Who has the bigger button?

While rising geopolitical risks can create headaches for investors, mounting geopolitical challenges present a silver lining to the defence industry and military planners asking for larger budgets. The post-Cold War era has largely been defined by leaner defence budgets and a focus on fighting smaller, asymmetric wars. This increased focus on counter-terrorism led to shifting defence budgets that downplayed the risk of great power conflicts. However, a shift is emerging; following Russian actions in Crimea, Chinese expansion in the South China Sea, and a growing acknowledgement in Washington that the largest global challenge now stems from “revisionist powers”, global defence spending is set to rise to post-Cold War highs. According to the annual forecast produced by IHS Jane’s, worldwide defence spending this year could be approximately US$1.67 trillion, exceeding the previous post-Cold War record set in 2010. The amount would be a 3.3% increase over 2017, representing the highest year-on-year growth in over a decade. The biggest driver of the increase comes from the US. The recently approved military budget is hailed by the administration as the largest in US history, representing a 4.8% increase over last year.