Reuters reported this week that the U.S. Army had used up much of its global stockpile of long-range precision missiles during the five-month conflict with Iran, raising concerns about military readiness for future crises.

President Donald Trump on Thursday played down concerns over weapons shortages, saying the U.S. had an almost unlimited supply of some munitions while acknowledging stocks of others were tighter. He added that U.S. defense companies were expanding production capacity.

Rheinmetall signed a memorandum of understanding with Lockheed last month to jointly produce Army Tactical Missile Systems, or ATACMS, at Rheinmetall’s Unterluess plant in northern Germany. Production facilities are due to be set up next year.

“Naturally, there will also be sufficient capacity to replenish the U.S. military arsenals depleted by the conflict involving Iran,” CEO Armin Papperger told Reuters in an interview conducted on Thursday but published on Friday.

“That won’t happen in two years. It will take much longer.”

Defense companies across the world are racing to meet a surge in demand as governments step up military spending amid conflicts in Ukraine and the Middle East, and U.S. pressure for Europe to take more responsibility for its own security.

Helping build Europe’s defenses

Rheinmetall has been among the biggest beneficiaries of Europe’s drive to raise defense spending.

Europe’s largest ammunition maker has pursued partnerships and acquisitions to rapidly expand production capacity to meet growing demand.

The ATACMS joint venture still requires approval, but Papperger said the process was well advanced and had the backing of the U.S. government.

The partners intend to target the global market for ATACMS missiles, he added. “There will be a market for missiles for the next 15 years.”

Rheinmetall expects the joint venture to generate its first revenue in 2028, the CEO said.

Talks needed with new Leonardo CEO

Papperger said Rheinmetall remained interested in acquiring Iveco’s military truck business from Italy’s Leonardo, but future talks would depend on new CEO Lorenzo Mariani.

“I had a handshake agreement with his predecessor,” said Papperger. “Mariani can decide on new terms, and we will see if they remain attractive to Rheinmetall.”

The deal is not at risk, Papperger added, saying he hopes to meet Mariani after the summer break.

Boxer contract expected by year-end

Rheinmetall, which on Thursday cut its sales outlook after Germany canceled its F126 frigate program, also expects a multibillion-euro contract to supply Boxer armored vehicles to the German military to be signed by year-end, Papperger said.

“There is absolutely nothing standing in the way,” he said.

Rheinmetall’s share of the contract would be worth €12.4 billion ($14.3 billion), while the total value, including partner KNDS, is expected to reach about €25 billion.

Boeing’s BSU-111/B Payload Delivery Unit is a wing-and-turbojet engine kit that converts a 500-pound Joint Direct Attack Munition (JDAM) into a long-range JDAM (JDAM LR) dubbed the GBU-75. The result is a gravity bomb with the reach of a cruise missile.

Boeing said it has spent nearly $100 million of its own money on the program.

“Scaling production of the GBU-75 will provide the fleet with an affordable, sustainable solution designed to eliminate long-range land and sea-based threats to U.S. and international forces,” said Bob Ciesla, vice president of Boeing Precision Engagement Systems.

The BSU-111/B wing-and-engine kit is the latest modification to the JDAM family, which has previously seen the gravity bomb receive a tail kit that steered it roughly 15 nautical miles and a wing kit that further stretched that distance to 40.

The Kratos-designed TDI-J85 engine pushes that past 300.

The JDAM LR’s capabilities go beyond land strikes. The QuickStrike Long Range mining variant pairs it with a bomb carrying a ship-tracking sensor. Boeing has shown concepts loading large numbers onto Air Force bombers, though no Air Force buy has been announced.

The Air Force Life Cycle Management Center at Hill Air Force Base, Utah, buys JDAM for both the Air Force and U.S. Navy. The first GBU-75s are bound for the Navy.

The Navy demonstrated the weapon back in April, when Super Hornets released two JDAM LRs over the Point Mugu Sea Range off California.

The April 1 round separated cleanly, fired up its engine and flew 34 minutes before landing within meters of its target. The April 3 round added altitude changes and maneuvering. Each covered roughly 200 nautical miles.

When announcing those tests in April, Capt. Sarah Abbott, the Navy’s Precision Strike Weapons program manager, emphasized the need to give the fleet’s JDAMs greater standoff range.

“As Naval Air Forces in theater continue to rely heavily on JDAM systems, the program recognizes a critical need to provide the fleet with greater standoff range,” she said. “This new capability allows pilots to engage targets from significantly safer distances, maintaining a tactical advantage in contested environments.”

Reusing existing infrastructure is a key aspect of the program’s appeal.

Navy budget documents describe JDAM LR as a modification to the baseline program, built on the existing production line and guidance hardware. Any jet that can drop a conventional JDAM can carry the new variant without modification, according to Boeing’s release.

The award, which had not appeared in the Pentagon’s daily contract announcements as of Aug. 5, is an undefinitized action, meaning Boeing began work before the two sides agreed on a price. The Government Accountability Office has long called these contracts risky because contractors are reimbursed for allowable costs, regardless.

Boeing’s release did not say how many GBU-75s the contract buys, how much they cost or when deliveries begin.

The Trump administration in December announced its intention to build a new class of large surface combatants, designated as the Trump-class guided missile battleship.

If built, the 35,000-ton nuclear battleship, according to the report, will be the most heavily armed surface vessel the U.S. Navy has ever built, possessing anti-air, land-attack and anti-ship missiles, hypersonic missiles, nuclear cruise missiles, large lasers and a rail gun.

“If built to those specifications, the ship would be the largest surface combatant in the world and larger than any surface combatant built for the Navy since World War II,” according to the report. “It would be more than three and a half times the size of the Navy’s Arleigh Burke-class guided missile destroyer and more than twice the size of the Zumwalt-class guided missile destroyer.”

The Navy projects that between 2028 and 2056 it will build 15 Trump-class guided missile battleships, with the subsequent 14 costing $18 billion each. By contrast, the USS Gerald R. Ford, the U.S. Navy’s premier nuclear-powered aircraft carrier, cost approximately $13.3 billion.

By 2058, the total tonnage of “large surface combatants to be constructed would need to increase by 60 percent,” which the report notes “could be a challenge for the shipbuilding industry.”

The shift away from small surface combatants would mean that by 2035, shipyards would need to produce 12% greater tonnage under the 2027 plan than under the 2025 version, according to CBO’s estimation.

To keep pace with the service’s aims, the Navy would need to build a battleship about every other year from 2028 to 2056, the report notes, while continuing to produce two DDG-51 destroyers per year.

Last March, the Government Accountability Office released a report detailing nearly two decades of lackluster progress in U.S. shipbuilding. According to the GAO, not enough ships have been built, newly constructed ships are failing to function as expected and ships are being delivered up to three years later than ordered.

In a statement to the Senate Armed Services Committee, Shelby S. Oakley, a director at GAO, said that unrealistic expectations of costs and timing have diverted resources and introduced delays in shipbuilding, with the result that Navy programs and shipbuilders have been “effectively made to operate in a perpetual state of triage.”

The report also notes that while the price tag will be immense up front, over time, by switching to nuclear power, it would reduce the battleship’s operating costs by eliminating the need to purchase fuel. The GAO did not provide an estimate of possible savings.

Since the December announcement, the cost of Trump-class battleships has been a moving target, with the updated $23.4 billion roughly six billion more than the initial Navy projection.

Firestorm Labs manufactured more than 1,000 parts and 12 of its proprietary 3D-printable first-person view Squall drones aboard the Wasp-class amphibious assault ship USS Essex as it transited toward RIMPAC 2026 in Hawaii, according to a release.

“Every part xCell printed on deck is one that doesn’t need to be flown or shipped across contested waters — cutting the fuel, aircraft hours, and personnel it takes to keep a ship operational,” a social media release said. “Repairs that once meant days or weeks waiting on a resupply run can now happen in hours, on station.”

Firestorm Labs created the xCell as a factory-in-a-box that can be deployed aboard U.S. Navy vessels to churn out unmanned aerial systems and spare parts for expeditionary warfare.

As waves as high as 12 feet crashed against the ship, service members assembled drones that were later flown as adversary aircraft during a counter-drone exercise at RIMPAC 2026 in Hawaii.

The service members also helped print mechanical test components that assessed the efficacy of the 3D printer used for drone production and fabricated military repair parts that crew members of the USS Essex needed.

The Defense Department, and Navy in particular, is laser-focused on building out modular payload capabilities that can deliver mission-ready assets for the service.

Chief of Naval Operations Adm. Daryl Caudle announced the “containerized capability campaign plan” in March at the McAleese Defense Programs conference.

Caudle outlined a vision in which transportable containers housing defense capabilities such as drones and weapons can be deployed to any region in the world.

In May, the Pentagon announced framework agreements with defense companies Anduril, CoAspire, Leidos and Zone 5 to acquire more than 10,000 containerized missiles over three years beginning in 2027.

The move signaled the launch of the “Low‑Cost Containerized Munitions (LCCM) program.”

The extension is in line with the Trump administration’s efforts to curb illicit narcotics flowing into the United States via alleged drug-carrying vessels in the Caribbean Sea and eastern Pacific Ocean.

Since 2023, Saildrone’s USVs have worked in coordination with the U.S. Navy, supporting the Joint Interagency Task Force South (JIATF-S) and U.S. Naval Forces Southern Command/U.S. Navy Fourth Fleet, per the release.

“The continuity of Saildrone’s presence along the southern border for nearly three years demonstrates the strategic value we bring as the world’s most experienced operators of unmanned surface vehicles,” said Saildrone President VADM (ret.) John Mustin. “Our unmatched ability to remain on station and on mission in critical regions for months at a time is why our fleet serves as a powerful deterrent to bad actors. We look forward to continuing to partner with the Navy in its mission to secure the country’s maritime approaches and southern border.”

The 33-foot-long Voyager is designed for persistent surface and subsurface surveillance and can also conduct nearshore mapping missions and seafloor characterization, the release states.

Able to remain “on mission and on station” for months at a time, the USVs are “both a deterrent and an alarm” along the U.S.’s expansive southern maritime border, according to the company.

Since September 2025, the U.S. military has conducted strikes against alleged drug-carrying vessels in the Caribbean Sea and eastern Pacific Ocean in support of what the Pentagon has called continued counternarcotics efforts.

As of June 22, the Trump administration and U.S. military have disclosed 66 strikes, killing at least 196 people.

Since the start of the year, at least six defense-automotive tie-ups have been announced, as President Emmanuel Macron’s government seeks to combine the scale, automation and cost discipline of France’s car sector with one of the fastest-growing segments of military technology.

Ukraine and Russia’s use of drones has reshaped warfare, and that has prompted France and its European allies to prioritise drone production, as pressure from Washington on Europe to boost its military capabilities has added urgency.

The projects indicate France is building an industrial base capable of producing tens of thousands of drones a year — a scale difficult for defense startups to achieve alone, albeit one still dwarfed by Ukrainian and Russian efforts.

FRANCE AIMS FOR SCALABLE DRONE PRODUCTION

“Why now? Because the need is now, drones are now,” Christophe Périllat, chief executive of auto parts supplier Valeo, told reporters at the end of July. “And why in France? Because we’re being asked to guarantee our sovereignty.”

French defense officials do not anticipate a near-term need to deploy a large number of drones in the skies above France, but say it must be prepared for conflict.

The goal is to give France the ability to produce drones quickly and ramp up output should a crisis arise, they say. A July report by the French Senate’s defense committee described France’s stock of just a few thousand drones as “insufficient to achieve a critical mass.”

Valeo has said it will manufacture electric drone motors in France for defense technology firm Harmattan AI. Meanwhile, Forvia unveiled a partnership last week with a European defense company specialising in AI-powered counter-drone systems and is weighing plans to build capacity in France to manufacture 1,000 interceptor drones each month.

Renault, already working with Turgis & Gaillard to develop a long-range drone, partnered with Thales in June to industrialise production of the Toutatis kamikaze drone, targeting up to 1,000 units per month from 2027.

French drone maker Delair teamed up with German automotive supplier Schaeffler the same month to establish a French production line capable of producing around 100 drones per day by November.

SIMPLIFYING DRONE PRODUCTION FOR SCALE

If the plans announced by Renault, Schaeffler and Forvia are realized, combined output could reach 60,000 units per year. In a conflict, many more would be needed.

Drones have been used in warfare for decades, but the war in Ukraine has seen an explosion in scale.

Drones now dictate the flow of the battlefield, notching up the vast majority of kills. The front line has turned into a “kill zone,” with soldiers hiding underground from the constant aerial threat.

After Russia’s full-scale invasion in 2022, Ukraine quickly accelerated its use of drones for reconnaissance, battlefield combat and long-range strikes. President Volodymyr Zelenskiy said in July that it will produce 10 million in 2026.

Ukraine now has hundreds of drone makers, big and small. Some even produce more than Ukraine’s military can buy, and the government has cautiously moved towards allowing them to export some excess production.

Patrick Pailloux, head of France’s defense procurement agency, said he was working in particular with auto subcontractors to design drones that France will be able to produce in large quantities.

“It’s not the same: producing a drone in a defense start-up and making something that can be reproduced in very large volumes using production-line robots,” he said.

Renault CEO François Provost said in June the Toutatis kamikaze drone was being redesigned with fewer components and from injection-moulded plastic, enabling cheaper, higher-volume production than the current 3D-printed model.

ENOUGH DRONES TO TRAIN ON, BUT NOT MILLIONS

Defense officials say the challenge is scaling up production capacity while not building stockpiles that could soon become obsolete.

Patrice Caine, CEO of French defense technology group Thales, said this summer that drones were “objects that evolve quickly” under the impetus of technological advances.

Pailloux said France needed “enough so that we can train, and (the production capacity) to be able to withstand a shock”.

Prime Minister Sebastien Lecornu pledged a €150 million ($175 million) investment to develop a dedicated drone sector last December.

But Antoine Level, head of France’s drone industry association, said Germany was ahead of France in funding short-range drones, and that there were still “not enough orders to truly stimulate the industry.”

Called the Guardian Angel, the four-wheeled UGV has already completed live-fire testing.

Thales Australia worked with two other Australian firms to create the new system. One was Chaos 1, which specializes in rapid assessments, prototyping and autonomous-system experimentation.

The second company was W&E Platt, which makes weapon mounts. Indeed, the Guardian Angel features its low-cost Remote Operated Weapon PLATTform, with an image showing the ROWP mounting a Dillon M134D Minigun.

Thales Australia said in a statement that this project showcases its “sovereign industrial strength, ability to meet the nation’s defense and security needs, and capacity to deliver and manufacture autonomous systems and solutions”.

The company said the project was driven by one aim: to keep Australian troops safe.

However, a spokesperson explained to Defense News, “The Guardian Angel is a prototype and wasn’t specifically built for market. It’s part of a program to test and strengthen our capability in autonomous systems and solutions.”

Nonetheless, its completion paves the way for future platforms, in which a containerized mission system could offer capabilities such as medical evacuation, troop support, cargo transport and fire support.

“UGVs can preserve soldiers by operating in high-risk environments while providing a clear tactical advantage, assisting operations on the battlefield,” Andrew Downes, vice president of Land Thales Australia, commented. “They offer scalable, agile, cost-effective capability that can increase operational reach without increasing risk to personnel.”

Meanwhile, Benny Johanson, Founder and CEO of Chaos 1, described the process as “rapid prototyping in true form — little time, extremely chaotic and high risk.“

“In just six weeks we moved from a concept graphic to live-fire demonstration, and many said it couldn’t be done,” Johanson said, adding that the Guardian Angel “proved the sheer horsepower industry can generate for the warfighter at speed.”

Australian industry has developed a number of UGV designs, and the army is actively experimenting with some of them. For instance, it is trialing M113AS4 armored personnel carriers converted into modular robotic vehicles by BAE Systems Australia.

BAE Systems Australia’s largest platform is the ATLAS 8×8, fitted with an unmanned turret and 25mm Bushmaster cannon. It is currently in a prototype demonstrator status.

The Australian Army has also tested the tracked Warfighter UGV from Cyborg Dynamics Engineering. The army is already using the Ground Uncrewed System, affectionately known as GUS and produced by Outlook Industries, for remote coastal surveillance.

A couple of attritable UGV platforms also being tested are GaardTech’s Jaegar-C and DefendTex’s Banshee, small vehicles that can carry kinetic payloads.

“We’re about to bring into the next exercise UGVs. We can practice breaching minefields, for example, with sacrificial UGVs that might drag a tube full of explosives across a minefield — and we can detonate that,” Brigadier Ben McLennan, commander of the Australian Army’s 3rd Brigade, recently told Defense News. “That’s just one application. There’s a raft of other applications we’re making.”

Ukraine had urgently sought partners to develop a weapon capable of stopping Russia’s ballistic missiles. The pan-European project was launched officially in Paris last month by 10 governments and 12 defense firms – including Eurosam, Leonardo, Thales and SAAB.

Kyiv currently relies on the U.S.-made Patriot system to down ballistic missiles that fly at several times the speed of sound, but global shortages of its interceptor missiles, exacerbated by the war in Iran, have left Ukraine exposed.

“Pretty much everything is agreed,” CEO Iryna Terekh told Reuters, saying 13 industrial partners had already joined. Fire Point aims to achieve its first successful interception by mid-2027, she added.

Ukraine’s Fire Point builds pan European Freyja missile

The Ukrainian company is providing the FP7.X – a faster version of its FP7 ballistic missile – as the interceptor and is now integrating that with the guidance system, known as a seeker.

“Right now we are in the most intense and also in the most complicated stage of finally assembling everything together with surveillance radars, with tracking radars, with the seekers,” Terekh said.

Norway’s Kongsberg is working on the command center integrating the various systems. The company did not immediately respond to a request for comment.

Industry publications have reported that Germany’s Diehl Defence — which produces a seeker for its own IRIS-T air defense system — will provide the guidance system.

A Diehl spokesperson confirmed the firm was in talks with Fire Point but declined to discuss details. Terekh declined to comment.

Fire Point aims to produce a ballistic interceptor for less than €1 million ($1.2 million) per missile, Terekh said — a quarter to a sixth of the cost of a Patriot.

“We’re trying to squeeze a program that usually takes 20 or 30 years into a matter of a couple of years,” Terekh said, adding that there had been at least five tests of the interceptor missile.

The project would use open-source architecture and allow different options to be swapped in and out — such as a Weibel radar for one made by Saab, according to Ukrainian officials.

The number of industrial partners could rise to around 20, increasing production capacity, Terekh said. She added Fire Point was in talks with Ukrainian state-owned missile makers, but declined to name them.

Terekh said the participating companies would finance research and development until a minimum viable product (MVP) was reached — which she said would mean the successful interception of a ballistic missile.

Attack missiles nearly ready for combat

“We expect the launcher to have from four to six missiles. So if from one batch there was an interception of a ballistic missile for MVP, this would be a wonderful result,” Terekh said.

A missile gets through only if all the interceptors in a launcher miss. Keeping the probability of six misses in a row below 5% — an industry standard — requires each interceptor to hit roughly 40% of the time, according to Fabian Hoffmann, missile expert at the Norwegian Institute for Defence Studies.

If it could really be done for €1 million, it would be “pretty impressive,” and “very cheap,” Hoffmann said.

The FP7 missile has an attack variant that can be used to strike ground targets. This has undergone about 15 test launches and is now being certified by the Ukrainian Defence Ministry, which she expected to take two to four more weeks.

Fire Point aims for first combat use of this version in early autumn, and late autumn for the much larger FP9 ballistic missile, which it says will be able to reach Moscow.

Terekh said the FP7’s architecture was based on Soviet-era designs for the S300 and S400 interceptors, but that Fire Point’s missile now shared only 20% similarity with those weapons.

In a recent interview, Fire Point co-founder Denys Shtilierman said the Soviet plans had been procured as a favor by Timur Mindich, a former business associate of President Volodymyr Zelenskiy who faces charges of corruption and is now a fugitive in Israel.

Fire Point says it declined an offer from Mindich to buy a stake in the company.

Fire Point is pressing ahead with building its own engine for its FP5 cruise missile, known as the Flamingo, which has hit several prominent military targets in Russia this year.

It had been using second-hand jet engines — “digging through the cemetery of the engines … like in a thrift store,” Terekh said.

But these are getting harder and harder to find, so Fire Point is assembling the first 10 units of its own prototype.

“As soon as we’re happy with the results of tests of these test engines, there’ll definitely be many more Flamingos,” Terekh said.

The missiles are principally the Army’s surface-to-surface weapons, known as Army Tactical Missile Systems (ATACMS) and Precision Strike Missiles (PrSM). The U.S. has used “virtually all” of these weapons, according to two of the sources.

The degree to which the military is running out of ATACMS and Precision Strike Missiles has not been previously reported.

The long-range munitions are an important part of the military’s arsenal, allowing accurate strikes from a safe distance. U.S.-supplied ATACMS have played a key role in the war in Ukraine, allowing Ukrainian forces to attack targets inside Russia. The PrSM is a newer, more advanced generation that will replace the ATACMS, which have a shorter range.

Analysts say such weapons — which cost over $1 million each — would also be important in any conflict with China.

The sources declined to say how many of each munition the U.S. had left.

President Donald Trump launched the Iran war jointly with Israel in February, predicting that the conflict would last a short time.

But as the war drags on, the three people familiar with the matter expressed worry that the falling missile supplies could limit the U.S. ability to deter adversaries, including Russia and China.

A fourth person familiar with the matter said that while Central Command — which oversees U.S. forces in the Middle East — has nearly used up the land-based missiles it had before the war began, it has been able to reload from U.S. military supplies elsewhere in the world.

The sources interviewed for this story spoke on the condition of anonymity.

Asked for comment on the stockpile data, the White House issued a statement from Trump, saying the U.S. had “far more munitions than anyone in the world” and “far more than we need.”

“Our defense companies are, at this moment, making more munitions than they have ever made before, in addition to expanding their plants and equipment at record levels,” Trump said.

Analysts agree that certain munitions, including artillery shells and several types of missiles, are being produced at record levels but caution that supplies might far short of what is needed for a prolonged war.

Lockheed Martin, which makes the ATACMs and PrSMs, along with the anti-ballistic missile THAAD system, did not immediately respond to questions about Trump’s statements or about supply levels.

Raytheon, which makes Tomahawk missiles and Patriot interceptors, two important U.S. weapons, also did not immediately respond.

Responding to a request for comment, chief Pentagon spokesperson Sean Parnell said: “America’s military is the most powerful in the world and has everything it needs to execute at the time and place of the President’s choosing. We have executed multiple successful operations across combatant commands while ensuring the U.S. military possesses a deep arsenal of capabilities to protect our people and our interests.”

The supply figures have circulated inside the federal government over the last week during tense conversations inside the Trump administration about how much longer the U.S. can continue striking Iran without drawing down the stockpile to levels that would limit the military’s ability to respond to crises elsewhere.

WARNINGS OVER WEAPONS SUPPLIES

One of the sources said the drawdown of the ATACMS and PrSM stockpiles reflected a decision by the Trump administration to avoid riskier ways of attacking Iranian targets, such as by using piloted aircraft to drop bombs.

Because these weapons allow the military to attack targets from a distance, analysts say they would be valuable in a war against an adversary with strong air defenses, such as China.

They have been used to strike targets inside Iran, according to a March report by the Center for Strategic and International Studies (CSIS).

According to the report, PrSM stockpiles were low to start with, since it is a relatively new munition, but the U.S. military has ordered a large number of them for 2027. The Army has said that ATACMS are being phased out and that production is shifting to the newer PrSM missiles.

Military leaders have for weeks warned the president that stockpiles of defensive weapons — including Patriot interceptors, which are effective against ballistic missiles — were dwindling, said two of the sources.

Last week, several media outlets reported Trump had decided not to launch another massive offensive inside Iran in part because his military advisers had warned about the U.S. stockpile.

A U.S. official disputed those accounts, saying Trump chose not to move forward with another attack because of pressure from Gulf states.

The Middle East conflict has sparked intense debate about Trump’s authority to prosecute hostilities against Iran without congressional authorization. No request for a declaration of war or an authorization to use military force has been submitted to Congress.

DEFENSIVE WEAPON STOCKS ARE ALSO DIMINISHED

Last week, CSIS published a report estimating that between February and July about 65% of Patriot interceptors had been expended and that the number of THAAD ballistic missile interceptors in U.S. stockpiles was at least 38% lower than at the start of the war.

Patriots and THAADs are systems that detect and destroy incoming missiles and are among the most effective in the country’s arsenal.

While Reuters has not seen the supply figures, those numbers match internal U.S. data, two of the sources said.

The U.S. also burned through a little less than half of its global supply of Tomahawk cruise missiles, which are generally launched from ships, since the start of the war, one of the sources said.

Reuters could not independently verify that number.

The Tomahawk is a Navy weapon, launched from destroyers, cruisers and submarines, and has long served as the sea service’s principal means of striking heavily defended targets without risking pilots.

Raytheon, a unit of RTX, has reached a tentative multi-year agreement with the Pentagon aimed at boosting Tomahawk production, alongside increases in other munitions, as Washington races to rebuild stockpiles.

The previously unreported findings offer a rare glimpse into how military and security-linked institutions in China are leveraging cutting-edge U.S. AI models as a shortcut to developing specialised systems of their own, despite Washington’s efforts to restrict Beijing’s access to advanced chips and other strategic technologies.

The documents show widespread use of a technique known as “model distillation,” in which outputs from a powerful AI system are used to train smaller, specialised models that can be deployed locally without the enormous computing requirements needed to build frontier AI systems from scratch.

Reuters’ review, which included research compiled by the Washington-based Jamestown Foundation and shared exclusively with the news agency, showed distillation is widely used by researchers linked to the People’s Liberation Army and other military institutions.

The papers suggest Chinese defense institutions see leading U.S. AI models as both a source of technical insight and a way to close the gap with American rivals.

The dispute centres on unauthorised extraction, not distillation itself, a widely used industry practice.

The issue has emerged as a major flashpoint ahead of U.S.-China talks on AI governance and safety. U.S. officials have accused some Chinese entities of using distillation to extract capabilities from American AI models, potentially undermining export controls and infringing intellectual property rights.

China has rejected the accusations, saying Washington is pursuing AI “hegemonism” while arguing that U.S. firms have engaged in similar practices.

Chinese developers have also disputed claims that their AI advances rely on foreign models. AI startup Moonshot last week denied allegations by the Trump administration that its Kimi K3 model was built using distillation, saying it was driven by proprietary innovations.

Sunny Cheung, a Jamestown fellow who analysed over 60 of the papers, said Chinese military scientists are systematically capturing the reasoning steps of Western models to adapt them for surveillance, cyber warfare and tactical decision-making.

“Teaching a model the right answer is one thing but teaching it the reasoning behind the answer is much harder,” said Cheung.

“These papers show Chinese military-linked researchers are trying to transfer that expensive, proprietary reasoning from Western models into smaller systems they can control and deploy locally.”

Reuters verified the academic literature and identified an additional two dozen military-linked case studies.

One paper published last year by researchers in PLA Unit 96941, a military intelligence and cyber-warfare unit in Beijing, described using OpenAI’s GPT-3.5 to process sensitive military source code.

The researchers said third-party models were unsuitable for handling classified information. To overcome that limitation, they used GPT-3.5 to summarize software code and trained a domestic model on those summaries to run entirely within Chinese military networks.

The White House, Pentagon, China’s foreign ministry, the PLA and OpenAI did not respond to requests for comment.

WIDE USE, FROM MONITORING TO MILITARY

Chinese researchers have used distillation for purposes ranging from content monitoring to military deployment, Reuters’ and Jamestown’s review of the papers showed.

At the North University of China, which has close links to the country’s weapons industry, researchers used Anthropic’s Claude 3 Haiku to generate synthetic training data for a text classification model for social media monitoring and content moderation.

Anthropic said it does not provide commercial access to Claude in China or to Beijing-controlled firms and uses monitoring systems to detect policy violations.

The company added that distilled models may lose the original systems’ safety safeguards, potentially allowing sensitive capabilities to be transferred to models beyond its control.

A 2024 paper from the PLA’s National University of Defense Technology described using distillation to shrink an image-processing model for deployment on unmanned aerial vehicles, allowing drones to analyse live video and support navigation and targeting decisions in real time even when communications are cut.

Similarly, researchers at China’s Academy of Military Sciences used distillation to run a target-recognition model on tactical hardware during simulated maritime operations involving drones, ships and unmanned submarines, a study published earlier this year showed.

BENEFITS AND LIMITS

China has embraced distillation as it seeks to compete with the U.S. in frontier AI while facing constraints on advanced computing resources due to Washington’s export controls on high-end chips.

Central and local governments have promoted “model lightweighting” and edge computing, directing subsidies and research funding toward technologies that enable AI models to run on drones, satellites and other devices with limited processing power.

Experts caution, however, that distillation has significant limitations.

As Chinese AI models close the gap with their U.S. counterparts, military researchers are also examining distillation as a potential security risk.

In January, researchers at the Army Engineering University published a paper on the threat of “data-free distillation,” a method of reverse-engineering a model’s capabilities without direct access to its core parameters.

To counter that vulnerability, they proposed defense mechanisms designed to mask the hidden logical information exposed in a model’s public outputs.

Distilled models also inherit only selected capabilities and cannot fully replicate the broad intelligence of frontier systems.

Trevor Koverko, co-founder of AI data company Sapien, said distilled models remain less capable than their teacher models.

“It is best understood as transferring selected capabilities into a cheaper, locally controlled system, not achieving independence from frontier AI.”