In Germany, everyone is a defense manufacturer now

After Berlin pledged to spend more than half a trillion dollars on defense in the next decade, manufacturers facing stubborn economic stagnation and falling exports to the U.S. and China are scrambling to reinvent themselves as military vendors.

Membership at the main trade body for the German defense sector has nearly doubled in the past year. Many new members come from civilian-oriented sectors, especially the automotive industry, said Peter Scheben, a spokesman for the association in Berlin.

The defense industry “is probably not the first use case when you think about food," said Hendrik Susemihl, the chief executive of goodBytz, a Hamburg-based manufacturer of automated kitchens.

Susemihl started his business in 2021 in the wake of a Covid-19-induced craze for “ghost kitchens," but he is pivoting hard into defense. He recently supplied an autonomous robotic kitchen to the U.S. Army in South Korea and is discussing deliveries to all major North Atlantic Treaty Organization countries. He expects the defense sector to provide one-third of his revenue in the future.

A shift toward defense offers critical advantages: plenty of government money and protection from low-cost Chinese competitors. Amid mounting animosity from the U.S. and a growing threat from Russia, Germany plans to nearly triple its annual military spending over the coming years to around $180 billion in 2029.

The splurge is starting to show up in economic data. German industrial production for October showed significant gains in sectors geared toward military spending, said Holger Schmieding, chief economist at Berenberg Bank. That helped to more than offset declines in other mainstays of German industry, such as vehicles and chemicals.

This is a godsend for Germany’s embattled manufacturing sector, which has steadily shrunk for seven years, squeezed by high energy prices, aggressive competition from China and U.S. tariffs.

Economists hope some of this capital will go into research and development, juicing Germany’s productivity growth and seeding startups and new exports—just as U.S. government money helped to sow the seeds of Silicon Valley.

“Defense spending is so big that it would really be a major game-changer in terms of basic and military-applied research," said Guntram Wolff, professor of economics at Université Libre de Bruxelles.

It is a consequential shift for Europe’s biggest economy, but it also has downsides. Economists say export potential in the defense industry is limited—China is off limits as a customer and the U.S. has a buy-American strategy—while productivity growth is weak in parts of the sector.

Military investments also tend to be less useful for the wider economy than spending on machinery or infrastructure, since weapons either sit in warehouses or are destroyed rather than being used productively.

In the southern university town of Heidelberg, Michael Wellenzohn, an executive at printing machine-maker Heidelberger Druckmaschinen, is looking for ways to use hundreds of engineers as demand for the company’s traditional products falls.

His plan: to set up a defense business focused on autonomous ground vehicles and energy systems, targeting around €100 million in annual revenue, equivalent to around $117 million, for the business sector that includes defense, which will produce mainly in Germany.

“We don’t need to hire…we can do it all with the people on hand here," Wellenzohn said. The company said this month it would explore a deal with Massachusetts-based Ondas Holdings to produce systems for drone defense, surveillance and reconnaissance in Europe.

Other large industrial firms are making similar moves, tapping their expertise at building at scale and managing complex global supply chains. That new demand is helping to offset job losses in the auto sector, which have reached around 112,000 since 2019, according to Ernst & Young.

Schaeffler, a large German automotive supplier, recently signed a deal with Munich‑based defense startup Helsing to help scale up production of drones. They are targeting production of 10,000 to 20,000 drones a year, with a surge capacity of up to 100,000 in a crisis.

Trumpf, a large mechanical engineering group based in southwest Germany, said in October it would use its expertise in lasers to build drone defense systems, joining with a local electronics group.

The shift isn’t as controversial as it once was in a country with a strong post-World War II tradition of pacifism. Most Germans support higher military spending, even if some are concerned it could make the country a target, said Timo Graf, a sociologist at the Center for Military History and Social Sciences of the Bundeswehr in Potsdam.

Martin Bergerhausen, a recruiter in Hamburg, is currently looking for a project manager with artillery experience to work for a large defense contractor in Munich. The salary, at €90,000 to €120,000, is comparable to similar roles in the auto industry, he said. A large consulting firm recently approached Bergerhausen, seeking several people with military experience to work on a procurement project.

The growth of the defense industry is a return to Germany’s past. Starting in the early 19th century, German industrialization was closely intertwined with the country’s weapons industry. Steelmaker Krupp, founded in 1811, was the largest industrial company in Europe for much of the late 19th and early 20th centuries. It became synonymous with German military power, producing the Big Bertha gun during World War I, and later building tanks and U-boat components for the Nazis.

Germany’s defense industry was completely dismantled after World War II and military production was banned. But starting in the 1950s, Germany began to slowly rebuild its military and defense industry with U.S. support, acting as a bulwark against the Soviet Union.

By the 1980s, Germany had half a million active military personnel and spent around 3.5% of its GDP on defense. It was only in the 1990s that Germany began to let its defense industry shrivel again as it diverted spending toward the welfare state.

“Germany is in a sense returning to old form," said Graf, the sociologist.

Economists say the defense boom won’t make up for the shrinking of the auto sector. An estimated 120,000 people work in defense-related fields, said Klaus-Heiner Roehl, senior economist at the German Economic Institute, a Cologne-based think tank, compared with around 800,000 in the car industry.

Discussing Germany’s rearmament plans in the White House in June with Chancellor Friedrich Merz, President Trump expressed some caution about Germany’s rapid rearmament.

“I’m not sure that General [Douglas] MacArthur would have said it’s positive," Trump joked. “I think it’s a good thing—but, you know, at least to a certain point. There’ll be a point when I’ll say, ‘Please don’t arm anymore, if you don’t mind.’ "

Write to Tom Fairless at tom.fairless@wsj.com