Defense & Strategy
by Elena Vasquez, Senior Fellow for Defense Policy — July 22, 2026
Global military expenditure has reached unprecedented levels, surpassing $2.5 trillion in 2026 and exceeding Cold War records in both nominal and real terms. This sustained growth in defense spending reflects the deteriorating security environment, the accelerating pace of technological change, and the increasing complexity of threats across multiple domains. This report analyzes how nations are allocating their defense resources, examines the tension between conventional modernization and investments in new domains, and assesses the implications for allied defense cooperation.
The current period of defense spending growth is distinctive in several respects. Unlike previous buildups that were driven by a single threat or theater, the current increase is truly global and driven by multiple, simultaneous challenges. The United States, China, Russia, India, and NATO member states have all substantially increased their defense budgets, though for different reasons and with different strategic emphases.
U.S. defense spending, while remaining the largest in the world, now faces significant constraints from fiscal pressures and competing domestic priorities. The Congressional Budget Office projects that interest payments on the national debt will exceed defense spending by 2030 under current projections. This fiscal environment necessitates difficult trade-offs between modernization programs, force structure, and readiness.
China's defense spending continues to grow at approximately 6-7% annually, driven by the PLA's ambitious modernization program. China's official defense budget of approximately $300 billion significantly understates actual military expenditure due to opaque budgeting practices and the exclusion of key categories such as research and development and paramilitary forces. Realistic estimates place Chinese military spending between $400 and $500 billion annually.
Russia has dramatically increased defense spending in response to the war in Ukraine, with some estimates suggesting that military expenditure now consumes over 30% of the federal budget. This level of spending is unsustainable over the long term but reflects Moscow's prioritization of military power as the foundation of its great power status.
A central challenge facing defense planners is the allocation of resources between conventional military capabilities and investments in new domains. Legacy platforms such as tanks, ships, and aircraft remain essential for deterrence and warfighting but consume increasing portions of defense budgets due to rising unit costs and sustainment requirements. Meanwhile, investments in cyber capabilities, space systems, autonomous vehicles, and artificial intelligence are essential for future competitive advantage.
The U.S. Department of Defense's budget requests reveal the tension between these priorities. The F-35 program alone, the most expensive weapons system in history, is projected to cost over $1.7 trillion across its lifecycle. Investments in nuclear modernization, including the Columbia-class submarine program and the Sentinel intercontinental ballistic missile, will consume hundreds of billions of dollars in the coming decades. These legacy investments constrain the resources available for emerging capabilities.
Alliance burden-sharing remains a contentious issue within NATO and among U.S. allies in the Indo-Pacific. NATO's commitment to spending 2% of GDP on defense has driven significant increases in European defense investment, with over 20 members expected to meet or exceed this threshold in 2026. However, the quality and effectiveness of defense spending varies significantly among allies, with some countries prioritizing personnel costs over equipment and readiness.
Sustain modernization investments while implementing reforms to control costs; prioritize investments in cyber, space, and autonomous systems while maintaining essential conventional capabilities; deepen allied burden-sharing through clearer capability targets and joint procurement; and invest in the defense industrial base to ensure surge capacity and technological competitiveness.
IISFS