Why The World Is Spending More On War

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**Ed Elson** (1:13)
Welcome to Prof G Markets, I'm Ed Elson. It is July 8th. Let's check in on yesterday's market vitals.
The major indices declined as chip stocks tumbled once again, more on that in a minute. Oil rose after three ships were attacked in the Strait of Hormuz. The US rescinded its authorization of Iranian oil sales following those strikes.
Microsoft stock rose on news that it is replacing OpenAI and Anthropic with its own models to bring down costs. And finally, SpaceX declined nearly 7% on its first day in the NASDAQ 100
Okay, what else is happening? The NATO summit kicked off yesterday in Turkey. And the big takeaway so far is that a new global arms race is underway. Trump is pulling US military assets out of Europe and shifting focus to the Middle East and Indo-Pacific. That is forcing Europe to shoulder more of its own defense. NATO allies have agreed to at least $50 billion in defense industry deals and $40 billion in counter drone capabilities. But America isn't slowing down either. Trump's 2027 budget proposes $1.5 trillion for defense, which is the largest request in history. And Silicon Valley wants in. Defense tech companies have raised more than $19 billion so far this year, already blowing past last year's record in 2025 In short, an enormous amount of capital is flowing into defense right now. The question is, what exactly are we gearing up for? Joining us to discuss this, we are speaking with Steve Feldstein, senior fellow at the Carnegie Endowment for International Peace. His new book, Bites and Bullets, Global Rivalry, Private Tech, and The New Shape of Modern Warfare comes out in September.
Steve, thank you so much for joining us on the show today. I'd love to get your initial reactions to what we saw at the NATO summit. It seems like a big conclusion or a big take away is that we're going to spend a lot more money on weapons, a lot more money on defense. Is that the right takeaway?

**Steve Feldstein** (3:23)
I think it is. Thanks for having me on. And I really think that there's an overall context that's worth bearing in mind. And I think there are three factors that I've been looking at over the past couple of years that are really relevant. So I think the first one is that we are just seeing far more conflict occurring around the world today than even in the last five years. Last year, something like 250,000 people were killed alone on battlefields. So it means that war is prevalent and around, and countries recognize that there is growing levels of insecurity, and so that matters. I think the second thing is that we're seeing a growing menace from Russia. As it continues to get on a wartime footing because of the Ukraine war, as it continues to increase its drone capacity in manufacturing of other types of weapons, countries in Europe, in NATO in particular, are concerned. And they know they need to keep up, and they need to retool accordingly. And then finally, I think especially coming to the Iran war, we're seeing the use of new technologies, particularly AI targeting systems and so forth in play. And I think it's also giving a recognition to countries like Germany, France, and others that they also need to really think carefully about innovation and what types of weapon systems they need to incorporate so that they are able to fight wars effectively in the future.

**Ed Elson** (4:36)
Yeah. I mean, one of the starts that blew me away that we just learned is that defense tech has raised more than $19 billion this year, and that's in six months. So we already beat last year's record.