This is the fifth article in a planned eight-part strategic series by the Gold Institute examining how global conflict is reshaping security, defense, industry, technology, alliances, diplomacy, and strategic decision-making.
Europe’s test is integrated readiness. The Indo-Pacific’s test is integrated deterrence. The Middle East’s test is integrated resilience. But none of these tests can be fulfilled without the foundations that support them: economic security, industrial capacity, critical materials, energy, technology, logistics, and supply chains.
The new race for security is not only a race for weapons. It is a race for the systems that produce, sustain, repair, power, move, and replace those weapons under pressure.
For decades, many democratic countries treated economic efficiency and national security as separate questions. Markets would boost supply chains. Companies would reduce costs. Governments would buy what they needed when they needed it. Globalization would lower prices, increase access, and reduce the incentives for conflict. Defense industries could be smaller because future wars were expected to be shorter, more precise, and technologically managed.
Those assumptions have weakened.
Russia’s war against Ukraine, China’s use of economic leverage, instability in the Middle East, the vulnerability of maritime routes, the race for semiconductors, and growing dependence on critical minerals have all shown the same lesson: economic systems are now part of the security battlefield.
A country may have cutting-edge aircraft, missiles, ships, drones, satellites, and command systems. But without semiconductors, rare earth elements, energetics, batteries, fuel, microelectronics, steel, titanium, machine tools, software, data centers, electricity, ports, skilled workers, and trusted suppliers, those systems cannot be produced, sustained, repaired, or replaced at scale.
This is why economic security is now national security.
Deterrence is not built only in military headquarters. It is built in factories, ports, mines, laboratories, shipyards, data centers, energy networks, rail networks, and supply chains. It is built by workers, engineers, procurement officials, investors, private companies, public institutions, and political leaders who understand that resilience cannot be improvised after a crisis begins.
The world is already spending as if it understands the danger.
Global military expenditure reached a record level in 2025, approaching $2.9 trillion. The United States, China, Russia, Germany, and India accounted for more than half of the world’s military spending. Europe’s spending rose sharply. Asia and Oceania continued to increase defense investment. NATO members together accounted for more than half of global military expenditure.
Janes projects global defense spending at roughly $2.8 trillion in 2026. But the more important signal is not only the growth of total budgets. It is the growth of investment budgets: procurement, research and development, modernization, and long-term force building. Governments are not only paying for today’s militaries. They are trying to rebuild the capacity to equip, modernize, and sustain tomorrow’s forces.
That distinction matters.
Record spending does not automatically create security. The central question is not only whether governments spend more. It is whether spending creates production capacity, resilient supply chains, trained workforces, stockpiles, repair capacity, logistics, and sustainable deterrence.
Spending is necessary. It is not sufficient.
Money can buy platforms, but it cannot instantly create a trained workforce, expand ammunition production, build shipyards, secure rare-earth supply chains, produce semiconductors, upgrade ports, increase energy capacity, or align procurement systems across allies.
The real question is whether countries can convert money into production, production into readiness, readiness into deterrence, and deterrence into strategic stability.
Ukraine has made this impossible to ignore.
The war is not only high-tech. It is also industrial, attritional, adaptive, and brutally material. Artillery shells, air-defense interceptors, drones, armored vehicles, electronic warfare systems, repair facilities, fuel, logistics, and spare parts all matter. So do software, sensors, commercial satellite imagery, artificial intelligence, and rapid battlefield innovation.
The lesson is not that countries must choose between mass and technology. The lesson is that they need both.
They need ammunition and autonomy. They need tanks and drones. They need air defense and cyber defense. They need critical minerals and data infrastructure. They need production lines and software updates. They need military stockpiles and commercial innovation. They need industrial depth and decision speed.
This is the central economic-security challenge of the new era: converting resources into usable power before the next crisis exposes the gap.
Defense requirements are also changing.
Countries no longer define defense requirements only by geography or traditional force structure. They now have to match threats, alliances, industrial capacity, economic robustness, and technological readiness. Baltic states, Gulf states, Japan, Australia, Israel, India, Poland, Germany, South Korea, and Taiwan do not face identical problems. Their geography differs. Their threat perceptions differ. Their alliances differ. Their economies differ. Their industries differ.
But the modern capability requirements are increasingly similar.
They need an integrated air and missile defense. They need drones and counter-UAS systems. They need cyber and electronic warfare. They need intelligence fusion and AI-enabled decision support. They need logistics and military mobility. They need critical infrastructure protection. They need resilient supply chains. They need the industrial ability to produce, repair, and replenish under pressure.
This is why the defense-spending debate is changing.
NATO’s new framework reflects this shift. The old two-percent debate is no longer enough. Allies have moved toward a wider defense-and-security investment model: core military capabilities, as well as defense-related infrastructure, cyber resilience, civil preparedness, innovation, industrial capacity, and social resilience.
That is a major conceptual shift.
It means that bridges, ports, energy systems, cyber networks, data infrastructure, civil preparedness, and military mobility are no longer peripheral to defense. They are part of the deterrence equation.
A missile defense battery is not enough if the port it protects cannot operate. A tank brigade is not enough if the bridges cannot support movement. A cyber unit is not enough if data centers lose power. A weapons factory is not enough if it depends on foreign suppliers for critical inputs. A military alliance is not enough if members cannot move forces, share data, or sustain production together.
The battlefield and the home front are no longer separate.
Europe shows this clearly.
European governments are spending more, but Europe’s challenge isn’t only financial. The continent must convert determination into production, mobility, interoperability, and readiness. It must rebuild stockpiles, expand ammunition capacity, strengthen air defense, protect critical infrastructure, improve military mobility, and reduce dangerous dependencies, yet without cutting itself off from the United States or other trusted partners.
This is difficult because Europe remains fragmented.
National procurement often protects each country’s own defense industrial base. Requirements differ. Certification is slow. Industrial planning is uneven. Defense companies need predictable demand before they invest in new production lines. Smaller companies struggle to move from innovation to scale. Governments announce targets faster than they build implementation mechanisms.
This is the gap between spending and power.
Countries want speed, but they also want autonomy. They want urgent capability, but they also want domestic production. They want innovation, but they also want reliability. They want private capital, but they need public demand. They want national control, but they require an allied scale. They want lower costs, but they need resilient supply chains.
The answer cannot be ideological.
Countries will need a mixed model: domestic production where sovereignty is essential, allied production where scale is required, trusted imports where urgency demands speed, stockpiles where disruption is likely, and dual-use innovation where commercial technology can strengthen defense.
The Indo-Pacific shows the same logic.
China’s military modernization and economic leverage are pushing regional actors to invest not only in platforms but also in industrial autonomy, cyber defense, maritime resilience, critical minerals, and advanced technologies. Japan, South Korea, Taiwan, India, Australia, and others are trying to reduce dependence on foreign-sourced systems while increasing cooperation with the United States and trusted partners.
This is not only a military trend. It is an industrial and investment trend.
The Indo-Pacific defense market is becoming more important because the region understands that deterrence depends on regional production, innovation, supply chains, and technology ecosystems. South Korea’s defense industry, Japan’s gradual opening to defense-industrial cooperation, India’s push for indigenous production and export, Australia’s investment in munitions and undersea infrastructure, and Taiwan’s need for asymmetric systems all point in the same direction.
Security is becoming localized, regionalized, and networked simultaneously.
The United States remains central, but allied nations and partners increasingly understand that they cannot depend only on U.S. capacity. American power is still indispensable, but American industrial capacity is not unlimited. If the United States must support Europe, deter China, manage the Middle East, defend the homeland, and sustain its own modernization at the same time, allies must bring more than political support. They must bring production, infrastructure, logistics, technology, and resilience.
This is where the Pacific Deterrence Initiative is important.
Deterrence in the Pacific is no longer only about forward-deployed forces. It is about logistics, prepositioned munitions and fuel, maintenance, infrastructure stability, exercises, experimentation, innovation, partner capacity, and the ability to continue operations in a contested environment. The ability to fight is inseparable from the ability to move, supply, repair, communicate, and endure.
The Middle East teaches the same lesson in another way.
Missiles, drones, proxy networks, cyber activity, maritime disruption, and information warfare show that prosperous states can be vulnerable if they depend on fragile infrastructure, narrow chokepoints, expensive interceptors, or external protection alone. Gulf states may buy advanced platforms, but they also need civil defense, maritime alternatives, local industry, air-defense integration, cyber resilience, and public confidence. Israel may have advanced military capabilities, but it still must sustain legitimacy, cohesion, production, and international support during prolonged pressure.
The Middle East shows that economic security is both psychological and material.
Markets, investors, tourists, expatriate workers, insurers, and the public all respond to recognized risk. An adversary need not destroy an economy to pressure it. It can create uncertainty around ports, airports, energy facilities, data centers, shipping lanes, or public safety. Economic confidence becomes part of the security equation.
This is why critical infrastructure is now strategic terrain.
Energy systems, ports, railways, roads, undersea cables, satellites, cloud infrastructure, semiconductor facilities, telecommunications networks, and water systems all matter. They are civilian assets, but they enable military resilience. They are commercial systems, but they shape national endurance. They are economic infrastructure, but they can become targets in a crisis.
Critical minerals are another strategic terrain.
Rare earth elements, lithium, cobalt, nickel, gallium, germanium, indium, graphite, titanium, tungsten, and other materials are not abstract commodities. They are inputs into missiles, aircraft, batteries, sensors, satellites, electric motors, microelectronics, optics, drones, data centers, and advanced manufacturing. A country may control advanced designs, but if it depends on a rival for the materials needed to build them, its security remains exposed.
China understands this.
China’s dominance in parts of the critical minerals supply chain gives it leverage in a crisis. Export controls, licensing delays, customs scrutiny, pricing pressure, or processing bottlenecks can create strategic effects without firing a shot. Recent controls and tighter checks around rare earths, indium, and other strategic materials show how quickly supply-chain dependence can become geopolitical leverage.
This is why the United States, Europe, Japan, Australia, Canada, and others are trying to diversify mining, processing, recycling, stockpiling, and trusted supply chains.
Europe’s Critical Raw Materials Act reflects this logic. It sets benchmarks for domestic extraction, processing, recycling, and reduced dependence on any single external supplier. The details are technical, but the strategic message is clear: material dependence is now a security problem.
But this is harder than announcing a policy.
Building critical minerals resilience takes time. Mining requires permitting. Processing requires capital, expertise, and environmental management. Recycling requires scale and technology. Strategic stockpiles require planning. Alternative suppliers require infrastructure and political stability. Governments must decide what they are willing to pay for security, redundancy, and dependability.
Efficiency and resilience are not the same thing.
For decades, supply chains were optimized for cost. The new security environment requires them to be optimized for trust, redundancy, speed, and survivability. That does not imply abandoning markets. It implies recognizing that markets alone do not price strategic risk correctly.
The same logic applies to the defense industrial base.
For many years, the defense industrial base in democratic countries has narrowed, consolidated, and become more dependent on peacetime demand. That model may be efficient in stable periods, but it creates vulnerabilities in crises. If only a few suppliers can produce an important component, if only one factory can produce a key munition, if a production line depends on foreign inputs, or if workers with specialized skills are not available, then military readiness becomes fragile.
Defense-industrial resilience requires more than factories.
It requires long-term demand signals, workforce development, supplier depth, financing, export pathways, inventory transparency, flexible procurement, and political willingness to make tradeoffs. It requires governments to tell the industries not only what they want to buy this year, but also what they intend to sustain over time.
No company will build strategic capacity on uncertain signals.
This is especially important for ammunition and munitions. Ukraine and the Middle East have shown how quickly stockpiles can be consumed. Air-defense interceptors, artillery rounds, precision missiles, rockets, drones, and spare parts are not optional. They are the material foundation of endurance. If production cannot keep up with operational use, deterrence weakens.
The United States is now saying this openly in strategy and budget documents.
The 2026 National Defense Strategy treats the defense industrial base not as a support function, but as one of the central pillars of defense strategy. Recent U.S. budget materials point in the same direction, emphasizing the defense industrial base, critical minerals, munitions, next-generation technology, autonomy, AI, shipbuilding, space, homeland defense, and supply chain resilience.
The message is clear: the United States is not only buying weapons. It is trying to rebuild the industrial, mineral, digital, and production foundations that sustain military power in a prolonged crisis.
That is the logic of strategic capacity.
But strategic capacity also has a macroeconomic cost.
Defense spending can support growth, employment, research, and industrial activity. But large defense buildups can also increase deficits, debt, inflationary pressure, and trade imbalances if they are financed poorly or spent mostly on imports. The macroeconomic question is no longer whether defense spending is rising. It is whether that spending builds domestic and allied productive capacity or creates fiscal pressure without solving the underlying capability problem.
This is a serious issue for democracies.
Governments must increase defense investment while also managing debt, social spending, infrastructure needs, energy transition costs, and public expectations. Citizens will ask what they are getting for higher defense budgets. Allies will ask whether spending produces real capabilities. Markets will ask whether governments can finance their ambitions. Defense companies will ask whether demand will last long enough to justify investment.
This means that defense spending must be strategically designed.
If spending is mostly imported, the domestic industrial benefit is smaller, and external dependence may remain. If spending is fragmented across national programs, the allied scale is lost. If spending is focused only on high-end platforms, stockpiles, and sustainment may remain weak. If spending supports prototypes but not production, innovation will not become capacity. If spending is not connected to the workforce, infrastructure, and supply chains, it may fail to improve readiness.
The goal is not simply to spend more.
The goal is to spend in a way that builds capacity.
That requires joint procurement, predictable demand, allied production, domestic industrial depth, stockpiles, infrastructure robustness, and a stronger link between defense budgets and economic strategy. It also requires honesty: defense spending has tradeoffs. The question is whether those tradeoffs are made early, deliberately, and strategically, or late, under pressure, after a crisis begins.
The innovation problem is equally important.
The democratic world has no shortage of innovation. There are companies developing artificial intelligence, autonomy, space systems, cyber tools, advanced manufacturing, robotics, sensors, and software-defined capabilities. The problem is not only invention. The harder problem is adoption.
A prototype that works in a demonstration does not automatically create military power. A start-up that wins an urgent contract does not automatically become part of the long-term defense industrial base. A new technology does not matter strategically unless it can be tested, integrated, funded, scaled, sustained, and used operationally.
This is the “second valley of death.”
The first valley is moving from idea to prototype. Many governments have improved at crossing that gap. Innovation units, accelerators, flexible contracting, and commercial technology pathways have helped bring new ideas closer to military users.
The second valley is harder.
It is the move from prototype or limited production into programmed procurement, sustainment accounts, doctrine, training, and force structure. This is where many promising technologies fail. They may be useful. They may have a military demand. They may be proven in exercises or even deployed in small numbers. But if they do not enter the acquisition system, receive durable funding, and gain an institutional owner, they remain episodic.
An innovation ecosystem is not the same as an industrial base.
An innovation ecosystem produces ideas, prototypes, demonstrations, and early contracts. An industrial base produces scale, reliability, sustainment, repair capacity, trained workers, and long-term availability. The new security race requires both. But the bridge between them is still weak.
This is why NATO’s DIANA program matters.
Its focus on dual-use technology, testing, acceleration, and adoption by defense end users shows that the Alliance understands the challenge. NATO is not only searching for traditional weapons. It is searching for technologies in energy, communications, contested electromagnetic environments, logistics, space, autonomy, naval operations, decision support, and other areas where commercial innovation can strengthen defense.
But the test is not whether innovation programs can attract proposals. The test is whether useful technologies can move into operational use across several countries, different regulations, different classification systems, different budgets, and different military requirements.
Alliances must therefore become industrial and technological networks, not only military coalitions.
This changes the meaning of burden sharing.
Burden sharing is not only about how much money countries spend as a percentage of GDP. It is also about what capabilities they produce, what infrastructure they provide, what stockpiles they maintain, what supply chains they secure, what technologies they develop, and how quickly they can support allies in crisis.
A country that contributes munitions production may be as strategically important as a country that contributes a combat brigade. A country that controls rare-earth processing may be as important as a country that buys aircraft. A country with ports, repair facilities, data centers, or shipyards may become a key node in the alliance system. Smaller countries can matter if they control useful industrial niches, move quickly, or supply critical geography.
This point leads directly to the next strategic question.
If economic security is now part of national security, then smaller and medium-sized countries face a difficult choice. They cannot match the scale of great powers. They cannot build every capability at home. They cannot control every supply chain. But they also cannot afford to remain passive consumers of security.
Their challenge is different: how to identify the industrial niches, geographic advantages, technological strengths, diplomatic networks, and alliance roles that allow them to remain strategically relevant in a great-power security race.
This is one of the most important lessons of the new race for security.
Power is becoming networked.
The strongest countries will not be those that simply spend the most. They will be those who can connect public and private sectors, military and civilian infrastructure, national industries and allied production, legacy platforms and new technologies, economic policy and security strategy.
This requires a new kind of strategic planning.
Defense ministries cannot solve this alone. Finance ministries, transportation ministries, energy ministries, industry ministries, education systems, private companies, investors, universities, and local governments all have roles. The defense industrial base is not isolated from the wider economy. It depends on the workforce, energy, transportation, finance, digital infrastructure, and political support.
Economic security is therefore a whole-of-government and whole-of-society challenge.
This does not mean militarizing the economy. It implies recognizing that democratic societies must be able to sustain themselves under pressure. It means building enough redundancy to survive disruption. It means protecting critical infrastructure. It means creating trusted supply chains. It means training workers. It means making hard choices about where dependence is acceptable and where it is dangerous. It means having an industry that can shift quickly from peacetime production to wartime needs.
It also means measuring success differently.
The question is not only how many platforms are purchased. It is whether forces can be sustained. It is whether munitions can be replenished. It is whether ports can operate. It is whether production can surge. It is whether cyber systems can survive an attack. The question is whether companies can move from prototype to scale. The question is whether allies can share production and reduce bottlenecks. It is whether critical materials can be sourced without strategic vulnerability.
The next crisis may not begin with a direct military attack.
It may begin with an export control, a port disruption, a cyberattack on a logistics network, a shortage of critical minerals, a shipping crisis, a power-grid failure, a drone strike on an energy facility, a semiconductor bottleneck, or a sudden surge in demand for munitions that production lines cannot meet.
When that happens, the question will not be only who has the most advanced weapons.
The question will be who can keep producing, moving, repairing, supplying, adapting, and deciding under pressure.
That is strategic capacity.
Europe’s test is integrated readiness.
The Indo-Pacific’s test is integrated deterrence.
The Middle East’s test is integrated resilience.
The foundation beneath all three is integrated economic security.
In the new race for security, military power depends on the economic system behind it. Deterrence depends on production. Resilience depends on infrastructure. Innovation depends on adoption. Alliances depend on industrial cooperation. Sovereignty depends on trusted supply chains.
The defense industrial base is no longer separate from national resilience. It is part of deterrence itself.
But this raises the next question.
What happens to countries that cannot build everything themselves? How can smaller and medium-sized states compete, adapt, and remain relevant when great powers dominate production, technology, finance, and supply chains? Should they specialize, align, hedge, integrate, or build sovereign capacity in selected areas? How can they avoid becoming only consumers of other countries’ security decisions?
These questions will shape the next phase of the new race for security.
The future will not be shaped only by those who spend more.
It will also be defined by those who know where they fit, what they can build, whom they can trust, and how quickly they can turn limited resources into a strategic advantage before the next crisis begins.
Omer Haim is a Distinguished Fellow at the Gold Institute for International Strategy, a Washington D.C. based foreign policy and defense think tank.
