TO: The president of the United States and US policymakers

FROM: Abigail Rudolph and Steven Grundman

DATE: April 2025

SUBJECT: Industrial integration for global defense resilience: Pathways for action

In October 2024, the Atlantic Council’s Forward Defense program, in partnership with Beretta USA, convened defense industry representatives, government leaders, and subject-matter experts for a not-for-attribution workshop on implementing section 2.1.2.6 of the US National Defense Industrial Strategy (NDIS), “Engage Allies and Partners to Expand Global Defense Production and Increase Supply Chain Resilience.” The participants focused on the biggest barriers to achieving a more integrated defense-industrial ecosystem and wrestled with how the next administration in Washington could take fast action to overcome these obstacles. Informed by the deliberations of the workshop, this Atlantic Council Strategic Insights Memorandum identifies six priority actions the current administration can undertake to fulfill the ambitions of the NDIS in respect to section 2.1.2.6.

Introduction

The ongoing conflicts in Ukraine and the Middle East have exposed significant vulnerabilities in the industrial capacity and capabilities of the United States and its allies. A lack of speed, scale, and resilience in industrial production hampers the ability to sustain operations in these campaigns. Addressing these challenges is integral to achieving deterrence in today’s volatile security environment. The NDIS aims to correct these shortcomings by fostering a more resilient and agile defense-industrial ecosystem. Central to that strategy is the imperative of better integrating the defense industries of the United States and its allies and partners. This memorandum captures deliberations on the workshop’s four objectives, including

Strategic context

The NDIS “calls for sustained collaboration and cooperation between the entire U.S. government, private industry, and our Allies and partners abroad . . . [I]nternational allies and partners, each with their own robust defense industries, will continue to be a cornerstone of the DoD’s concept of Integrated Deterrence.”¹“National Defense Industrial Strategy,” US Department of Defense, November 16, 2023, i, 24, https://www.dau.edu/sites/default/files/2024-02/2023%20NDIS_FINAL%20FOR%20PUBLICATION%201_0.pdf. A modern defense industrial base (DIB) that can keep pace with today’s volatile security environment is essential for the United States to deter and, if necessary, prevail in great-power conflict. However, the defense-industrial resources of the United States and its allies are significantly smaller than they were at the end of the Cold War, which provided the impetus for a great reduction of industrial capacity and a consolidation of companies. As a result, today’s defense industry has adopted a peacetime operating tempo that is ill-equipped to support more dynamic and competitive international-security and military-operating environments.

The preponderance of the US defense industry is optimized to address its customers’ acquisition practices, which have prioritized the development and production of small numbers of exquisite systems rather than weapons delivered at the scale and pace that current conflicts compel governments to require. The transition from an industrial structure optimized for post-Cold War buying preferences to the new imperatives of the age of digital technologies and great-power competition will involve substantial and wide-ranging changes, both to how governments acquire weapons and how industry is organized to deliver them. To accomplish this goal, the NDIS prioritized enhanced international cooperation among the United States, its allies and partners, and their respective defense-industrial resources.

The success of the Ukraine Defense Contact Group (UDCG) in harnessing the weapons stockpiles and industrial arsenals of Kyiv’s partners suggests the great promise of integrating allies’ industrial capabilities. When Russia invaded Ukraine, the United States spearheaded the formation of the UDCG to manifest “the arsenal of Ukrainian democracy.”²Lloyd J. Austin III, “’The Commons Defence’: Remarks by Secretary of Defense Lloyd J. Austin III at the Reagan National Defense Forum,” US Department of Defense, December 7, 2024, https://www.defense.gov/News/Speeches/Speech/Article/3989588/the-common-defence-remarks-by-secretary-of-defense-lloyd-j-austin-iii-at-the-re/. Working together, the armaments directors of more than forty countries cooperating to support Ukraine have expanded global production of critical munitions; developed a common sustainment framework to enhance Ukraine’s capabilities in spares, maintenance, training, and industrial support; and facilitated partnerships with Ukrainian industry for co-production and co-sustainment activities. Although further efforts to strengthen and integrate the international defense-industrial base are needed, the UDCG offers valuable insights into what a major conflict requires from an industrial readiness standpoint.

Challenges

The work of better integrating US and allied defense-industrial capabilities faces a wide range of significant challenges, which the workshop bucketed into three categories.

• Because defense-industrial resources are, sensibly enough, primarily organized by national priorities and prerogatives, they do not lend themselves easily to cross-border opportunities.
• The business and regulatory systems for managing cross-border defense trade are inapt and inefficient.
• Substantial deficits of talent and knowledge management impair the integration of different nations’ industrial resources.

The long tradition of governments organizing their defense-industrial resources with respect to the sovereign obligation of national security continues. While most Western companies, which occupy the advanced industries of the twenty-first century, operate by the global imperatives of commerce, defense companies do not. Instead, they operate primarily in response to the program plans and buying practices of their home markets, and export sales are regulated for compliance with foreign policy, national security, and national economic considerations. These considerations notwithstanding, billions of dollars of arms exports proceed. However, these same considerations confound integration upstream from the points of sale, largely foregoing the industrial efficiencies that would be afforded by co-development, co-production, and co-sustainment of systems between and among companies from more than one nation. This tradition operates at odds with national strategies, which, at their core, rely on coordination of defense policies and militaries among allies and partners.

Therefore, to fulfill these strategies, the business and regulatory systems that effect cross-border defense trade need to be optimized for integration. In practice, however, they are optimized to minimize risk in respect to the foreign policy, security, and political prerogatives of each national government. Most notably, the International Traffic in Arms Regulations (ITAR), which regulates the export of defense goods and services from the United States, is unsuited to the aims of the NDIS with respect to integrating allies’ industrial capabilities. The export of arms needs to remain a discretionary instrument of US foreign and defense policy, but the administration of these controls too often fails to facilitate licenses that will better integrate industrial capabilities to effectively meet the needs of the warfighter and improve industrial integration efforts. For example, “buy America” preferences, which are expressed in law and regulation—and, more importantly, the culture of the Pentagon’s acquisition workforce—continue to impair integration.

Moreover, defense ministries and industries face vast knowledge and talent-management deficits, which impair cross-border industrial integration. In the science, technology, engineering, and mathematics fields most relevant to the defense industry, there is a significant gap between workforce needs and the availability of qualified professionals. This gap is compounded by high attrition rates in management, resulting in a breakdown of knowledge transfer from industry veterans to new arrivals.³Brooke Weddle, et al., “The Talent Gap: The Value at Stake for Global Aerospace and Defense,” McKinsey & Company, July 17, 2024, https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/the-talent-gap-the-value-at-stake-for-global-aerospace-and-defense.The deficits within the US government are at least as great. Defense civil servants require better education in both market research and procurement strategies to effectively evaluate when allied or partner capabilities might offer advantages or simple complementarity compared with domestic performers.⁴James Hasik, “Friend-Sourcing Military Procurement: Technology Acquisition as Security Cooperation,” Atlantic Council, June 11, 2024, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/friend-sourcing-military-procurement/. Until these gaps are filled, the transmission belt from policy prescriptions encouraging cross-border integration to practical action enacting these reforms will continue to fail.

These three challenges—the lack of a common economic market among allies and partners, the inapt regulation of cross-border trade, and the weak preparedness of those involved in procurement processes—framed the workshop’s discussions and provided impetus for the priorities this memorandum identifies. By tackling these key challenges, the United States and its allies and partners can enhance their collective defense efforts, align more effectively with strategic objectives, and ensure a more robust and integrated deterrence posture in an increasingly complex security environment.

Recommendations

Achieving the speed, scale, and resilience that the NDIS calls for will require a concerted effort of initiatives in Washington and coordination with the governments of its allies and partners. For a fast start toward achieving this ambition, the new administration should undertake the following actions.

1. Designate a focal point at the White House. The initiatives this office should lead include
   1. reform of the Foreign Military Sales processes;
   2. reauthorization of the Defense Production Act (see b) below); and
   3. establishment of consultative bodies to formalize government-to-government coordination of industrial capabilities (see c) below).
2. Leverage the reauthorization of the Defense Production Act. Most provisions of the Defense Production Act (DPA) will expire at the end of the current fiscal year. The need to reauthorize the DPA in 2025 presents a significant opportunity to leverage and expand its authorities to enhance international industrial cooperation. Congress and the new administration should consider provisions including
   1. expanding the recipients of Title III financial assistance to companies in allied nations beyond the National Technology Industrial Base (e.g., the United Kingdom, Canada, and Australia);
   2. expanding the purposes of Title III financial assistance beyond end items to encompass critical infrastructure, industrial capacity, and training and education; and
   3. giving standing and utility in Title I to the security of supply agreements between the United States and the more than two dozen governments that have committed to mutually assured security of supply for defense needs.⁵James Hasik, “The Security of Defense Trade with Allies: Enhancing Contact, Contracts, and Control in Supply Chains,” Atlantic Council, July 28, 2021, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/the-security-of-defense-trade-with-allies/.
3. Establish formal institutions to facilitate international industrial cooperation. Operationalize consultative bodies with European and Asian partners to facilitate the coordination of industrial capabilities among the United States and its allies.
   1. In Europe, NATO presents itself as the obvious platform on which to build a consultative forum for coordination with that region’s allies and partners.
   2. In Asia, the Partnership for Indo-Pacific Industrial Resilience (PIPIR) is the platform through which to coordinate with Asian partners.
4. Identify specific defense system needs to comprise an initial agenda of industrial capacity and capabilities that would benefit from international coordination and industrial integration. To focus attention while, at the same time, indicating the broad scope and application of such initiatives, we recommend choosing just three systems on which to focus this year—one system in development, another in production, and a sustainment program.
5. Establish career paths and educational curriculums for acquisition managers who focus on international cooperation and industrial integration.

Conclusion

Implementation of the NDIS is well under way, including with respect to Section 2.1.2.6. However, a clear sense remains of the high leverage provided to the overall strategy by integrating allies’ industrial capabilities, together with a focused agenda of executive office actions required to achieve that ambition. The purpose of this memorandum is to give a tailwind to the new administration’s attention to these opportunities.

Staff

Abigail Rudolph

Program Assistant

Forward Defense Scowcroft Center for Strategy and Security

Defense Industry Defense Policy

Fellow

Steven Grundman

Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Defense Industry Defense Policy

The authors are grateful to the government officials, industry representatives, and think tank experts who lent their time and expertise to the workshop in support of this strategic insights memorandum. The Atlantic Council would like to thank its partner, Beretta USA, for supporting its work on this publication.

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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