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The global defence market is expanding significantly but also becoming less internationally accessible as governments tie their own defence spending to industrial resilience, according to new research by Strategic Analysis Australia.
The new research is displayed under the agency’s Australian Defence Business Outlook 2026, which further highlights that while global defence spending is surging, Australian companies face increasingly difficult conditions in accessing both domestic and international markets.
The report, published earlier this month on 14 September, was authored by Strategic Analysis Australia founder and director Michael Shoebridge.
Shoebridge argues that defence markets are becoming more nationally focused with governments in Europe, Japan, the US, and elsewhere directing rising defence budgets towards strengthening their own industrial bases, reducing supply-chain vulnerabilities and ensuring access to weapons and components during any future potential conflict.
“For decades, defence globalisation operated on the assumption that the best military equipment could be bought from wherever it was made – except of course from potential adversaries. For many militaries, notably Australia’s and many NATO partners, this meant buying American. That assumption is disappearing in most US allies’ national capitals and defence ministries as a consequence of American decisions, policies and actions,” the report said.
“European governments increasingly want their defence spending to build European – and preferably national – industrial capacity. That makes sense when governments look at Ukraine and ask some very basic questions:
“What happens if we run out of ammunition? Or if the effective but expensive systems we buy from America are either simply not available because of US decisions, or cannot be purchased in the volumes we need during conflict? What if even if US policy allows their supply, the US industrial base just can’t produce them in time
“A military that cannot replenish its missiles, artillery shells, drones and spare parts, and repair and replace damaged and lost systems quickly is not a military with much staying power. Those militaries lose wars.
“So, governments are increasingly treating defence industry as part of national security rather than simply as another supplier market.
“(In addition) the US needs much larger inventories to have credibility to deter a major conflict with China – and the production to meet this larger need will take years longer than simply restocking. So, for at least the next decade, any US administration will need to be ruthless in prioritising its own military needs over supplying allies and partners – even an administration that is far from the unilateralist outfit we see under President Trump.
“For Australia, this creates a simple but uncomfortable problem. The moment we most need American weapons and logistics is likely to be the moment American industry is least able to supply them.
“And even if the US government is politically willing to supply Australia, American production will necessarily have to meet American military requirements first. That is not an indictment of America. It’s what any sovereign state must do.
“The mistake is for Australia to build its military on the assumption that this will not happen.
“Outside Australia, the countries doing the spending are increasingly making sure that their own industries get first call. Australian defence businesses need to understand that reality as they build their business strategies.”
In the data space, the report shows that global military expenditure has already reached about US$2.9 trillion in 2025. The annual Australian Defence budget is growing with $62.6 billion now and on track to be over $100 billion in the mid-2030s, moving from 2.02 per cent of gross domestic product (GDP) to around 2.33 per cent (not the larger figures created by the current government inflating things with non-Defence spends like the veterans’ budget and creative accounting like unidentified “alternative financing”) – according to the report.
“The wars in Ukraine and the Middle East, China’s rapidly expanding military power and the increasingly unpredictable behaviour of the United States are forcing governments to spend more on defence and, increasingly, on defence industry,” it said.
“The countries doing the spending are increasingly determined to spend it on their own defence industries. At the same time, Australia is doing something rather different. While its defence budget is growing, much of that money is already committed to a small number of enormous, slow-moving programs dominated by foreign primes.
“Simply listening to government ministers’ speeches would create the impression that building an Australian defence industry is important, the actual policy, budget and institutional settings around Defence default towards those big foreign primes, with no substantial national policy for preferencing actual local industry in a way that results in contracts.”
The report also highlights that the US defence market is becoming increasingly fraught, as US procurement is heavily structured around American companies, despite enormous Pentagon spending.
Specifically, Shoebridge recommends that Australian defence businesses reduce dependence on US defence supply chains by diversifying suppliers and designing around readily available components, develop alternative solutions to scarce major weapons and components (effectively targeting gaps created by constrained production capacity), treat Australian Defence funding as a potential springboard to export markets (rather than assuming major domestic procurement), partner locally when entering overseas markets (or consider establishing overseas production) and remain a niche supplier to major primes if the business model is profitable and sustainable.
“If being a niche supplier to the big primes works for you, keep doing it. There’s steady money to be made from being a sub-contractor to big foreign primes that get the lion’s share of Australian defence investment, focused on the big, slow programs like AUKUS and the Hunter frigates. If it’s your happy place, stay there,” he said.
“Decouple critical supply chains from US defence production where you can. The US is struggling to meet its own defence needs, so it’s in no shape to make you a priority. If your ability to deliver depends on scarce US defence components, you have built someone else’s supply-chain problem – and government intervention – into your business. Find alternatives, use multiple suppliers.
“Think about ‘form, fit and function’: Gucci and high-end ‘Superfakes’ have lessons for you. Scarcity has created a market for high-end alternatives to luxury goods like handbags and watches. In a world where there just aren’t enough Patriot interceptors, that can happen in the defence sector too.
“If you want to sell overseas, partner locally. Governments across the world have strong policies driving a preference for national industries to supply their militaries as they spend more on defence. Without a local partner, you won’t go to the dance.
“If you want to sell to the Australian military, you are probably out of luck. Australian government policy is solidly against any real form of sovereign defence industry preference and instead defaults to spending on the big foreign primes. That’s structural and institutional, so live with it.”
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