So what comes next?

This edition of Defense News’ Outlook project offers several forecasts for the year ahead. It includes interviews, essays and forward-looking articles, plus an infographic that details major U.S. defense contracts on the horizon.

The authors and interviewees cover some of the most significant issues, including the civil war in Yemen, the upcoming U.S. presidential election, the state of America’s workforce and more.

Radha Plumb, the Pentagon’s deputy undersecretary of defense for acquisition and sustainment, is focused on expanding the department’s suppliers at home and abroad.

Meanwhile, Russia is digging in for a long war in Ukraine by ramping up production within its own defense-industrial base, according to two analysts with the Center for Strategic and International Studies. The West must follow suit, they say.

Similarly, it’s up to likeminded nations to work together, lest the international rules-based order fall apart, Lithuania’s defense minister argues in his essay.

And then there’s the matter of Sino-U.S. relations. Rep. Mike Gallagher, who chairs a House panel focused on China, tells Defense News deterring aggression in the Indo-Pacific region should be the priority, closely followed by support for Ukraine and Israel.

For its part, Australia is focused on regional security, although its minister for the domestic defense industry says the nation must prepare for the possibility of war — yet another in 2024.

These commentaries and more are available here.

There’s hardly a better image of the demands faced by her staff. As deputy undersecretary of defense for acquisition and sustainment, Plumb is responsible for helping solve some of the Defense Department’s most vexing problems, from increasing industrial capacity to reforming the arcane Foreign Military Sales process.

Those tasks also involve supporting U.S. allies and partners — notably Ukraine, Taiwan and Israel.

The job has stretched the U.S. military’s stockpiles and challenged its ability to refill them; the White House has requested a $106 billion supplemental to address these problems.

Plumb spoke with Defense News on Nov. 7 about that funding request, U.S. security assistance and the Pentagon’s relationship with Capitol Hill. This interview was edited for length and clarity.

What is your focus as we enter a new year?

We’re focused on three big areas. The first is our industrial base. The conflict in Ukraine revealed fragility in that industrial base. Where we’re focused is really demonstrating that it has responded shockingly well.

Take 155mm artillery rounds as an example: We doubled production in the last 12 months. We’re looking to get to the point where we produce 80,000-100,000 by the end of 2025. And we’re doing that on lots of systems — Guided Multiple Launch Rocket Systems, Patriots, Javelins.

The second big area is production diplomacy. We’ve made use of our allies and partners through a range of activities over the last several years, and it’s clear there’s a lot we can do with them. Under Secretary of Defense for Acquisition and Sustainment Bill LaPlante has focused on his role as the national armament director with both the Ukraine Defense Contact Group and NATO, but also more broadly on co-development, co-production and co-sustainment. We have a partnership with Japan on the glide phase interceptor [for hypersonic defense], looking at co-development and the pre-deployment phase. In co-production, we’re working with Australia on the Guided Multiple Launch Rocket System. And on co-sustainment, we’re also working with Australia on a range of capacities and building on some of the work for AUKUS [the trilateral security agreement between Australia, the United Kingdom and the United States]. That lets us have a different version of industrial base expansion.

The third big area is a consistent demand signal to industry. A lot of folks would think: “You have a large base budget, you buy lots of stuff in the department — that should be a signal to industry.” But what industry actually pays attention to is contracts. The faster we get things on contracts and the more predictable the funding can be, the better off we are.

We’re also working with Congress on a bunch of things that let us provide a longer-term, more consistent signal — multiyear procurements, economic order quantities, advanced procurements and a bunch of industrial base capacity expansion. At the end of the day, that’s what we’re looking to measure — surge capacity, but also resilience to unexpected events in the outside world.

“Consistent” and “predictable” do not come to mind when thinking about the appropriations process this year. To what extent does that process affect your ability to send a consistent demand signal?

It’s not good. Many of us who have been doing this for a while are used to having these continuing resolutions. We’re seeing increased delays and higher levels of churn. The problem with continuing resolutions is we can’t do new contracts, at the very least. That means subcontracts to suppliers can’t happen. Ultimately it means you can’t hire a workforce. That means if you have supply chains where there are cross-dependencies, you’re growing exponentially in delays rather than linearly.

For example, for 2024 we have some counter-unmanned aerial system investments planned, with a planned delivery in the 2024-2025 time frame. Let’s say we delay the continuing resolution; we get a 90-day delay. That 90 days means once the appropriation is received, we need to notify Congress. That’ll add another month. You’re now 120 days in. Then you’ve got to finish negotiating the contract, award the contract and then start making the advanced procurements. That’s four to eight more weeks. Then you add onto that the subcontract, so that’s another two to four weeks. That assumes that the delays, which maybe the prime contractors can absorb, don’t hit subcontractors particularly hard because they need the cash flow. We’re looking at 90- to 200-day delays in key systems that we know we need for the safety and security of warfighters — [all of which happened] because we just can’t get to a deal on appropriation.

The president’s supplemental request includes $50 billion for the defense-industrial base. What would that mean for the U.S. economy and the rate of production?

The first thing it looks like is a strong signal to the industrial base that we are going to continue to invest in these capabilities to buy back both U.S. readiness as well as support allies and partners. That continued drumbeat of investment allows industry to put its own skin in the game in terms of capital investments. The signal value is incredibly powerful, especially right now, to feel like this is not caught up in D.C. turmoil.

The second piece of it is the dollar flow. That means that industry literally starts building factory lines, moving in machines and hiring for its workforce; that has community benefits. We’re starting to look at where those dollars are flowing geographically because there is an economic infusion happening in many states across the country, particularly across the Midwest and the South. That has a meaningful economic impact right now in those local communities.

The place America is in manufacturing didn’t happen overnight, and we’re not going to get out of it overnight. Part of getting us into a resilient and robust manufacturing state of play involves making sure we can build those communities and those local investments so that you have the workforce, you have the people and you have the capital infrastructure.

The Defense Department has said supporting Taiwan and Ukraine is not a zero-sum game. But with Israel now at war, how has the situation changed?

Can we do all of these conflicts simultaneously? Absolutely. There’s some overlap in systems or some underlap in systems, and the two things that revealed are, one, that we really do need this manufacturing investment. I don’t want to sugarcoat the fact that there is fragility there.

The other piece is that in all of these conflicts, there is this high-tech/low-tech combination. Take Ukraine as an example: You’ve got trenches being dug out with mortars. You’ve also got a complex electronic warfare environment. In Israel, there is a range of tactics that look very familiar to folks who lived through all of the counterterrorism operations in the past, with a lot more targeting and specialized techniques. That’s a reminder for us in the department that our strategy is to increase production, but it also has to be about encouraging advanced techniques.

Talk about the upcoming National Defense Industrial Strategy and what it might contain.

What the strategy is intended to do is connect high-level policies to specific actions that the department is going to take, and then [help determine] how we want to measure progress.

Defense Secretary Lloyd Austin tasked a tiger team to make recommendations for improving the Foreign Military Sales process. What has come of that?

On the acquisition and sustainment side, we have two big areas we’ve been working on. One looks at procurement award lead time, where we’re looking to set baseline metrics and then track contracting cycle timelines more closely to try to improve responsiveness. We’ve collected the data and we’re setting the baselines. The goal in the next 12 months is to [determine whether the procurement lead time impacts FMS or is not a real cause of delay].

The second big area is aggregate demand work. What has been happening to date prior to the FMS tiger team is we sent our demand signal to industry. Other countries have their demand signal that pre-negotiates with industry, and the industry aggregates it all up. But everyone has a piece of information, and no one has the total information. We’re working with our partners in the Defense Security Cooperation Agency and our prime industry partners to basically create an aggregate demand picture in a set of priority munition areas that are relatively high-demand areas.

[That group] is identifying the high-demand areas, some of which are related to air defense and key munitions, and then figuring out the process to get that aggregate demand — the key being you don’t want to wait all the way until you have a formal letter exchange, but you don’t want to do it too early and skew the demand process.

We’re entering a year when U.S. military stockpiles will probably experience extreme demands. What is the state of those stockpiles?

Thinking about the stockpile is thinking about it from the supply side, but the way I’d rather think about it is on the demand side. We know that our partners have demands for certain kinds of capabilities. A lot of the work our acquisition and sustainment team does with our partners in policy and with the combatant commands is [about fulfilling a materiel need] by looking across the range of systems we have in our stockpiles, and what is hot on production lines, and where can we rapidly increase production and reprioritize deliveries to meet the aggregate demand.

Stockpiles are a thing we manage strategically to maintain readiness. You’ve heard everyone from the president on down to Dr. LaPlante say we’re going to prioritize the readiness of our forces. But we have a lot of tools at our disposal to meet different demands.

Software and data specialist Deltek, which keeps tabs on major government contracting programs, has created this list of the largest competitive opportunities worth watching.

1. Comprehensive Construction and Engineering

Government lead: Air Force

Expected solicitation date: February 2024

Anticipated value: $15 billion

Description: This contract calls for the full range of methods, technologies and supporting activities necessary to conduct design-build or design-bid-build construction at Air Force installations and others worldwide.

2. Information Technology Enterprise Solutions 4 Services

Government lead: Army

Expected solicitation date: March 2024

Anticipated value: $12.1 billion

Description: The Army is seeking a range of services and solutions for enterprise infrastructure as well as infostructure goals with information technology services worldwide. This effort would replace the Information Technology Enterprise Solutions 3 Services program.

3. Charter Airlift Services in Support of the Civil Reserve Air Fleet

Government lead: U.S. Transportation Command

Expected solicitation date: May 2024

Anticipated value: $9.8 billion

Description: This program will use aircraft resources of American air carriers to support Defense Department airlift requirements in an emergency. In return, those airlines are afforded access to day-to-day business under this and other contracts with the department and the General Services Administration.

4. Contract Field Team Maintenance

Government lead: Air Force

Expected solicitation date: May 2024

Anticipated value: $8 billion

Description: The potential deal involves maintaining active weapon systems worldwide. The contracted team would also perform modification, inspection and repair of active systems, such as aircraft, vehicles, aerospace equipment, missile systems, engines, ground support equipment, and communications and cryptologic equipment.

5. Enterprise Cyber Capabilities

Government lead: Air Force

Expected solicitation date: February 2024

Anticipated value: $5.3 billion

Description: The original solicitation for this contract was canceled in September 2023. An analysis is ongoing to determine next steps to fulfill cyber requirements, which include building, operating, supporting, defending and engaging in cyberspace to give the military an information advantage over adversaries.

6. Defense Air Force Strategic Transformation Support

Government lead: Air Force

Expected solicitation date: February 2024

Anticipated value: $5 billion

Description: This program provides advisory and assistance services to several Air Force offices and federal agencies with the goal of improving strategic transformation efforts.

7. Missile Defense Agency Integration and Operations for Enterprise

Government lead: Missile Defense Agency

Expected solicitation date: July 2024

Anticipated value: $4.6 billion

Description: This program is meant to help the government meet its missile defense objectives and involves five technical areas, including information technology.

8. Design, Development, Demonstration, and Integration II Information Integration, Data Exploitation, And Enhanced Warfighter Capabilities (Domain 2)

Government lead: Army

Expected solicitation date: January 2024

Anticipated value: $2.1 billion

Description: This effort would help Army Space and Missile Defense Command as well as Army Forces Strategic Command procure missile defense and space technology, among other systems.

The Australian government is working with its partners to bring about a strategic environment that is characterized by a regional balance, where no actor concludes the benefits of military action outweigh the risks.

But if diplomacy and deterrence do not deliver, we need the military capability to defend ourselves and our interests, in concert with our partners, as we have throughout our history. That means prioritizing capabilities that will discourage anyone from taking actions against our national interests.

In support of this objective, the government has laid the blueprint for investment in a more focused force able to hold any potential adversarial forces at risk and at a greater distance from Australia’s shores.

As a middle power, Australia cannot rely on mass — or overwhelming force — to deter. We need to focus instead on capabilities and partnerships that deliver an asymmetric advantage.

Our acquisition of conventionally armed, nuclear-powered submarines through the AUKUS partnership is integral to achieving this goal. Submarines are, at their core, an asymmetric capability designed for deployment anywhere — including potentially hostile waters — to generate uncertainty and increase the threat of costs for an adversary.

Nuclear-powered submarines provide a formidable deterrent effect; no other platform matches their stealth, endurance, mobility and mix of capabilities. They will enhance our ability to defend Australia and its national interests, as well as contribute to the security and stability of the Indo-Pacific region.

Clearly our future nuclear-powered submarines will be highly capable in conflict, making Australia a more difficult and costly target for anyone who wishes us harm.

Acquiring, operating and sustaining — and eventually building — nuclear-powered submarines will be the most transformative industrial and technical endeavor in our nation’s history. We’ve started by putting in place the international agreements we need to get this endeavor underway. AUKUS partners signed the ground-breaking Agreement for the Exchange of Naval Nuclear Propulsion Information in November 2021.

And we are working openly and transparently with the International Atomic Energy Agency and in consultation with our AUKUS partners to develop safeguards and a verification approach that will ensure Australia continues to meet our nuclear nonproliferation obligations and commitments under the Treaty on the Non-Proliferation of Nuclear Weapons, the Treaty of Rarotonga and our safeguards agreements with the International Atomic Energy Agency.

Building the workforce to construct, operate, maintain and sustain these submarines has already begun. Australia is working with its AUKUS partners, state and territory governments, industry, unions, education and training institutions, and the scientific and technical sectors to build the workforce we need to succeed.

We are also embedding Australian industry in U.K. and U.S. nuclear-powered submarine construction and sustainment programs.

To kick-start supply chains, we’re exploring opportunities for Australian industry to supply Australian-made materials and components to U.K. and U.S. submarine programs, and creating pathways for Australian industry to carry out maintenance activities on U.S. Virginia-class and U.K. Astute-class submarines during their rotational presence in Australia.

Given the strategic challenges we face, the importance of building a strong and resilient Australian defense industry has never been clearer. Australia needs an industrial base in priority areas for self-reliance. This will include leveraging our close allies and partners’ technology and industrial bases, to their benefit as well as ours.

AUKUS is about expanding the industrial base and building robust and resilient supply chains for all AUKUS partners. Investing in conventionally armed, nuclear-powered submarines will transform both the Australian Defence Force and Australia’s defense industry, which is a critical partner of our military and is essential to our national interest.

Most important of all, it will make Australia safer and more secure.

Pat Conroy is Australia’s minister for the defense industry as well as minister for international development and the Pacific.

Rep. Rob Wittman, R-Va., a member of the House Armed Services Committee, said he is reading “Vectors: Heroes, Villains, & Heartbreak on the Bridge of the U.S. Navy.” The book, by former acting Navy Secretary Thomas Modly, offers insight into “idiosyncrasies that happened within the Pentagon and within the service branch,” Wittman said.

Doug Bush, assistant secretary of the U.S. Army for acquisition, logistics and technology, said he is reading “How Ike Led: The Principles Behind Eisenhower’s Biggest Decisions” by Susan Eisenhower. The granddaughter of the former president doesn’t just write about his decision-making process, but why he took certain actions in office.

Rep. Mike Gallagher, R-Wis., chairman of the Select Committee on the Chinese Communist Party, said he is reading Rush Dosie’s “The Long Game: China’s Grand Strategy to Displace American Order.” It examines what China wants, whether Beijing can achieve its goals, and how the U.S. could respond.

He had also recently reread “This Kind of War: The Classic Korean War History,” written by T.R. Fehrenbachfor and touted as an account of the conflict written from the perspective of those who fought it.

Gabe Camarillo, undersecretary of the U.S. Army, said he is reading “Why We Sleep: Unlocking the Power of Sleep and Dreams,” by Matthew Walker. The New York Times called it “a book on a mission,” adding that “Walker is in love with sleep and wants us to fall in love with sleep, too. And it is urgent.” Camarillo also said he is reading “Showtime: Magic, Kareem, Riley, and the Los Angeles Lakers Dynasty of the 1980s,” by Jeff Pearlman. Real-life characters include basketball players Earvin “Magic” Johnson and Kareem Abdul-Jabbar; basketball coach Pat Riley; and team owner Jerry Buss.

The Russian government proposed a new budget that shows the Kremlin is mobilizing its economy for a long war of attrition. Defense spending in the new budget will account for 29.4%, or nearly one-third, of Russia’s total budget expenditure in 2024.

“The budget’s structure shows that the main emphasis is on ensuring our victory — the Army, defense capability, armed forces, fighters. Everything needed for the front, everything needed for victory, is in the budget,” explained Russian Finance Minister Anton Siluanov.

But there are questions not only about whether the Kremlin can find the cash to fund such spending but also whether Russia’s defense-industrial base will be able to deliver.

The Kremlin started the war with a formidable arsenal, greatly outnumbering Ukraine’s air, land and naval capabilities, which initially led many Western observers to believe that Ukraine would be quickly overpowered by the Russian military. Yet Russian losses in the war — both in terms of human casualties and materiel — have also been staggering, forcing Russia to pull aging equipment from its warehouses. The first several months of the invasion demonstrated that significant numbers of Russian-stockpiled equipment used in Ukraine were older and of lesser quality.

Furthermore, replacing equipment is challenging because higher-end Russian weapons systems, including main battle tanks, aircraft and missiles, have traditionally depended on critical components imported from the West, such as optical systems, bearings, machine tools, engines and microchips. The allied sanctions and export controls have constrained Russia’s access to these items, thus impacting the Kremlin’s ability to manufacture advanced weapons and equipment to supply its armed forces.

However, committed adversaries adapt. Russia has demonstrated a remarkable degree of adaptability to Western sanctions. It has established sanction-evading supply chains spanning several regions and continents, from Europe to the Indo-Pacific. It has found alternative suppliers such as China, which has sold millions of dollars’ worth of semiconductors, drones and other types of dual-use goods to Russia since 2022.

Russia is also pressing ahead with efforts to increase the domestic production of military hardware, including tanks, rocket launchers, artillery and missiles by more than twofold and, in certain cases, by tenfold — at least according to representatives of Russia’s state-owned defense conglomerate Rostec.

The Kremlin’s efforts also have limitations and potential pitfalls, ultimately impacting the quality of what Russia can produce. The United States and its allies are continuing to actively target Russia’s sanction-evading efforts by constantly expanding the sanctioned individuals and entities lists.

Moscow’s pivot to Beijing as an alternative supplier, while undeniably concerning, has its own challenges. According to U.S. Deputy Secretary of the Treasury Wally Adeyemo, China does not yet produce the advanced semiconductors Russia’s defense-industrial base requires, and about 40% of the less advanced microchips China sold to Russia have been defective.

Furthermore, the shift toward a war economy creates domestic risks to Putin’s government. While increases in state spending on defense have stimulated the economy, that has come at a cost to the budget. The weakening of the ruble makes importing critical components, whether through China or the black market, more expensive. Inflation is rising, stoked by high-priced imports, a pronounced labor shortage and a dramatic increase in government spending on the war.

In addition, Russian arms sales are declining significantly. Russia’s military-industrial base has refocused inward by prioritizing supplies for its troops in Ukraine. But this means the defense sector is now bringing in much less revenue and is a major drain on the Kremlin’s stretched budget. The Kremlin has started drawing down its rainy day fund to keep factories running. Thus, Russian spending will be all guns and little butter.

These limitations could create internal vulnerabilities on the Russian home front that Moscow will closely watch. The Kremlin put off another round of mobilization to boost manpower for the war, despite being stretched by Ukraine’s counteroffensive because of concerns of public backlash. The Russian government will be wary that a sluggish economy paired with high casualties could cause public support for a war of choice.

Ukraine’s ability to strike Crimea and Russian cities through its indigenous production of drones is another cause for concern. While the Kremlin’s strong autocratic rule may insulate Russian leadership from the whims of public opinion, it can never take its own stability for granted, as demonstrated by Yevgeny Prigozhin’s mutiny and the march toward Moscow this summer by his mercenary group Wagner.

Nevertheless, the Kremlin will be able to mass produce weapons, especially low-cost yet tactically effective weapons, such as explosive drones and gliding aerial bombs. This may give Russia an advantage as the war enters 2024, given Western defense production has not ramped up anywhere near the same degree.

With Moscow’s commitment to its war effort, the only way Kyiv will be able to maintain its defenses and retake captured territory from Russia will be through the uninterrupted delivery of Western military aid to Ukraine in 2024. Putin remains focused on reorienting Russia’s economy to support its defense-industrial base.

The onus is now on Ukraine’s international partners to do the same.

Max Bergmann is the director of the Stuart Center and the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies think tank. He previously served as a senior adviser at the U.S. State Department. Tina Dolbaia is a research associate with the CSIS program.

Our defense programs fortify national security, drive technological innovation and stimulate local economies. Through these programs, we have cultivated a network of highly skilled workers, engineers and support staff who contribute to creating cutting-edge defense equipment that is second to none. These dedicated men and women exemplify the spirit of American manufacturing, producing technology that keeps our military personnel safe and our nation secure.

We recently released a report with a path forward toward a more resilient aerospace and defense industry. One of the central recommendations was to substantially reinforce “Buy American” requirements to ensure that American tax dollars are not only reinvested in the American economy but also prioritize union workers in the federal procurement process.

We recently achieved a significant milestone in our pursuit of these values by urging members of Congress to support initiatives aimed at strengthening domestic content requirements for major defense programs. This rallying call, led by Rep. Donald Norcross, D-N.J., has garnered widespread bipartisan support.

The core of our nation’s defense and economic vitality hinges on our Buy American policy, which embodies our deepest values.

For decades, the International Association of Machinists and Aerospace Workers, or IAM, has tirelessly worked to reinforce domestic content requirements, ensuring that American manufacturing assumes a central role in confronting our nation’s challenges. This endeavor is not just about bolstering the domestic defense-industrial base; it’s about creating and sustaining hundreds of thousands of high-quality manufacturing jobs within the United States.

By prioritizing American-made products, we invest in the livelihoods of American workers, thus empowering families and communities across our great nation.

But our commitment extends even further. Our brave men and women in uniform, who dedicate their lives to protect our freedoms, deserve nothing less than the best tools available. By enhancing domestic content requirements, we guarantee that our armed forces have consistent access to the highest quality equipment, enabling them to safely and effectively accomplish their missions. We owe it to our military personnel to equip them with the best the United States offers.

As a U.S. Navy veteran and former aircraft assembler at Lockheed Martin’s facility in Fort Worth, Texas, I know firsthand the importance of defense manufacturing on our nation’s security.

The support for Buy American is not confined to the IAM; it resonates throughout the labor movement. The American Federation of Labor and Congress of Industrial Organizations, or AFL-CIO — the largest federation of unions in the United States — stands shoulder to shoulder with us in advocating these policies. It emphasizes Buy American policies, reflecting our shared values and ensuring that government procurement aligns with U.S. labor, environmental, and health and safety standards. By reinvesting taxpayer dollars in domestic products, we forge jobs that support families and communities in cleaner, safer American factories.

The Union Veterans Council has also wholeheartedly endorsed Buy American, underscoring the pivotal role that domestic manufacturing plays in providing our troops with the highest-quality defense products. Our veterans, who understand the significance of American-made equipment in safeguarding our national security, speak from a place of profound experience.

The united endorsements of the IAM, AFL-CIO and the Union Veterans Council underscore the urgency of strengthening domestic manufacturing and our shared commitment to fortify our nation and workforce.

In the face of recent global challenges, we must bolster our domestic capabilities and safeguard our national interests. By unwaveringly supporting Buy American policies, we invest in the future of our nation, enhancing our economy, defense and workforce. This is the path to a stronger, more secure America, and it is one that we must wholeheartedly embrace.

Robert Martinez Jr. is the international president of the International Association of Machinists and Aerospace Workers. He previously served in the U.S. Navy and worked as an aircraft assembler for Lockheed Martin.

It lobbed ballistic missiles around the island, some landing just inside Japanese waters. More than 20 Chinese aircraft flew across the midpoint between the mainland and Taiwan, a move once considered taboo. The People’s Liberation Army staged elaborate military exercises, rehearsing the parts it could play in an actual invasion.

There were two key aspects of the response: One, the PLA flouted norms — and has kept doing so in the year since — that had kept the Taiwan Strait stable for decades. And two, while China’s government had multiple ways to signal its displeasure at the visit, it chose its military.

This is a new hallmark of Chinese foreign policy under President Xi Jinping, according to the Pentagon’s annual assessment of China’s military strength.

“The [People’s Republic of China] has increasingly turned to the PLA as an instrument of statecraft to advance its foreign policy objectives,” the report noted.

In other words, when China senses a problem abroad, it’s now more likely to use the military to solve it. This approach, say Pentagon officials and outside analysts, has been in the works for years and speaks to the PLA’s weight class.

China has spent decades bolstering its military with the goal to fully become a “world class” force by 2049. That offers challenges for the U.S., which has spent recent years shoring up alliances and partnerships in the vast Indo-Pacific region.

While the U.S. may soon encounter Chinese forces in more areas around the globe, it’s also concerned about China’s desire to unite Taiwan with the mainland, since Beijing considers the island nation a rogue province. And a foreign policy reliant on military force could make an invasion more likely.

“If you go back to 2016, the military element was part of what has been a diplomatic, economic, information, influence and military pressure campaign against Taiwan,” a senior Pentagon official said on the condition of anonymity in order to speak candidly. “What we’ve seen in more recent years is the military playing a more outsized role in that pressure campaign.”

‘A more precise hammer’

Nearly every world power, if not all, uses its military for statecraft — not least the United States. Take for example the two flotillas America rushed to the Middle East after Israel declared war against Hamas in the Gaza Strip in October.

China may have longed for such a capability, but lacked the military strength.

Then came Xi Jinping.

Since he took office in 2012, the Chinese president has steered massive amounts of money into the military. It now spends the second-most money on defense with a budget of about $230 billion in 2022, according to the Pentagon report; only America’s defense spending exceeds that amount, with the Defense Department’s fiscal 2022 budget reaching $740 billion.

In October 2022, Xi reaffirmed his goal for the PLA to be capable of unifying Taiwan with the mainland by 2027. By 2035, its modernization effort is to be “basically complete,” the Pentagon noted.

Among the trends noted in the Pentagon’s report are a rise in China’s ballistic missile arsenal, the addition of 30 ships in the People’s Liberation Army Navy fleet, and a growth in the People’s Liberation Army Air Force’s combat aircraft fleet.

And last year, the Chinese military continued its trend of holding increasingly more military exercises with Russia, one of America’s leading adversaries. The Pentagon anticipates the PLA will host more joint drills with foreign partners in the years ahead.

China’s military is also “very likely” working to grow the number of overseas logistics facilities after the first such base in Djibouti in 2017, the report noted.

“We’re going to have to be prepared for PLA presence, ultimately, in locations where we’re not used to having them,” the Pentagon official said.

Closer to home, China’s military has shown assertiveness in the South China Sea and around Taiwan. The Pentagon has recently released videos showing Chinese jets buzzing past U.S. and allied aircraft in the region. In one example, a Chinese J-11 fighter flew within 10 feet from an American B-52 bomber at night. There were more than 180 of these “coercive and risky” intercepts against American aircraft in the last two years — more than occurred in the previous decade, according to the Pentagon.

This is part of a larger effort by Beijing to use the military as a regional bouncer, per U.S. assessments.

“They’re leaning on the PLA more to try to intimidate, to coerce, to increase risk, and thereby make the U.S. … and other countries think twice about conducting actions that we have every right to conduct,” the Pentagon official said.

So far, this midair activity has amounted to only close calls. In part, that reflects China’s newfound capabilities. For example, in 2001, one of its aircraft crashed into a U.S. surveillance plane, leading to a short-lived diplomatic crisis.

But today, China’s pilots are more skilled and its aircraft more advanced, allowing them to fly closer to adversaries while avoiding a collision, according to Rod Lee, director of research at the U.S. Air Force’s China Aerospace Studies Institute.

“They can use the military maybe not as a scalpel, but it is a more precise hammer than it used to be,” Lee told Defense News.

According to Meia Nouwens, a China expert at the International Institute for Strategic Studies think tank, Beijing may increasingly find diplomacy less appealing when it comes to its relationship with Taipei.

“It just seems like perhaps they’re more willing [to use the PLA] because they have the capability to do so, but also because there are fewer options left for them to explore,” she said.

Simultaneous strategic dilemmas should be our main planning assumption. Excessive strategic focus on one near-peer state, priority theater or domain might mean that we are half ready or not ready at all to tackle all the shapes of tyranny acting in concert.

It is time to be at the top of our game; our response will shape the security environment for decades and generations to come. There is only one choice: to do everything it takes through unity and resolve. And there is only one way to do it: together within our alliances.

This is the choice Lithuania has firmly made and will continue to implement. We invest heavily in our defense. We strengthen the European pillar of NATO. We will continue supporting Ukraine as long as it takes. We build relationships with Indo-Pacific partners, recognizing that the security of our regions is interconnected. We do our part in defense both by acting independently and together with our European allies; the decision to deploy a permanent German brigade in Lithuania is the very first, sound and visible proof of that. The first elements are to be deployed as early as 2024.

However, the challenges of today can only be properly responded to by tip-of-the-spear U.S. leadership and U.S. forward basing. There is no substitute for that. Any type of U.S. isolation or neutrality in world affairs or erosion of military power in one strategic direction means an opportunity for nuclear authoritarians. This translates into bloody and costly regional wars, which escalate into strategic conflicts and, with a big bang, bring the U.S. back on the world stage to clean up the mess. The U.S. standing at the summit of democracies will remain in high demand in 2024 and the decade to come.

Do not underestimate Russia. Though it has not achieved its initial aims in Ukraine, Russia will continue the war of attrition and will restore its conventional military power sooner rather than later. Nuclear and other strategic elements are intact — modernized, fully integrated with conventional elements and well postured. For the first time after the end of the Cold War, some of these weapons are stationed outside of Russia — in Belarus, our neighbor.

The quality and even quantity of Russian conventional military capabilities, as well as Moscow’s observable operational failures, are not the best indicators for the regime’s strategic opportunism and related dangers. Let us bear this in mind in 2024 and beyond.

What do we need to do to ensure peace in the Euro-Atlantic area? In 2024, I would be looking for at least four success stories of unfinished business on the road between this year’s Vilnius summit and next year’s gathering in Washington.

First, NATO is strong, ready for collective defense and united with resolute U.S. leadership. NATO needs leadership that unites America internally as well its allies. As for the allied input, I expect visible progress of the Vilnius defense pledge — to spend at least 2% of gross domestic product on defense — as I do of the less visible, but equally important, input to the NATO force structure. It is critical for defense of every inch, as agreed.

Lithuania in 2023 spent about 2.76% of its GDP on defense, and the goal is to keep the pace of increasing the defense budget and effectively transforming it into real capabilities. War-mode thinking enables a fast modernization of the Lithuanian armed forces. We are developing our maneuver units, their lethality and firepower, but also purchasing more UAVs and cyber capabilities as well as rapidly expanding host-nation support for enhanced allied readiness initiatives here.

Second, we need a visible boost of the defense industry and continued prioritization of front-line states. Russia is out-producing the West in some critical areas, such as the production of artillery rounds, with a wartime industry mode on. A swift increase in the allied defense production capacity is critical to ensure we can replenish our stocks and modernize while continuing the flow of military aid to Ukraine.

The United States is a key military supplier to Lithuania, with contracts worth 2% of our GDP. Yet, contracts will turn into capabilities no earlier than 2026-2029. We cannot allow Russians to reconstitute faster than our basic requirements, and this is especially acute for the front-line states.

Third, NATO is boosting its forward-defense posture with more brigades, ships, air defense and artillery units in place. Lithuania is increasing its force structure by developing a national division. Together with persistent rotations of the U.S. combined arms battalion and permanent German brigade in Lithuania, it will be the key pillar of combat-credible effects for deterrence and defense in Lithuania, which we will aim to sustain in the long term.

To respond to a growing China challenge, we will need an integrated strategy and operational solutions; Lithuania will plug in. Our government has recently approved a strategy for cooperation with likeminded nations in the Indo-Pacific region, which includes cooperation on security issues.

Fourth, victory for Ukraine is paramount. The most important success story is needed in 2024, if we, democracies, want to be and remain at the top of our game.

Arvydas Anušauskas is the defense minister of Lithuania.

It’s too soon to say whether this pattern can or will change in 2024, but it’s worth reviewing some of the factors which will bear on U.S. defense sentiment in 2024.

Having written this while the U.S. was under a continuing resolution, the first factor will be the outcome of fiscal 2024 appropriations. The first factor will be the outcome of fiscal 2024 appropriations. There remains a wide cone of uncertainty over what Congress will get done. The most positive outcome for defense would be the enactment of FY24 appropriations at or above the administration’s request, plus the supplemental request of $106 billion.

The most negative could be a fraction of the supplemental request and continuing resolutions that last into May 2024 without changes to the Fiscal Responsibility Act of 2023. That act resets the FY24 budget to 99% of the levels appropriated in FY23 (that’s base budget only, not emergency spending).

The eventual outcome may be somewhere between the best and worst cases.

The FY24 appropriations outcome will bear on long-term sales growth expectations. Per Bloomberg, estimates of consensus sales show mid-single rates of annual growth in 2025-2026 for larger U.S. contractors, and higher rates for smaller ones. Procurement as well as research, development, test and evaluation outlays — which mostly result from FY23 and prior fiscal year appropriations — show a peak growth rate of 15% in 2024. There is not a high correlation between percentage rates of change in outlays and Defense Department-related sales, but the two move in similar directions. The outlay data is supportive of consensus sales estimates.

But beyond 2024, it may be a different story. Investment outlays show 5% growth in 2025 and 0% in 2026, with those estimates reflecting the FY24 request but not a supplemental. Stocks tend to move up when analysts increase estimates, and down when the opposite happens, which is why Congress and FY24 is so important.

There are bound to be sell-side analyst reports that trot out data showing U.S. defense stocks tend to do well in presidential election years. However, the 2024 election might be different, or at least reinforce some of the factors that have weighed on U.S. defense in 2023.

If former President Donald Trump wins the election, it could significantly alter expectations for U.S. commitments to alliances such as NATO and for support of Ukraine. Those changes could be positive for European defense in 2025 and beyond, but could entail changes to U.S. export prospects and possibly DoD top line expectations.

If President Joe Biden is reelected, there is still the possibility of split-party control of the House and Senate — and with it, the partisan entrenchment that has weighed on budgets in 2023.

Operating margins and cash flows are other factors that shape stock behavior. Arguably, operating performance has been pretty good in 2023 given the pressures industry has faced from supply networks and labor. And while there have been pockets of execution issues, these have not been sweeping. Possibly these factors remain the same in 2024, but an issue will be the health of much smaller suppliers that are highly exposed to material inflation, labor issues and higher interest rates. Prime contractors might be able to manage these issues, but surprises are still possible.

Mergers and acquisitions may be limited to movement in small and midsize companies and continued portfolio shaping at larger firms. A change in the administration’s views that would encourage more consolidation among the largest firms seems highly unlikely given concerns over loss of competition, innovation and market power.

A final factor to watch in 2024 is how the competitive landscape changes and whether smaller defense technology firms can win programs enabling them to scale. If that happens, growth expectations could be recalibrated as these private firms either go public or appreciation of their market potential is confirmed. If it doesn’t happen, and funding sources dry up for defense technology, the competitive environment might be more benign.

Byron Callan is a managing partner of the research firm Capital Alpha Partners.