With spending in the hundreds of billions of dollars, defense giants and new technology companies vie for hegemony in a market driven by global tensions
The United States government operates the largest military budget in the world, set at around US$895 billion for the 2025 fiscal year. Much of this amount is not restricted to barracks, but feeds an industrial complex made up of private corporations that develop and manufacture everything from basic ammunition to stealth fighters and artificial intelligence systems. With the worsening of conflicts in Ukraine and the Middle East, combined with the technological race against China, the demand for military equipment has soared. This caused arms sales by the sector’s 100 largest companies to reach a record US$679 billion in 2024, with American companies accounting for almost half of this global revenue.
What is the American defense budget and how is it structured?
The United States military budget is the annual portion of the federal treasury allocated to the Department of Defense (DoD) and national security programs. It covers operational expenses, military salaries, base infrastructure and, significantly, the acquisition of new technologies and weapons.
Unlike countries where the State owns the weapons factories, the American government acts as the main client of a network of private contractors. This model encourages innovation, but has also generated strong market concentration over the decades. Currently, an oligopoly formed by five large conglomerates absorbs the largest share of federal contracts, dictating the pace of war production and maintaining a strong influence over the country’s defense economy.
The dynamics of military contracts in practice
The transformation of public funds into military power follows a rigorous cycle of public contracts, which goes from identifying a threat to sending weapons to the battlefield. The Department of Defense structures this flow into three main phases.
1. Technological research and development
Before a weapon is mass-produced, the government funds research programs to create solutions to new tactical demands. Companies compete for design and prototyping contracts, involving cutting-edge technologies such as hypersonic missiles, advanced radars and electronic warfare software.
2. Manufacturing and industrial scaling
Once the prototype is approved, the government signs acquisition contracts for large-scale production. It is at this stage that automakers activate their global supply chains. The process faces chronic challenges, such as a shortage of specialized labor and bottlenecks in obtaining essential components, which often result in delivery delays and billion-dollar cost adjustments for the tax payer.
3. Fleet maintenance and modernization
The sale of the equipment represents just the initial stage of cash flow for the defense giants. Contracts for logistical support, software upgrades, and heavy machinery maintenance ensure continued revenues for decades after the original military platforms are delivered.
The corporations that dominate the global weapons market
The military industrial supremacy of the United States is supported by a restricted group of traditional manufacturers, who are now beginning to share space with applied technology companies. Historical industry leaders include:
- Lockheed Martin: The largest weapons manufacturer on the planet, responsible for the F-35 fighter and the THAAD missile defense systems. Almost all of its revenue, which exceeds the US$68 billion annual mark in military sales, comes from direct contracts with the American government or exports approved by Washington.
- RTX (formerly Raytheon Technologies): Leading global manufacturer of missiles, including the Patriot and Tomahawk systems, essential in modern anti-aircraft defense in conflict zones.
- Northrop Grumman: Specializing in stealth and aerospace technologies, it is the manufacturer of the B-21 Raider stealth bomber and advanced cybersecurity and surveillance systems.
- General Dynamics: Focused on land and naval power, it produces the M1 Abrams tanks, essential for land forces, and leads the construction of Virginia-class nuclear submarines.
- Boeing: Despite the crisis in civil aviation, the company has a highly profitable military division that supplies Apache helicopters, F-15 fighters and long-range drones to the Pentagon.
At the same time, the military’s pursuit of autonomous systems and cloud architecture has opened the federal budget’s doors to new competitors. Companies like SpaceX, Palantir and Anduril have been securing significant contracts to provide satellite connectivity, artificial intelligence data analysis and cheaper, disposable unmanned vehicles.
Military Financing FAQs
What is the origin of the money that finances the United States defense industry?
The resources come from the collection of federal taxes and the issuance of American public debt. The United States Congress debates and approves the defense budget annually, legally authorizing the Pentagon to sign technology purchase and development contracts with the private sector.
Why does military spending keep increasing year after year?
Growth is driven by a highly volatile geopolitical environment. Rising tensions with China in the Indo-Pacific, the need to replenish stocks of ammunition and weapons sent to Ukraine, and extended military operations in the Middle East are forcing Western countries to invest heavily in expanding their arsenals.
Can foreign companies sell weapons to the US government?
Yes, but with severe restrictions. The Department of Defense strongly prioritizes the domestic industrial base for reasons of national security and independence. When allied companies, such as Britain’s BAE Systems, win contracts in the United States, they operate through local American subsidiaries, subject to strict confidentiality and audit controls.
The intrinsic relationship between the federal budget and the defense sector consolidated a highly profitable industry, partially shielded against the economic fluctuations common to civilian markets. The guarantee of long-term contracts offers financial predictability that attracts institutional investors and boosts military sector shares on the main stock exchanges.
However, dependence on this highly concentrated model exposes structural weaknesses in military response capacity. Current production lines face real operational difficulties in scaling the manufacturing of basic munitions and complex systems at a pace that keeps up with the demands of active conflict. The scenario points to forced modernization, where traditional giants will need to absorb innovations in artificial intelligence and agile manufacturing at the same speed as cutting-edge technology startups.
