America Has a Power Problem

Dear all,

We welcome you to the Greater Caribbean Monitor (GCaM).

Today’s edition is, in many ways, about the consequences of American power. Not because that power is disappearing, but because even the world’s superpower faces limits on how much influence it can exercise at once.

Nowhere is that clearer than in the arms market. The United States still produces the weapons everybody wants, but Ukraine, Iran and an increasingly dangerous world have exposed a simple problem: America cannot produce them fast enough. As allies wait years for systems Washington needs for itself, competitors are discovering an opportunity. The arsenal of democracy remains unmatched in quality; the question is whether it can keep up in quantity.

Something similar is happening politically in Brazil, although in a very different way. Washington wanted to weaken Lula. Instead, tariffs have given him a nationalist argument precisely when Flávio Bolsonaro needs every possible advantage. Betting markets now give Lula a considerable edge, even as traditional polls show a much closer race—and a runoff that remains entirely winnable for Bolsonaro.

That contradiction defines today’s GCaM: American power remains immense, but power alone does not guarantee outcomes. Sometimes allies look elsewhere because Washington cannot deliver fast enough. Sometimes pressure against an adversary strengthens him.

Being powerful matters. Knowing how to use that power matters even more.

In this issue, you will find:

• The Arsenal of Democracy Has a Production Problem

• Bolsonaro Jr. Against The Ropes

As always, please feel free to share GCaM with your friends and colleagues. We all, at the GCaM team, wish you a good weekend, and we thank you for your support, now more than ever.

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The United States still makes the weapons everybody wants. The problem is that it increasingly cannot make enough of them.

In perspective. For decades, that distinction barely mattered. American military technology occupied a privileged position in the global arms market: expensive, sophisticated and often accompanied by restrictive conditions, but backed by the world’s largest defense industry and the security guarantees of the world’s dominant military power. Buying American was not simply procurement. It was admission into an ecosystem.

• That ecosystem is not collapsing. Far from it. The United States accounted for 42% of global major-arms exports between 2021 and 2025, more than the next seven exporters combined.

• American exports actually grew 27% compared with the previous five-year period, while Europe became Washington’s largest regional customer for the first time in two decades.

• And yet, beneath those extraordinary numbers, something is beginning to move.

How it works. The wars of the 2020s have exposed a weakness that technological superiority can obscure during peacetime: wars consume weapons much faster than sophisticated industrial systems can replace them. The war with Iran has made that problem considerably harder. As American stockpiles are consumed and Washington prepares simultaneously for commitments in Europe, the Middle East and potentially the Indo-Pacific, every Patriot battery or interceptor promised abroad competes with another strategic priority at home.

• Switzerland discovered what that means firsthand. It ordered five Patriot systems in 2022, expecting deliveries between 2026 and 2028. Washington subsequently reprioritized production, initially creating an estimated four-to-five-year delay that, amid the Middle Eastern war, grew to five to seven years.

• Bern withheld payments, considered cancellation and began searching for another long-range air-defense system, preferably manufactured in Europe. Switzerland eventually resumed Patriot payments in June—but simultaneously opened negotiations with French, Israeli and South Korean manufacturers for a second system.

• Switzerland did not suddenly conclude that Patriot was bad. It concluded that the world’s best missile system is considerably less useful if it arrives after the threat does.

Why it matters. Denmark went further. Copenhagen selected the Franco-Italian SAMP/T NG over Patriot, becoming its third customer after France and Italy. Deliveries are expected to begin in 2028. These are still isolated decisions inside a market overwhelmingly dominated by Washington. But markets can change at the margins long before the leader loses the lead. And America’s problem is no longer exclusively availability. It is dependency. Canada’s reconsideration of its planned fleet of 88 F-35s illustrates the political dimension.

• Modern American weapons are not AK-47s. They exist inside enormous technological ecosystems involving proprietary software, maintenance, spare parts, upgrades, ammunition and continuing cooperation with Washington.

• That integration is partly what makes them extraordinarily capable. It also means that buying American can create decades of strategic dependence on American policy.

• For close allies, that was historically an acceptable price. A more transactional Washington makes the calculation less automatic.

Between the lines. The beneficiaries are already appearing. Turkey offers perhaps the clearest warning. After being expelled from the F-35 program in 2019 over its purchase of Russia’s S-400 system, Ankara did not simply find another supplier. It accelerated the construction of its own defense industry. Today, more than 70% of Turkish military expenditure is reportedly sourced domestically, while systems such as the Bayraktar TB2 and Akıncı have turned Turkey into a serious competitor in precisely the kind of market where American systems can be prohibitively expensive.

• Now, Ukraine presents an even stranger challenger. Four years of existential warfare have transformed the country into perhaps the world’s most brutal defense-technology laboratory.

• Ukrainian engineers have learned to build, modify and replace drones under conditions no peacetime procurement program can reproduce. Kyiv is now taking that knowledge abroad, developing defense relationships with Gulf states and discussing drone-production cooperation with the United States itself. 

Breaking point. For much of the post-Cold War era, military procurement rewarded excellence. The United States became exceptionally good at building enormously capable systems with enormous price tags and extraordinarily complex supply chains. Ukraine and the Middle East have reintroduced another variable: mass. A missile worth millions of dollars can destroy its target spectacularly. But a military that cannot replace that missile quickly enough eventually confronts arithmetic.

• Modern warfare, therefore, increasingly rewards a different combination: good enough, cheap enough, available quickly enough and producible by the thousands. Turkey, Ukraine, South Korea, Israel and an increasingly rearmed Europe do not need to outperform the United States across the entire technological spectrum.

• They need to satisfy enough customers for whom autonomy, delivery time and price matter alongside capability. That is where Washington’s real geopolitical problem begins.

• Weapons exports are not merely an American business, but an instrument of American power. A country operating F-35s, Patriots or HIMARS enters relationships involving training, logistics, interoperability, intelligence and decades of military cooperation. The arms market consequently helps construct the American alliance system itself.

In conclusion. Every American Patriot replaced by a European system therefore represents more than lost revenue. Every Turkish drone replacing an American alternative is more than another competitor gaining market share. Gradually, alternative defense ecosystems create alternative networks of strategic dependence. None of this means American military-industrial supremacy is disappearing. With 42% of global exports, hundreds of F-35s still on European order and a technological base competitors would struggle to replicate, predictions of the death of American arms dominance are premature.  

• But monopolies rarely disappear because customers suddenly decide the dominant product is inferior. On the contrary, they slowly fade away when competitors become good enough while the incumbent becomes expensive, slow or inconvenient.

• The arsenal of democracy still produces the finest weapons on Earth. But after Ukraine, Iran and the return of great-power competition, the decisive question is changing.

• The next arms race may not be about who can build the best weapon. It may be about who can build the next thousand.

Betting markets rarely care about political enthusiasm. They care about probabilities. And right now, they are sending Brazil’s right an uncomfortable message: Lula is still the favorite.

In perspective. With roughly six weeks remaining before Brazilians vote, prediction markets give Luiz Inácio Lula da Silva around a 64% probability of reelection, almost twice Flávio Bolsonaro’s 33%. More concerning for the right is how the market got there. Bolsonaro briefly approached Lula during April and May, when both hovered around the 40% range. Then the paths separated dramatically. Lula climbed above 60% while Bolsonaro fell into the twenties before beginning a modest recovery in August. That does not mean the election is over. It means Bolsonaro enters its decisive phase against the ropes.

• The market is pricing something real: Lula has incumbency, a remarkably resilient electoral floor and demographic strongholds that have survived nearly two decades of political turbulence.

• Bolsonaro, meanwhile, has successfully inherited much of his father’s political movement, but inheritance is not expansion. The fundamental challenge of his candidacy is whether bolsonarismo can become a majority without Jair Bolsonaro himself.

• Traditional polling paints a considerably less dramatic picture than the betting markets. The polling aggregation shown below places Lula at approximately 41% against Bolsonaro’s 33% in the first round. More importantly, the newest Datafolha poll, released Friday, narrows that to 39–33. Lula remains clearly ahead, but his advantage has fallen from ten points in June to six today.  

How it works. Brazil’s electoral system makes that distinction crucial. Unless someone wins more than half of valid votes on October 4, the two leading candidates advance to a runoff on October 25. Lula is nowhere close to avoiding one. And the runoff is where Bolsonaro’s chances become considerably more interesting. Datafolha currently has Lula defeating him 47–43. That is still a Lula victory, but it is also effectively a four-point race with a two-point margin of error. In July, the same matchup stood at 48–43. Bolsonaro has therefore not broken through, but neither has Lula managed to put him away.  

• Perhaps more importantly, Brazil is not entering this election with one broadly acceptable candidate and one polarizing alternative. Some 46% of Brazilians tell Datafolha they would never vote for Bolsonaro; Lula’s rejection is almost identical at 45%.

• That creates an unusually important second-round battlefield. Ronaldo Caiado, Renan Santos and Romeu Zema together hold another 12% in the latest Datafolha poll. Their voters are not interchangeable, but much of that electorate sits considerably closer to Bolsonaro than Lula ideologically.

• The right’s task is therefore straightforward on paper and considerably harder in practice: survive the first round, consolidate the anti-PT electorate and persuade enough skeptical voters that Flávio represents a viable government rather than simply Bolsonaro 2.0.

Between the lines. His recent attempt to professionalize the economic side of the campaign matters for precisely this reason. Former Bolsonaro administration officials and market-oriented figures have joined his policy team, including former Mines and Energy Minister Adolfo Sachsida. The emerging platform emphasizes fiscal consolidation, reducing subsidized credit and lowering the cost of formal employment. The objective is not merely to excite bolsonaristas. They are already voting for him. It is to make Bolsonaro acceptable to voters who want Lula gone but remain uncomfortable handing the presidency to another Bolsonaro. Then there is Donald Trump.

• Washington’s tariffs against Brazil may prove one of the strangest variables of this election because an American policy intended to pressure Lula has given him exactly what an incumbent leftist president needed: an external adversary.

• Lula has been able to frame the dispute around Brazilian sovereignty and portray himself as defending the country against foreign political interference. The issue remains unresolved even after Lula and Trump spoke on Friday about accelerating negotiations.

• For Bolsonaro, that is friendly fire. His ideological proximity to Trump makes distancing himself from Washington politically awkward, while every additional confrontation gives Lula an opportunity to replace arguments about his own government with arguments about Brazil against the United States.

Yes, but. The electoral geography presents another challenge. Lula remains particularly strong among poorer Brazilians, women, Catholics and voters in the Northeast. Bolsonaro performs better among evangelicals, more educated voters and in the South. The presidency will therefore depend heavily on whether Bolsonaro can expand beyond the constituencies where the Brazilian right already dominates.

• There is reason for cautious optimism on the right. A 39–33 first-round deficit is recoverable. A 47–43 runoff certainly is.

• Lula’s rejection remains enormous, smaller right-wing candidacies provide Bolsonaro with potential second-round votes, and the campaign itself has only recently begun. But optimism should not become complacency.

In conclusion. The betting markets are probably capturing something the polls alone cannot: Bolsonaro has fewer paths to victory than Lula does. Lula can lose some support and still reach the runoff comfortably. Bolsonaro must simultaneously hold the Bolsonaro base, absorb most of the fragmented right, reduce his rejection and prevent Lula from turning American pressure into Brazilian nationalism. That is difficult, for sure, but is not impossible.

• For now, Lula remains the favorite. Bolsonaro remains the underdog. But Brazil’s election will not be decided by whether Flávio Bolsonaro can reproduce his father’s movement—he has largely done that already: it will be decided by whether he can make it bigger.