The USA and China will benefit from Russia's involvement - the military industry will be renewed

Russia's war in Ukraine overturns the world military industry, newssky.com.ua publishes an analytical article with a link to defensetalk.

While the USA and its allies are investing significant sums of money in arming Ukraine, and Russia is bleeding tanks and personnel, countries around the world are reviewing their defense budgets, material needs, and military relations. Countries that have historically had a low level of defense spending, such as Japan and Germany, are gaining weight, while countries that buy most of their weapons from Russia have doubts about its reliability and future supplies.

The author's research in this area shows that, no matter how this war ends, the consequences for the world defense industry and for the countries whose companies dominate this sector will be enormous. Here are four conclusions.

1. Russia will lose the most

In general, Russia sells its weapons so that they are "cheaper and easier to maintain than Western analogues." That is why Russia accounted for 19% of world arms exports from 2017 to 2021, second only to the United States, which accounted for 39% of the market. However, this provision may turn out to be ineffective for many countries that have faced losses and failures of Russian equipment in Ukraine.

To date, according to US estimates, Russia has lost almost a thousand tanks, at least 50 helicopters, 36 fighter-bombers and 350 artillery pieces, reports Business Insider. Thousands of Russian soldiers were killed, an estimated 15 to 000, and Russia still cannot control Ukraine's airspace.

The situation has become so dire that there are reports that commanders are trying to preserve the equipment, preventing troops from using it to evacuate wounded soldiers or to support units that have advanced too far.

Russian offensive weapons also turned out to be disappointing. The failure rate of their missiles — the fate of those that did not launch, failed in flight or did not hit the target — can reach 50-60% due to design flaws and outdated or poor-quality equipment.

These problems, along with the slow progress of the Russian armed forces in achieving any of the goals announced by President Vladimir Putin, have raised serious doubts among traditional customers of arms exports from the country. Russia sells almost 90% of its weapons to only 10 countries, including India, Egypt and China.

Moreover, Russia's ability to make up for these equipment losses is hampered by economic sanctions that prohibit the use of key foreign components, such as printed circuit boards. And Russia will almost certainly need to replace its own military equipment before it can export anything abroad.

This means that even countries that want to continue buying Russian tanks and fighters will have to wait in line or go elsewhere to meet their defense needs.

2. Lose Russia - win China

The country that will most likely benefit from Russia's ousting as the main arms supplier is China.

In recent years, the country's share in the world arms trade is 4,6%, which puts it in fourth place after France with 11%. At the same time, seven of the world's 20 leading defense companies in terms of revenue received from the sale of defense products are Chinese, which indicates the great ambitions of the sector.

Currently, the Chinese government buys most of its weapons and vehicles from these domestic weapons manufacturers, but China has the opportunity to export more military products abroad.

For example, China is already the largest shipbuilder in the world, so the natural next step is to export more warships. The country is expanding its niche role in the technology of unmanned aerial vehicles and is trying to use the modernization of its air force with the help of domestically produced aircraft to increase exports.

Currently, only three of the world's 40 largest arms importers — Pakistan, Bangladesh, and Myanmar — buy most of their weapons from China. The situation can change if China takes advantage of Russia's weakness to position itself as a reliable partner in the field of national security, economy and politics, which is the main feature of its One Belt, One Road initiative.

China is not capable of displacing American and European weapons, which are considered "first-class" because of their high quality and price. But China may well occupy a market niche dominated by Russian arms manufacturers, thus increasing the role of Beijing as a major arms exporter and receiving the accompanying political and economic benefits.

One of China's biggest challenges will be to prove that its weapons work well in real combat conditions.

3. American weapons manufacturers will also benefit

American weapons manufacturers dominate the world arms industry. The war in Ukraine is likely to keep it going for some time.

All five of the world's largest arms companies are American: Lockheed Martin, Raytheon, Boeing, Northrop Grumman and General Dynamics. In fact, half of the top 100 weapons manufacturers are based in the United States. Twenty of them are European. Only two are recognized as Russian, despite the fact that the country is the second largest source of weapons in the world.

Huge volumes of weapons transported from the USA to Ukraine will continue to occupy American weapons manufacturers for some time. For example, the USA transferred about a third of its stock of Javelin anti-tank missiles to Ukraine, and the Raytheon-Lockheed Martin joint venture will need three to four years to replace them. The $40 billion aid package recently signed by President Joe Biden includes $8,7 billion to replenish the US arms stockpile.

Rapid growth in the prices of company shares is a sign that investors believe that profitable days are ahead. Lockheed Martin's stock price has risen more than 12% since the invasion began, with most of the gains coming immediately after the invasion. Northrop Grumman jumped 20%. At the same time, the broader stock market, as measured by the S&P 500, fell about 4%.

4. More countries will become weapons producers

The flip side of this is that some countries that relied on others for their defense needs may strive to become more self-sufficient.

India, which in recent years has depended on Russia for almost half of its weapons imports, understands that Russia will need most or all of its production capacity to replace tanks, missiles, planes and other weapons used or lost in Ukraine, with smaller balances for export.

This means that India will either have to buy spare parts for vehicles and weapons from other former buyers of weapons from Russia, such as Bulgaria, Georgia and Poland, or create its own defense industry. In April, India announced that it would increase the production of helicopters, tank engines, missiles and long-range radar detection systems to compensate for any potential reduction in Russian exports.

Concerns about Russia's reliability are also growing. In May, India broke off a $520 million helicopter deal with Russia. Although there are reports that US pressure played a role, it also appears to be part of the government's strategy over the past few years to build its own domestic defense industrial base.

Brazil, Turkey, and other emerging market countries have also been developing their own defense industry over the past two decades to reduce their dependence on arms imports. The war in Ukraine will accelerate this process.

President Putin probably did not expect that his efforts to annex Ukraine would shake the world arms market or cause a decline in his country's arms sector. But this is another way in which his war causes a geopolitical earthquake.

Author:

Terrence Guay | Professor - Global Business Research Center