Germany moves to protect defence industry amid geopolitical pressures

Berlin is tightening controls on its defence sector as it expands military spending and confronts strategic risks posed by deep economic ties with China and reliance on foreign suppliers, especially from the United States. The federal government’s action reflects growing anxiety that Germany’s defence companies, including key suppliers and manufacturers, could be exposed to undue influence or supply chain disruptions if anchored too closely to geopolitical rivals. This shift forms part of a broader recalibration of national security policy, which seeks to balance market openness with safeguarding critical defence capabilities.

The Federal Ministry for Economic Affairs and Energy and the Ministry of Defence have underscored the importance of foreign direct investment screening that goes beyond routine economic considerations to factor in national security implications. Defence-related transactions, including acquisitions and equity stakes of 10 per cent or more by foreign investors, now face heightened scrutiny under a comprehensive review process. Officials are particularly focused on whether such investments could jeopardise supply chains for the Bundeswehr or lead to transfers of sensitive know-how that erode Germany’s technological edge. Among the assessment criteria are the investor’s organisational structure, alignment with German strategic interests, and the future military relevance of affected products and services.

The strategic imperative for this tighter oversight emanates from Berlin’s ambition to transform its defence industry into a more resilient and sovereign force. Under a National Security and Defence Industry Strategy adopted late last year, the government has committed to boosting domestic capacity in key technologies, securing critical supply lines, and reinforcing European and international cooperation where it aligns with national defence goals. The strategy, championed by Defence Minister Boris Pistorius and Economy Minister Robert Habeck, emphasises that a robust defence industrial base is crucial to meet the Bundeswehr’s expanding requirements and to contribute effectively to collective security frameworks.

Industry leaders have welcomed clarity on regulatory parameters but have also emphasised the need for concrete government support to reduce dependencies on imported inputs. The Bundesverband der Deutschen Sicherheits- und Verteidigungsindustrie, the German defence industry association, has previously warned that domestic suppliers lag behind their American counterparts, who have already reduced dependence on Chinese materials under sustained policy pressure. Without proactive measures, German firms could face strategic disadvantages if geopolitical tensions trigger sanctions or supply interruptions. Suggestions from industry stakeholders have included establishing strategic reserves of critical inputs or using state funds to incentivise procurement of materials manufactured without reliance on potentially vulnerable foreign sources.

The evolving policy environment also intersects with broader European efforts to strengthen autonomy in defence supply chains. European Union leaders have discussed the challenge of balancing economic relationships with major powers such as China and the United States while securing strategic industries essential to defence and technological competitiveness. Debates in Brussels have highlighted the need for the EU to avoid over-dependence on external suppliers and to bolster its own industrial base as a complement to transatlantic cooperation.

This strategic recalibration unfolds as Germany pursues an unprecedented expansion of defence expenditure enabled by amendments to its Basic Law. Legislative changes made in 2025 have lifted constraints on defence and security spending, allowing for substantial investments in military hardware, infrastructure and emerging domains such as space and digital technologies. Defence procurement reforms are being advanced to streamline processes and accelerate delivery timelines, part of a concerted effort to modernise the Bundeswehr and reduce bottlenecks that could slow capacity build-up.

The policy shift has triggered nuanced responses from international partners. While close defence cooperation with allies such as the United States remains integral to Berlin’s strategy, there is a parallel drive to cultivate a more autonomous industrial base capable of operating without excessive reliance on external sources. This includes exploring joint ventures and co-production arrangements that retain value within Europe, as well as reinforcing vetting mechanisms to ensure that defence supply chains remain resilient in a fractious global environment.

Defence companies such as Rheinmetall AG, one of Germany’s largest arms manufacturers headquartered in Düsseldorf, stand at the centre of these developments. Such firms are expected to navigate a landscape where government guidance, strategic investment criteria and international partnerships will increasingly shape their operational and ownership structures. Rheinmetall’s diverse product range — from military vehicles to advanced electronics — underscores the complexity of maintaining competitive edge while aligning with heightened security imperatives.