The arms race is escalating, with leaders like Putin, Xi, and Trump highlighting Europe’s reliance on U.S. defense. Military spending is surging globally, especially in Europe, while Swiss arms exports are declining despite this trend. Strict neutrality policies and limitations on arms transfers, particularly to Ukraine, are impacting Switzerland’s market share in defense. A shift towards exporting components rather than complete systems raises concerns about the country’s competitiveness and expertise in future arms markets. Legislative changes are being considered to address these challenges.
The Current State of the Arms Race
The arms race is intensifying, with notable figures like Putin, Xi, and Trump at the forefront. Recently, Trump has pointed out an uncomfortable reality for Europe: it is exposed and has been taking advantage of the American defense umbrella. This perceived decline in U.S. support has sparked anxiety across Europe.
Trends in Military Spending and Swiss Arms Exports
The stock markets serve as a reflection of the ongoing arms race. Over the past year, a global cross-industry equity fund achieved an approximate return of 8 percent, while a global index focused on defense stocks saw returns soar to nearly 40 percent.
In recent years, military expenditures have surged dramatically. According to data from the EU, member states have ramped up their defense budgets by over 30 percent from 2021 to 2024. By 2024, these costs represented an average of 1.9 percent of their annual GDP, nearing NATO’s former target of 2 percent. However, there are discussions of raising these targets to as high as 3 percent or even 5 percent, as suggested by Trump. Though skepticism surrounds the feasibility of such targets, further increases in military spending seem inevitable. This poses a daunting challenge for Switzerland, which is expected to reach just 1 percent by 2032.
The International Institute for Strategic Studies reports that global military spending rose by more than 7 percent in 2024, with Europe experiencing an even larger increase of nearly 12 percent. Surprisingly, Swiss arms exporters appear to be unaffected by this trend. Recent figures from the State Secretariat for Economic Affairs (Seco) indicate a nominal decline of around 5 percent in Swiss arms exports for 2024, totaling approximately 665 million francs.
This export volume is more than 30 percent lower than the peak seen in 2022, when the Swiss subsidiary of the German Rheinmetall group sold air defense systems to Qatar for World Cup security, contributing over 200 million francs to that year’s figures. Even compared to 2021, Swiss arms exports in 2024 decreased significantly, with a nominal drop of nearly 11 percent, and likely even more when factoring in inflation.
Remarkably, over 80 percent of Swiss arms exports were directed to Europe last year, with Germany being the largest customer, accounting for just over 30 percent of purchases. German acquisitions included ammunition, armored vehicles, air defense system components, and small arms from Switzerland. Following Germany, significant markets for Swiss arms included the USA, Italy, Sweden, and Romania.
The decline in Swiss arms exports amid a global arms boom raises critical questions about the impact of the country’s strict neutrality policy on its export statistics. Switzerland’s prohibition on the transfer of its arms to Ukraine complicates matters. During a media briefing, Seco officials noted that while individual large transactions can cause year-to-year fluctuations in export figures, the long-term preparation of larger deals may mean that growing concerns about Swiss arms supplier reliability will have more significant repercussions down the line.
In 2024, nominal Swiss arms exports to Europe saw a slight increase of about 1 percent compared to the previous year. However, when adjusted for inflation, this could indicate stagnation. While not a total collapse, this signifies a considerable loss of market share in light of Europe’s growing defense needs. The local arms industry is feeling the pressure from these restrictions, leading to unrest among stakeholders. Even Economics Minister Guy Parmelin acknowledged these concerns during discussions with industry representatives last December.
In response to declining reliability, there has been a shift from complete systems to assemblies and individual components in Swiss arms exports. Notably, if Swiss components represent less than 50 percent of the total product value, buyers can transfer the end product to third countries without needing Swiss approval. Last year, components constituted about half of total exports, marking a significant rise from previous years. However, it’s still early to draw definite conclusions about this trend.
From a security policy perspective, a shift in focus from complete systems to parts could be a setback, as suggested by Seco representatives. The diminishing breadth of expertise within Switzerland may hinder its competitiveness in future international markets, particularly as overall growth in the arms sector slows.
A prime example is Mowag, located in the canton of Thurgau, known for manufacturing armored wheeled vehicles. Its Piranha models are among the top export products in the Swiss arms industry. Mowag has publicly voiced concerns regarding the competitive disadvantages stemming from stringent Swiss policies, especially since it is part of the American General Dynamics corporation and is thus competing for internal resources.
Parliament has been deliberating for some time on easing the re-export ban, with potential changes referred to as “Lex Ukraine.” The aim is to bolster reliability for future cases. A parliamentary initiative from 2023 is currently under consideration in the Security Policy Commission of the National Council.
Discussions are also underway to grant the Federal Council the authority to deviate from standard approval criteria for foreign transactions in exceptional circumstances. In February, the Federal Council submitted a proposal for a corresponding legal amendment to Parliament. However, there is a strong possibility of a left-wing referendum opposing such changes, which may ultimately put the decision in the hands of the electorate.