Asia’s defense boom is rewiring the global arms supply chain

Chris Oberoi is the head of Asia-Pacific research at Bank of America Global Research.

For decades, arms sales went in one direction: the U.S. and Western Europe designed and supplied the world’s most advanced weapons, and Asian countries bought them.

But that flow is quickly reversing as Asia, once an arms importer, is now emerging as a hardware manufacturer and arms exporter, driving the global defense industry in a more multipolar world.

Japan’s recent decision to loosen its arms export restrictions is the clearest signal yet of Asia’s changing role in global defense. South Korea, too, is stepping in to fill the gap in Western inventories. South Korea’s Hanwha Aerospace kicked off Asia’s land systems exports to Europe in 2022, while LIG Defense & Aerospace recently stood out as the supplier of missile interceptors (known as MSAM-II).

In 2025, Asia’s defense spending rose 6% to approximately $573 billion, outpacing global defense growth (which currently sits at roughly $2.6 trillion). Defense spending is likely to rise thanks to new technologies, diversification into aerial and naval products, and new strategic frameworks with global partners.

The world is more volatile, as underscored by recent Middle East escalations that have put additional pressure on existing U.S. defense inventories. At the same time, rebuilding capacity across Western countries takes time, given constraints around industrial scale and skilled labor. Asian manufacturers offer scale, cost competitiveness, and local suppliers, making them indispensable partners in the next phase of global defense production.

Beyond the U.S. and Europe, China is often cited as another contributor to global defense production. However, the current acceleration in defense spending is being driven mainly by Europe’s response to the Ukraine war and sustained U.S. investment, which together account for most of the incremental growth. China’s defense ecosystem follows a different set of market dynamics, customer segments, and interoperability frameworks, with exports and production shaped by trajectories that remain distinct from the replenishment and modernization cycle underway across NATO-standard supply chains.

U.S. policy driven

Washington’s latest National Defense Strategy puts the Indo-Pacific region at the center of long-term strategy, and calls on allies to build what U.S. policymakers call “sovereign resilience,” or the capability to design, manufacture and sustain critical defense systems on their own.

As a result, several Asia-Pacific economies are now inching towards spending at least 3% of their GDP on defense, investing in capacity expansion, advanced technologies and export-focused production.

The U.S. will need to closely collaborate with Asia to execute its defense strategies, particularly when it comes to supply chains. The U.S. does not have the manufacturing scale to fulfill its own or allies’ needs, requiring it to work with other countries with strong manufacturing bases—many of which are in Asia.

In early 2026, the U.S. Department of Defense announced plans to expand Asian production of solid rocket motors for guided weapons, drones, and ammunition. This is just one example of a shift towards more distributed manufacturing for the defense industry.

Where Asia shines

Asia is also becoming a critical supplier for Europe, the Middle East, and Southeast Asia. This momentum rests on Asia’s ability to deliver goods quickly, affordably and at scale, an advantage that’s especially valuable as Western inventories remain depleted.

European defense stockpiles are still well below historic norms, following decades of underinvestment and, more recently, substantial equipment transfers to Ukraine. Despite increased defense spending across the region, production timelines and manufacturing bottlenecks are constraining replenishment in the near term.

Yet just as important as where Asia is selling is what it’s building. Asia’s defense investment is increasingly weighted to high-margin, technologically advanced systems and not just traditional military hardware. Air defense systems, unmanned drones, and autonomous ground and naval vehicles are among the fastest growing categories.

Higher software content and frequent upgrades increase the need for ongoing vendor support and maintenance. Artificial intelligence is moving beyond basic automation. It is now enabling decision-support systems that can fuse sensor data, manage logistics, and support operations in complex environments. This opens a new revenue stream for Asia’s defense industry, which was highly geared toward manufacturing conventional hardware such as artillery.

Asia’s defense cycle will enter one of its most capital-intensive phases this year, driven by naval shipbuilding and maintenance across Northeast Asia and Australia. This aligns with U.S. efforts to rebuild maritime capacity and integrate allied shipyards into defense and commercial vessel programs. As a result of long build times, heavy upfront investment, and decades of maintenance, naval programs resemble infrastructure investments, with project cycles lasting 10 to 20 years rather than short, one‑off manufacturing wins delivered in two to three years.

With substantial upfront capital and long build cycles, naval programs offer long project duration, high‑visibility, strong barriers to entry, and repeat maintenance revenue, making them a structurally durable feature of the defense industrial base.

Asia’s defense expansion reflects a structural shift in global security and industrial capacity, shaped by geopolitics, technology, and evolving alliances.

As the global security environment becomes more complex, Asia’s role in defense production and supply chains is likely to grow in both scale and strategic importance.

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