The first few weeks of the Trump administration have been so shocking that even seasoned observers of American politics are having a hard time keeping up. One of the latest proclamations from the President is that he may attempt to cut the American military budget in half. Defense company stocks in the United States declined significantly following the news.

Trump’s argument ties into a broader global strategy that the administration appears to be pursuing. In his latest comments, he said that he would sit down with the Russians and the Chinese and make the case that they should all be spending less of their economic output on their militaries. The argument appears to be roughly similar to the old debates about arms control, only applied to overall military expenditure rather than simply the proliferation of nuclear armaments.

As the President noted in his comments, the American military budget for the fiscal year of 2025 was capped at $895 billion. This is a significant chunk of fiscal space. Consider that the soaring American government budget deficit is around 6.4% of GDP. Military expenditure is around 3.3% of GDP, meaning that if the Pentagon manages to reduce this spending by half, the impact on the budget deficit would be significant.

The same cannot be said for other targets of cuts. While the attack by Elon Musk’s Department of Government Efficiency (DOGE) on USAID will have dramatic consequences both at home and abroad, the savings obtained by cutting the department are not enormous: the total USAID budget is around 0.33% of GDP.

It is well-known that the Pentagon is flabby, with contracts issued on projects of dubious merit. The most glaring of these is the F-35 program. This so-called “next generation” aircraft has cost the US taxpayer $2 trillion — around 6.5% of annual GDP. Yet the aircraft is known to be extremely dysfunctional and is dubbed a “hangar queen”, alluding to the amount of time the aircraft spends being maintained and repaired. The Tesla boss has called the people who built the F-35 “idiots” and deemed the aircraft “the worst military value for money in history”.

Musk is no doubt eyeing up the potential for taking on Pentagon contracts himself. His company SpaceX now effectively does the job of launching satellites and rockets that NASA used to carry out, before the agency started to fall apart under bureaucratic inertia. Musk and his team are starting to size up what American military contractors are actually producing and thinking that they can do it cheaper and better. Trump’s words are sending ripples through the defense-industrial complex across the West, striking fear into contractors who have long enjoyed effective monopolies on contracts for military procurement.

Over the weekend, Keir Starmer announced that he would be overriding Rachel Reeves to increase British military spending. The UK’s Prime Minister is known to exercise limited control over his own government, his approach to leadership likened to a driverless train by those who have worked with him. The British defense-industrial complex may have convinced Starmer to turn on the taps by telling him that it was necessary for national security. But given the timing, it looks more like a group of people getting one last grab at the government teat before hard questions start being asked about the cost and quality of the products they are delivering.

Trump’s first few weeks have shown that he and his allies are willing to engage in policy that can only be described as “revolutionary”. They are willing to go up against entrenched interests in both the government and the private sector. So far, they seem to be steamrolling their opponents. If the Trumpian revolution continues, it looks set to massively disrupt long-established interest groups across the world. The President’s latest comments suggest that the Western defense-industrial complex — which has failed to deliver so completely during the Ukraine war — is next on the chopping block.

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Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

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