The arms industry is a global industry and business which manufactures and sells weapons and military technology and equipment. It comprises government and commercial industry involved in research, development, production, and service of military material, equipment and facilities. Arms producing companies, also referred to as defense companies or military industry, produce arms mainly for the armed forces of states. Departments of government also operate in the arms industry, buying and selling weapons, munitions and other military items. Products include guns, ammunition, missiles, military aircraft, military vehicles, ships, electronic systems, and more. The arms industry also conducts significant research and development.
It is estimated that yearly, over 1.5 trillion dollars are spent on military expenditures worldwide (2.7% of World GDP). Part of this goes to the procurement of military hardware and services from the military industry. The combined arms sales of the top 100 largest arms producing companies amounted to an estimated $315 billion in 2006. In 2004 over $30 billion were spent in the international arms trade (a figure that excludes domestic sales of arms). The arms trade has also been one of the sectors impacted by the credit crunch, with total deal value in the market halving from US$32.9bn to US$14.3bn in 2008. Many industrialized countries have a domestic arms industry to supply their own military forces. Some countries also have a substantial legal or illegal domestic trade in weapons for use by its citizens. An illegal trade in small arms is prevalent in many countries and regions affected by political instability.
Contracts to supply a given country's military are awarded by the government, making arms contracts of substantial political importance. The link between politics and the arms trade can result in the development of what US President Dwight D. Eisenhower described as a military-industrial-congressional complex, where the armed forces, commerce, and politics become closely linked. The European defense procurement is more or less analogous to the U.S. military-industrial complex. Various corporations, some publicly held, others private, bid for these contracts, which are often worth many billions of dollars. Sometimes, such as the contract for the new Joint Strike Fighter, a competitive tendering process takes place, where the decision is made on the merits of the design submitted by the companies involved. Other times, no bidding or competition takes place.
In the Cold War Era, arms exports were used by both the Soviet Union and the United States to influence their standings in other countries, particularly Third World Countries. Since the fall of the Soviet Union, global arms exports initially fell slightly, but have since 2003 grown again, and now come close to Cold War levels.