Several trends are shifting defense tech toward Europe

Donald Trump’s break with the liberal democracies of Europe couldn’t have come at a worse time for U.S. protection and tech giants, whose market dominance might be challenged by European rivals using a number of favorable developments.

One is geographic: EU insurance policies now coming into power imply U.S. companies should alter their methods and practices—or lose entry to a essential market. On the navy aspect, the function of Ukraine in navy expertise innovation advantages European companions which can be nearer to the entrance line. One other is technological: At a time when quicker tech cycles and open-source software program make it simpler for startups to problem the giants, enterprise capital is flowing to European protection companies and some U.S. startups. Yet one more is, maybe, philosophical: Europe is souring on the Twenty first-century discount during which U.S. tech companies are bought, partially, with entry to European information.

All this implies that whereas Europe will discover it troublesome to uncouple shortly or completely from the U.S. protection and tech industries, a brand new order is coming.

No divorce but

At the same time as European policymakers elevate ideas like digital sovereignty and strategic autonomy from attention-grabbing discussions to formal targets, a long time of dependence on the U.S. navy and business aren’t so simply undone.

U.S. protection companies account for practically half of world gross sales, whereas European corporations account for just below one-quarter, in response to a Feb. 12 report from the McKinsey consulting agency. Europe buys about half of its protection items from U.S. companies, a proportion that has grown previously 5 years, the report says. And European governments are utterly depending on U.S. suppliers for some key capabilities akin to giant satellite tv for pc constellations for web connectivity or earth imaging. 

As NATO Secretary Common Mark Rutte, who has referred to Trump as “Daddy,” advised alliance members earlier this month, “Europe can defend itself with out the US? Carry on dreaming. You possibly can’t.”

The most important gap in Europe’s plans for technological independence often is the cloud. Distributed large-scale information storage and retrieval are all however important for contemporary weapons, protection manufacturing, societal resilience, and navy operations; they’re important for autonomous techniques and instruments that use generative AI and huge language fashions. 

Some 80 % of European spending on cloud companies goes to U.S. corporations, in response to a December report by the European Fee. Even European officers concede that they haven’t any near-term alternate options to U.S. enterprise cloud and information integration corporations. However European governments who fear about their dependence on U.S. tech are overtly rethinking their relationships with corporations like Microsoft, Palantir and others. 

“There isn’t any fast repair,” an analyst with a number one U.S. consulting agency advised Protection One. “Given the annual capital and working spend of a whole lot of billions over a number of years from the hyperscalers”—the U.S. giants of computing—“we’re not but seeing a comparable European various.”

Whereas that’s the image at this time, it’s not a everlasting one. 

Regulation

U.S. executives like to level to EU rules that damage European competitiveness—for instance, the Common Knowledge Safety Regulation. However a pair of recent legal guidelines purpose to assist European digital-services corporations develop—and would require U.S. companies to adapt. 

The Digital Networks Act will substitute a number of regulatory schemes with a single one, enabling corporations to increase extra shortly all through the EU. The 2024 Knowledge Act, now coming into power, offers customers possession over device-generated information and makes it simpler for Europeans to modify cloud suppliers. 

U.S. cloud suppliers that wish to keep within the European market should create EU-based, or at the very least EU-compliant, variations of their merchandise. These “sovereign clouds” should run on and retailer information in facilities on the European continent. Microsoft, AWS, and Google, for instance, have labored with France’s Capgemini to take action, however it eats into U.S. corporations’ backside strains.

Cloud suppliers should additionally obey legal guidelines that prohibit unapproved sharing of EU-based information with, say, the U.S. authorities. The legal guidelines have tooth; in December, the EC hit X with a €120 million tremendous for DSA violations. However U.S. tech companies have additionally been threatened by the Trump administration in the event that they comply. 

And at the very least one analyst believes the DSA will power U.S. corporations to open up their ecosystems and share mental property with European rivals. In October, AEI fellow Shane Tews argued that this may result in “race to the underside the place copying current options turns into extra interesting than innovation.”

Ukraine the pioneer

Navy tech can also be changing into extra European—particularly, Ukrainian. U.S. navy commanders are carefully watching as Ukrainian forces develop ways and equipment which have held Russian invaders at bay—and even defeated a simulated NATO mechanized assault. Final yr,  Gen. Alexus Grynkewich, the U.S. Air Power officer who’s the alliance’s Supreme Allied Commander, urged U.S. corporations to workshop their arms and equipment on Ukrainian battlefields.

Eric Brock is a co-founder of the enterprise capital agency Ondas, which backs startups that work carefully with Ukrainian troops. He mentioned European governments more and more wish to purchase made-in-Europe merchandise. U.S. corporations may method this by in search of joint ventures with European companies—however he mentioned that can require a humbler, extra collaborative method than U.S. corporations have been used to.

“We…wish to carry European capital as nicely to match ours. So it could’t be the larger, American firm coming in and dictating,” he mentioned. “I believe it will be exhausting for the established protection producers who’re so embedded with the Division of Warfare to localize in Europe. Among the rising gamers on the quick cycle, like the businesses we’re working with, can have a neater time.” 

Europe’s protection companies have usually moved extra slowly than their American counterparts. One strategy to measure that is backlog-to-revenue, the time between taking an order and delivering a product. It’s a median of three.7 years in Europe and a pair of.4 in the USA.

However Ukraine is exhibiting the remainder of Europe tips on how to transfer extra shortly. It has, for instance, developed and mass-produced interceptor drones whereas the USA has struggled to deploy far fewer at far better value. 

That ambition is proving contagious. On Feb. 2, Germany unveiled a brand new extremely maneuverable hypersonic missile in a fraction of the time and value it took U.S. companies to debut theirs. 

New-tech spending

Europe can also be placing a big portion of its new protection spending into new expertise, quite than updating older tech. From 2022 to 2025, European defense-tech spending rose thirteenfold whereas U.S. spending on new tech solely doubled, in response to Jonathan Dimson, a senior accomplice at McKinsey, who added that funding in European defense-tech startups from 2021-2024 was greater than 5 occasions better than within the earlier three-year interval.

Europe has additionally famous how Ukraine’s use of open-source software program has sped innovation, and the EU has specific efforts to encourage its use. Google final week criticized the plan as anti-innovation, however buyers who wager on open-source AI corporations say they’ll out-iterate closed fashions. They level to China’s DeepSeek and Arcee AI, a U.S. firm that in January launched Trinity, a 400-billion-parameter open-source mannequin. Arcee constructed the mannequin for $20 million, a fraction of the quantity that, say, Meta spent on Llama, co-founder Mark McQuade mentioned at an January occasion in San Francisco.

“You are gonna have so many individuals constructing on high of that,” mentioned William Sherman, whose AIN Ventures backs Arcee, “that these you already see these fashions getting are, like Mark mentioned, getting near pretty much as good because the closed-source fashions.”

The U.S. navy can also be pushing for open architectures and freer information sharing, typically over the objections of enormous incumbent protection contractors.

“I am very a lot encouraging any firm inquisitive about constructing that type of open-source U.S.-based mannequin to take action, and there is corporations which can be beginning to do it,” Emil Michael, the protection undersecretary for analysis and engineering, advised a small group of reporters final week on the AWS Protection Management Tech Summit in West Palm Seaside.

Public mistrust

Europeans’ rising mistrust of the USA is dragging down their willingness to make use of U.S.-made tech. Public sentiment started to drop a yr in the past, after Vice President JD Vance’s speech on the 2025 Munich convention, mentioned one U.S. financier who works with European and U.S. protection companies. 

“The Europeans have been aghast…They could not imagine it. They have been very upset. In a short time. They realized that, okay, you recognize, ‘We have now to be resilient,’” the financier mentioned. “I do not suppose it is extensively appreciated how massive of a deal it’s.

Extra not too long ago, a ballot by the Munich organizers confirmed that the majority European respondents strongly felt that Trump’s insurance policies have been dangerous for his or her nations. In September, a Pew ballot discovered that 63 % want European-made safety applied sciences, even at a better value, as a result of they see Trump’s affect as a safety danger. Simply weeks in the past, a ballot carried out by Swiss expertise firm Proton discovered that almost three-quarters of Europeans imagine that their nations are too depending on U.S. expertise.

These modifications in notion are particularly related in the case of AI, which U.S. hyperscalers are investing most closely. European and U.S. residents are more and more aligned in wanting management over their very own information and the way AI is used of their lives, the Pew ballot discovered.

Navy officers additionally speak concerning the management they need from AI and protection contractors generally: management over the information that goes into mannequin reasoning, management of or at the very least transparency into mannequin processes, management over compute assets. That places the Pentagon on a collision course with massive tech, which needs to retain, and even enhance its management over person information, compute infrastructure, and mental property.

All of this factors to an amazing shift. Allies and customers are skeptical of tech corporations’ relationship with the White Home. A brand new class of startups is rising to compete in opposition to massive tech suppliers. The Ukrainian mannequin is shaping how each navy thinks about the way forward for constructing and shopping for weapons. 

Backside line: Whereas giant U.S. tech companies will retain their management place for years, they’re already changing into extra European. They usually’ll must re-invent themselves in different methods if they’re going to make the pitch that they’ll nonetheless develop and never simply handle a gradual decline.