Publication
Spotlight on the new US National Security Strategy
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Publication
Conceivably, it is the most relevant paper for the global defence sector, influencing military decision making across continents and, therefore, will have significant impact on the business of defence primes, suppliers and other key players in the wider industry.
Whilst both in terms of style and content, the paper undoubtedly is in stark contrast to previous NSS-versions, in substance it largely is a straightforward formal articulation and theorisation of the conduct the current US-Administration has taken since its inauguration. The five core messages of the NSS and potential investment implications can be summarised as follows:
America First: The NSS is all about prioritising the safety, well-being and interest of the US by maintaining economic, financial, military and political strength.
Investment Implications: This domestic focus signals increased pressure for 'Buy American' provisions in defence procurement deep into the supply chain. This could create headwinds for foreign suppliers whilst simultaneously boosting valuations of domestic contractors and their local supply chain. For M&A activity, this suggests US defence companies may remain active in acquiring domestic capabilities to complement or consolidate their position. Conversely, non-US acquirers may face heightened scrutiny from the Committee on Foreign Investment in the United States (CFIUS), particularly for transactions involving critical technologies or supply chain components. Investors should also build in buffers, due to longer approval timelines and potentially more stringent mitigation requirements, for cross-border deals due to a more protectionist market environment.
Trump Corollary to the Monroe Doctrine (1823): The US shall ‘restore American pre-eminence in the Western Hemisphere’, as its immediate interests move closer to home. Under the NSS, Europe is not considered part of the Western Hemisphere. Beyond the region, the clearly expressed US-preference is for non-interventionism - ‘The days of the United States propping up the entire world order like Atlas are over.’
Investment Implications: The pivot towards non-interventionism beyond the Western Hemisphere suggests reduced US military engagement globally. This may result in reduced demand levels of US Armed Forces for certain expeditionary capabilities, long-range logistics platforms, and sustained overseas operations support in Europe. More importantly, this partial withdrawal further increases the pressure on and need for European allies to compensate consequential gaps. Hence, savvy investors should continue looking towards European opportunities benefiting from the need to scale up and broaden regional capabilities. Given the fragmented European landscape, in particular at a supplier level, a wave of consolidation may be ahead of us.
Containment of China: Pursuant to the NSS, preventing China from becoming too dominant globally, is – at least for the time being – seen mainly as a matter of economic containment. Whilst simultaneously preserving military overmatch is regarded primarily a US task, allies are asked to support containment by adopting trade policies that help rebalance China’s economy, in particular industrial supply chains and technology, toward household consumption.
Investment Implications: This is a further signal towards sustained opportunities in supply chain resilience and technology sovereignty. Defence investors should focus on companies enabling 'friend-shoring' and 'near-shoring' of critical defence manufacturing, particularly in semiconductors, CRM processing, advanced materials, as well as precision manufacturing. M&A activity will likely accelerate around securing supply chain independence. Vertical integration deals may also become more popular as prime contractors may seek to acquire critical suppliers, as well as dual-use technology companies that can provide cutting-edge capabilities and reduce dependence on non-allied manufacturing. Cross-border partnerships between US, European, and Indo-Pacific allies (particularly Japan, South Korea, and Australia), in this regard, seem likely given the complexity of the overall objective.
Contingent US support: Preserving Europe’s freedom and security is spelled out as core US foreign policy interest. However, the NSS establishes a clear correlation between US support and those allies’ willingness to carry a massively increased burden of collective defence cost, per the recent Hague Commitment of 5% GDP contribution to NATO spending, and primary responsibility for their continent (also vis-á-vis Russia with which the US intends to re-establish strategic stability).
Europe is further expressly requested in the NSS to restore its ‘civilisational self-confidence and Western identity’ by changing its current trajectory away from mass-migration and ‘elite-driven anti-democratic restrictions on core liberties’.
Investment Implications: The combination of political commitments within NATO to significantly higher expenditure levels, the instability at Europe’s Eastern flank and the now clearly articulated official statement that continued US support will be contingent on certain factors has kicked off a multi-year growth trajectory for Europe’s defence sector. Beneficiaries will not only be companies focused on conventional capabilities - armoured vehicles, artillery, air defence systems, ammunition production, and logistics - but also those aiming at providing European systems traditionally covered by or sourced from the US, including in the C4 ISR space. This has already boosted formation of strategic partnerships as well as M&A activities. It will be interesting to see whether the concept of creating genuine European champions will finally gain political support.
Primacy of Nations: Whilst like-minded nations shall be pushed to uphold ‘shared norms’, the US itself shall refrain from imposing on other nations democratic or other social change which is perceived to differ widely from their traditions and histories. Nation-states shall remain the world’s fundamental political unit whose sovereignty shall be respected and defended, including against its erosion by transnational and international organisations.
Investment Implications: The NSS may prompt more bilateral cooperation between the US and chosen individual allied countries given the expressed sceptic towards multilateralism. On the European end this may, however, end up in increased levels of transnational cooperation, in particular on the part of the EU, given the pressing overall need to emancipate Europe’s security architecture from current levels of US contributions. We may see more initiatives under or complementing the ReArm Europe programme.
The NSS is a high-level outline of political principles and priorities. It is therefore bound, at least to a certain degree, to interpretation and subject to actual implementation by relevant institutional decision-makers. It will be important to closely monitor further developments in these regards, including the actual impact on practical day-to-day cooperation amongst NATO forces and defence industry players across the Atlantic.
In this context, it’s worth noting that on 10 December the House of Representatives passed the National Defence Authorisation Act (NDAA) for the fiscal year 2026. The House not only approved a record defence budget of more than USD 900bn but also restricted cuts to US troop levels abroad (mandating at least 76,000 US troops in Europe) and authorised further funds to support Ukraine under long-standing commitments. The NDAA was adopted by an overwhelming bipartisan majority of 312-112 votes, sending it for consideration by the US Senate next week.
The Linklaters Defence Sector Team will provide regular updates on this and other relevant security and defence related topics.