How the war unfolds in the coming months depends in part on how effectively NATO arms Ukraine, but also on North Korean, Iranian and Chinese supplies to Russia. Whatever the outcome of the war, say the authors, President Vladimir Putin’s nation will require years to rebuild its prewar capabilities. 

Unfortunately, this view confirms the skepticism of many Western politicians, including the British elder statesman I cited above, about diverting billions to our own rearmament. Yet Russia retains some advantages over the West: Because its economy and industries are subject to direct control from the Kremlin, Putin can focus his nation’s arms production on the munitions he needs most in Ukraine.  

Although many of the right things were said in Vilnius this week, it is essential to acknowledge the seriousness of NATO’s procurement crisis. A study of its European forces published last month, written by former British Army Brigadier Ben Barry and a cluster of other strategy gurus, asserted that “an important question is whether European allies are more serious now” about rearmament “than they were after Ukraine was first invaded in 2014.” The chief of the German Army, Lieutenant General Alfons Mais, has repeatedly asserted that his country has “fallen behind its own ambitions” to rearm. 

We inhabit an era when few Western governments can muster the political support to address meaningfully big, difficult issues, of which climate change is foremost, but defense and the rebuilding of crumbling infrastructure come close behind. In a world full of threats, among which China presents a far graver menace than Russia, we shall be profoundly foolish if we fail to retool our industries and rearm our militaries. Ukraine is a historic test of Western will and staying power. Not for the first time in history, the outcome of the struggle will be determined not only on battlefields, but also in the factories of the West.

Eoin Treacy's view

China is the factory of the world. It has more steel manufacturing capacity than the rest of the world combined. If they decide to build munitions at scale that is a major competitive advantage in any prolonged conflict. The running down of arsenals in Europe, North America and Russia leaves China’s intact. That fact alone is a recipe for greater geopolitical tension.

The potential for China to try and push its competitive manufacturing advantage would instantly turn any potential conflict global overnight. The steel industry is heavily dependent on imports and many of the resources feeding manufacturing arrive by ship. Freedom of navigation, or the lack of it, are the counter position to Chinese munitions exports or uses.

The big challenge is governments will have to martial resources to fund military expansion. That either means cutting into other parts of the budget or forcing private capital into the sector. Either way it implies greater government control of the economy.

The iShares U.S. Aerospace & Defense ETF (ITA) is easing back from the upper side of its range and the relevant companies probably need the catalyst of spending commitments to ignite investor interest.