the cybersecurity of defence supply chains will become a critical issue. A successful cyber-attack could cripple the ability to maintain its defence readiness and US actions we are seeing with Russia could affect Europe’s communications and Intelligence capabilities. Other kinds of actions like sabotage may also cause disruptions.

Global Military Logistics Networks.

The future of global defence logistics will likely depend on expanding multinational networks. Countries and companies will need to collaborate more closely to ensure the rapid movement of critical military goods like providing security in the Red Sea.

Maintenance of agreements is changing.

Due to the Russian threat, Finland is evaluating withdrawing from the Anti-Personnel Mines Convention (the Ottawa Treaty), and the successful use of cluster ammunition in the Ukraine war might lead to the restart of the production of these kinds of weapons.

Shortage of war materiel in the world defence market.

EU and US companies will be busy covering European needs and some countries might not be able to obtain the equipment they need. If some country cannot obtain the equipment it requires it might cause a weakness that an opponent might take as an advantage to generate a conflict in another area of the globe. Therefore, countries that have defence industries might need to boost their production and prepare to be self-reliant for the next ten years but might also expand their worldwide market share. Russia will also have to rebuild, thence those countries that have Russian material will also face shortages. 

GEOPOLITICAL CONSEQUENCES

Increased Instability in Europe.

As EU countries turn away from US defence products, Europe may become more fragmented in its defence efforts, leading to potential internal instability and weakened security. It can be seen today that the population is reacting differently to the Russian threat in different countries. The Baltic states are almost in a state of alert whereas the Spaniards want to include the combat of climate change in their defence budget and the opposition is requesting the government to withdraw Spain from NATO. However, the EU White Paper for Defence fosters collaboration between countries.

Reshaping of World Alliances.

If a country like the US is dropping those who have been their closest partners for a century, other countries worldwide may rethink their approach with the US and may try to create new alliances with other more reliable partners thus fostering a multipolar world.  European forces normally participate in UN peacekeeping missions and now, won’t be able to do it thus weakening the UN’s position unless other countries want to participate. If they do so their political strength in the UN will increase reshaping the balance of power.

Emerging Markets for Defence Suppliers.

Europe may have to find suppliers in other continents providing opportunities for those new producing countries. And for the US as its traditional market closes, it will have to market its products elsewhere competing with others that may have never heard before.

US Isolationism and Global Security.

A further retreat by the US from global defence markets could lead to greater isolationism and reduced global influence, potentially weakening international positions and increasing the likelihood of regional conflicts. As for defence expenditures in associated countries, they will lose financial support from the EU except for those with long-term alliances such as Israel.

As the reader can see, I am not talking only about countries here. I am talking about whole continents that will be affected for good or bad. There will be good business out there and they will try to get their share in it. And the bad boys club, such as Iran and China, will become Russia’s main suppliers.

CONCLUSIONS

Shifting Alliances.

US policies under Trump might trigger a realignment of global defence alliances, with countries increasingly seeking alternatives to US suppliers. If EU companies partner with other countries, when they finish the job, companies will have increased their technologies and will be ready to increase their presence in the global defence market.

Increased Risk in Defence Contracts.

Political instability and unpredictable decisions in the US, like presidential orders, pose significant risks to ongoing defence deals so all countries that can will require more secure clauses in the contracts.

EU Self-Sufficiency.

Europe’s push for self-sufficiency in defence manufacturing may lead to increased local production, though it faces challenges in matching US technological standards. But I believe in Europe so I know they will be able to make it.

Economic Disruption.

The shifting dynamics in the global defence market could lead to widespread economic disruptions, particularly in the US defence sector.

Geopolitical Uncertainty.

The growing instability in global politics and the threat of conflict in key regions could disrupt defence supply chains, necessitating new contingency plans from manufacturers and governments alike. As much the US as the EU will be involved in their own concerns and other actors, state-based or not, might take the opportunity to achieve their political agendas knowing that they will have no opposition.

US Recovery.

Trump is creating mayhem but, unless he becomes a dictator, he will be in the White House for another four years and another president will come. He will try to fix things but it will be very, very difficult to recover trust, so the US defence industry will take a long way to go back to what it was. But at that time Europe will have a good industrial capacity so they won’t need much US equipment. Europe has the opportunity to make the jump to defence independence.