Startups can help restore the stagnant US defense industrial base

This article, originally published by Pacific Forum, is republished with permission.

The present United States defense industrial base was forged amid a post-Cold War peace dividend and dramatic defense budget cuts that elevated production efficiency over innovation. Consolidation around major defense contractors – called the “Last Supper” – was seen as essential for the US defense industry to survive capital constraints, effectivelyreducing the number of prime contractors from 51 to five by the early 2000s.

Simultaneously, the globalization of supply chains pushed commercial manufacturing to cost-efficient overseas sources, shifting the production base for defense assets outside US borders and creating reliance on single, or even adversarial, suppliers. The aftermath was a contracted and exported industrial base.

Despite the emerging post-war base’s bureaucratically sluggish and risk-avoidant nature, defense production could support the requirements of the United States’ Global War on Terror and 20 years of counterinsurgency campaigns in the Middle East because the conflict involved intermittent, protracted engagements against non-state adversaries with non-peer capabilities.

But the international security environment has changed. Eruption of global crises, including in Ukraine and Gaza, has driven a surge in security demands that have strained the defense industrial base’s capacity to scale production and meet partner requirements.

Consequently, wavering US response to crises in the Middle East and Europe raises international concerns as to the United States’ ability to simultaneously contend with an increasingly capable and assertive China, its most consequential strategic competitor.

China’s ongoing efforts to push the limits of peaceful norms in the Indo-Pacific spark regular flashpoints in the South China Sea and raise the urgency to prepare for a potential cross-Strait crisis. The US Department of War anticipates publication of a2025 National Defense Strategythat may further elevate China as the primary threat to US security, echoing concerted efforts to pivot military focus that began even before the Afghanistan pullout.

But how can an already taxed industrial base successfully rebalance its commitments to other regions while addressing the growing China threat? Although this challenge will require a complex whole-of-government response interweaving all instruments of national power, an acute indicator of US ability to pivot lies in the simple yet consequential count of munitions.

The world is watching as US legacy munitions production and surge capacity struggle to meet the demand of modern warfare. If this is left unaddressed, shortfalls could quickly force high-risk tradeoffs that jeopardize US global strategic interests.

Manufacturing innovation

The recent passing of theOne Big Beautiful Bill Actincludes $156.2 billion additional appropriations for national defense funding for fiscal year 2026, presenting opportunity for the war department to resolve long under-resourced priorities outlined in theUS Indo-Pacific Command’s fiscal year 2025 unfunded priorities list – including$2.6 billion for munitions.

But while increased funding is a means for addressing depleted US munitions stockpiles, it doesn’t provide the ways. Even with significant capital injections, the defense industrial base’s legacy manufacturing and procurement structure cannot rapidly scale munitions production to meet modern warfighter needs, let alone deliver new capabilities at pace to address a rapidly advancing peer competitor.

Drawing from basic economic theory that articulates the diminishing returns of capital injections on growth, the Department of War should focus on promoting industrial innovation as the transformative driving factor for scaling munitions production capacity.

Role of small business

The first-everNational Defense Industrial Strategy(2022) calls for expansion and diversification of the defense industrial base through the inclusion of and investment in small businesses. Specifically, it outlines a role for new players to “move aggressively towards innovative, next-generation capabilities while continuing to upgrade and produce, in significant volumes, conventional weapons systems already in the force.”

In fact, the benefit of integrating startups in the base is a relatively nascent yet well-championed initiative within defense circles.

Centers of excellence including the war department’s Defense Innovation Unit and component-level programs – with names such as AFWERX, SpaceWERX, Army Futures Command, NavalX, Marine Corps Warfighting Lab and SOFWERX Endeavor – to accelerate disruptive defense-related manufacturing technologies.

They do this by bridging the fast-paced and fragile startup community to the bureaucratic and entrenched defense industrial base through the flagshipSmall Business Innovation Research and Small Business Technology Transfer program and others.

Elementum 3D’s selectionfor the US Air Force’s Enterprise-Wide Agile Acquisition Contract indefinite delivery/indefinite quantity (IQID) vehicle initiative in May 2025, showcases the department’s ability to rapidly modernize defense production through the incorporation of startups. It represents an accession pathway connecting startups seeking government contracts with the department’s imperative to rapidly meet weapons production requirements.

Through this contract, Elementum 3D will employ its extensive metal additive manufacturing and high-performance materials expertise to support the Air Force’s modernization of weapons systems development through the “Digital Trinity” – the integration of agile software development, open architecture, and digital engineering.

Disruptive manufacturing practices – including additive and subtractive manufacturing, artificial intelligence/machine learning predictive maintenance, advanced materials sciences and robotics – provide the defense industrial base the ability to pivot from traditional manufacturing shortfalls.

Modern production technologies integrate well into the base’s prioritization of cost effectiveness, often reducing maintenance expenditures, offering inexpensive scalability and lowering training requirements. At the same time, they facilitate a more resilient architecture, allowing the base to capitalize on US-based industry that can be easily replicated and distributed across a network of micro-factories with a lower overhead price tag.

Importantly, this also offers new capabilities development through advanced techniques and material as well as rapid innovation through accelerated prototyping and flexible customization. The result is a more timely, dynamic, resilient, scalable and capable production base.

The imperative for change

The increasingly volatile international security environment and strained US responses to global crises underscore the imperative for rapid and transformative defense industrial base modernization to meet the munitions production demand of future conflict. Foremost in this regard is the potential for conflict with China in the Pacific Theater – an engagement that would constitute large-scale multi-domain operations against a peer competitor with which the US shares deep economic interdependence.

Innovation is required to meet a pacing peer challenger. Supply chain credibility is required to exclude dependencies on adversarial entities. And rapid scalability is required to meet the munitions demand of large-scale combat operations. Broadening the integration of startup enterprises can provide a critical pathway to modernization necessary to meet the needs of a shifting US defense strategy to address present challenges.

The imperative for munitions production modernization is clear; the value of startup contribution is codified; acquisitions pathways for partnership exist; and efforts to adapt further are underway.

Yet, significant barriers to entry for fast-paced, fragile small businesses into the bureaucratically entrenched and sluggish US defense industrial base still preclude partnership at a scale necessary for transformative modernization.

In fact, Elementum 3D’s recent contract award was a result ofnine years of government defense partnershipto incorporate its manufacturing advantages into US defense production.

Most startups, regardless of how disruptive their technology is, cannot sustain operations in the process of aspiring for a federal governmentprogram of record. The largest hurdle is referred to as the “Valley of Death” – the period between receiving initial government funding and achieving commercialization, whichonly roughly one in six Small Business Innovative Research-funded companies was able to traverse over the last decade.

Read Part II, which identifies the structural barriers preventing meaningful startup participation in the defense industrial base and examines pathways for contracting the gap between evolving US national defense strategies – which increasingly prioritize readiness for a potential Pacific conflict – and legacy US defense production capabilities.

Meghan Fong (mcf138@georgetown.edu)is a graduate student in Asian Studies at Georgetown University School of Foreign Service and an active-duty United States Air Force Officer. Building on her operational experience, she focuses her research on Pacific Theater security challenges, US-China strategic competition and the US defense partnerships.