The U.S. is ramping up its defense spending with an eye on China, which aims to boost its nuclear arsenal from 400 to 1,500 by 2035, the Pentagon says.
Concerns about China are driving a projected surge in U.S. defense spending over the next four years, both in conventional and nuclear weapons, according to a recent report by investment bank TD Cowen.
TD Cowen estimates that the Pentagon’s spending on a group of roughly 30 major weapons and munitions is set to jump 22% from fiscal 2024 to 2028, “a significant increase from prior plans.” The Pentagon’s fiscal 2024 budget included an $11.1 billion increase through fiscal 2027 compared to a year earlier across the 30 main programs that TD Cowen tracks, with $10.7 billion allotted for conventional munitions.
Within that spending hike, TD Cowen expects solid, near-term growth for conventional munitions but more sustained growth for atomic weapons as part of the Nuclear Triad Modernization.
In both cases, China is the U.S. Defense Department’s primary long-term consideration, though Russia’s invasion of Ukraine is driving some specific spending in the short term. “Ukraine-type weapons ... should benefit from funds appropriated by Congress over the last year for DOD refill and from foreign military sales to NATO countries,” TD Cowen said. These include Lockheed Martin and Raytheon Technologies’ Javelin anti-tank missiles, Lockheed’s Guided Multiple Launch Rocket System (GMLRS), Raytheon’s Stinger anti-aircraft missiles and General Dynamics’ 155mm rounds.
In the long term, Northrop Grumman programs are likely to grow the most on the back of nuclear modernization and rocket motors, with Lockheed right behind, buoyed by demand for both its conventional and nuclear programs.
In December 2022, the Pentagon unveiled the Northrop-built B-21 Raider stealth bomber, the first new U.S. bomber aircraft in more than three decades. The Air Force plans to buy at least 100 of the $700 million aircraft, which can deploy either nuclear or conventional munitions.
“Even the most sophisticated air defense systems will struggle to detect the B-21 in the sky,” U.S. Secretary of Defense Lloyd Austin said in December.
Including the B-21 and its classified space programs, Northrop “arguably is the fastest-growing prime through the late decade, with a ramp to 6% growth expected by 2025 and somewhat more in out years,” TD Cowen said.
China’s answer to the B-21, the Xian H-20, is being manufactured by the state-owned Aviation Industry Corporation of China (AVIC) and is expected to be rolled out at some point this decade. The H-20 may have a global range of 10,000 km (6,200 mi.), according to the Center for Arms Control and Non-Proliferation.
The H-20 is part of a broader, accelerated push by Beijing to modernize its nuclear arsenal. The Pentagon estimates that China plans to nearly quadruple its nuclear warheads from 400 to 1,500 by 2035.
China’s current nuclear-capable bomber is the H-6N, which has a range of 1,800 km and recessed fuselage modifications that allow it to carry air-launched nuclear missiles.
It is unclear why China, a state with a longstanding no-nuclear-first-strike policy, is doubling down on boosting its nuclear arsenal—especially when the conventional capabilities of the People’s Liberation Army Rocket Force (PLARF) are sufficient to make U.S. intervention in a Taiwan Strait conflict a costly endeavor for Washington. The opacity of China’s authoritarian political system and lack of candid dialogue between the U.S. and Chinese militaries add to the challenges of deciphering Beijing’s nuclear weapons program objectives.
After President Joe Biden met with Chinese leader Xi Jinping last November in Indonesia, the White House issued a statement that said the two men “reiterated their agreement that a nuclear war should never be fought and can never be won and underscored their opposition to the use or threat of use of nuclear weapons in Ukraine.”
Meanwhile, Taiwan figures prominently in growing demand for Raytheon’s Standard Missile Six (SM-6), Naval Strike Missiles, and Advanced Medium-Range Air-to-Air Missile (AMRAAM). “Raytheon’s portfolio has implications for Taiwan scenarios, and increased production and stockpiling could be part of a U.S.-Quad-Taiwan stockpiling and deterrence scenario,” TD Cowen said, with “Quad” referring to the Quadrilateral Security Dialogue that includes the U.S., Japan, Australia and India.
Looking ahead, TD Cowen notes that the Pentagon wants contractors to add missile and munitions capacity, but they are hesitant to do so without assurances of sustained demand that would allow them to recover capital costs.
Cognizant of this issue, the Pentagon “appears willing to consider multiyear buys,” the investment bank said, adding that it expects production to ramp up in 2024-25 and continue at an elevated level for several years thereafter “to achieve the inventory levels DOD wants to both replenish Ukraine and refill its own stockpile.”
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