The Dual-Use Digest / June 3, 2025

The Weekly Dual-Use Digest for Entrepreneurs, Investors, and Innovators

Author

Gregory Coleman
June 03, 2025

Week in Review

This week offered a sharp reminder that the pace of change in global security, markets, and technology isn’t slowing down—it’s accelerating. From Ukraine’s dramatic drone offensive deep into Russian territory to rising EU pressure on Israel and a redrawn Indo-Pacific strategy, geopolitics once again showed its capacity to reshape alliances and priorities. Meanwhile, U.S. leaders are grappling with mounting fiscal risks, strained trade ties with China, and the looming specter of stagflation. Defense innovation is also shifting gears, with the Pentagon fast-tracking drone development and experimenting with non-kinetic countermeasures, while new AI-driven military wargames signal the next frontier of operational planning.

The private sector isn’t sitting still either. Tech giants like Meta and defense startups like Anduril are forging unexpected partnerships, and major investments are flowing into nuclear energy, aerospace, and AI. Against this backdrop, entrepreneurs, investors, and national security leaders alike must operate with sharper vision and faster reflexes. The emerging playbook blends agility, realism, and strategic patience—all underpinned by an acute awareness of how interconnected today’s threats and opportunities really are.

Geopolitics

Ukraine’s drone strike isn’t just an attack — it’s first-person warfare - The Verge

What Happened: Ukraine executed "Operation Spiderweb," its most extensive drone offensive to date, targeting multiple Russian airfields deep within Russian territory. Utilizing 117 drones, the operation reportedly destroyed or severely damaged 41 Russian military aircraft, including strategic bombers and early warning planes. Beyond the physical impact, Ukraine rapidly disseminated first-person drone footage of the attacks across social media platforms, amplifying the psychological and informational effects of the strike.

Why We Care: This operation exemplifies the evolving nature of modern warfare, where tactical military actions are intertwined with strategic information campaigns. This operation was like the Twitch version of warfare where the world got a first person view of the destruction of some aircraft that are part of Russia’s nuclear triad. Additionally, many are grappling with the fact that thousands of dollars of drones took out aircraft that are estimated to cost up to $10B to replace. We’ve been talking for years about how attritable systems can take out exquisite platforms. The world just got a front row seat to a demonstration that should put all militaries on alert.

What Happened: European leaders are increasingly critical of Israel's ongoing military operations in Gaza, marking a significant shift from their previous support. Germany's Chancellor Friedrich Merz questioned the justification of civilian harm, and the European Union has initiated a review of its trade relations with Israel. This growing disapproval stems from concerns over high civilian casualties, humanitarian crises, and Israel's plans to maintain control over Gaza.

Why We Care: Middle East relations continue to shift. The European Union's changing stance on Israel's actions in Gaza signals a potential realignment in international relations and trade dynamics. Over time, these movements may lead to shifts in defense and technology collaborations, as European countries reassess their partnerships. The West has shared technology with Israel for decades, but hardening relationships combined with the rest of the region’s embrace of dealmaking with the United States, could have longer term impacts.

Hegseth says US will not be ‘pushed out’ of Indo-Pacific, calls on allies to boost defense spending - Breaking Defense

What Happened: At the Shangri-La Dialogue in Singapore, U.S. Defense Secretary Pete Hegseth emphasized America's unwavering commitment to the Indo-Pacific, declaring that the U.S. will not be "pushed out" of the region amid China's assertive actions. He urged regional allies to bolster their defense spending, drawing parallels to European counterparts, to counterbalance China's growing military influence. Hegseth highlighted China's efforts to alter the regional status quo through military buildup and coercive tactics, stressing the need for collective vigilance and preparedness.

Why We Care: Hegseth's remarks signal a potential strategic pivot in U.S. defense policy, emphasizing a collaborative approach to regional security in the Indo-Pacific. This underscores the importance of shared responsibility and investment in defense capabilities to maintain regional stability. The call for increased defense spending among allies may lead to enhanced joint military exercises, technology sharing, and infrastructure development. Additionally, this stance could influence defense procurement strategies.

Finance

What Happened: Jamie Dimon, CEO of JPMorgan Chase, has issued a stark warning that the U.S. bond market is at risk of a significant downturn due to the nation's escalating debt levels. He emphasized that the current fiscal trajectory is unsustainable and could lead to a loss of investor confidence, resulting in higher borrowing costs and economic instability. Dimon called for immediate action to address the structural deficits and implement responsible fiscal policies to avert a potential crisis.

Why We Care: Dimon's cautionary remarks highlight the growing concern among financial leaders about the U.S. government's fiscal health and its implications for the broader economy. For investors and entrepreneurs, particularly those in sectors reliant on government funding or sensitive to interest rate fluctuations, this serves as a critical signal to reassess risk exposures and financial strategies. Rising borrowing costs could dampen investment, slow economic growth, and lead to tighter credit conditions, affecting startups and established businesses alike.

U.S.-China Trade Truce Risks Falling Apart Over Rare-Earth Exports - Wall Street Journal

What Happened: A fragile trade truce between the U.S. and China is at risk of collapsing due to China's delay in approving rare-earth mineral export licenses, a key component of a recent agreement reached in Geneva. The pact, formed through negotiations between Vice Premier He Lifeng and U.S. officials, involved China resuming rare-earth exports in exchange for a 90-day suspension of tariffs from the U.S. However, Beijing's hesitancy, viewed as retaliation for U.S. actions against Chinese AI firms and proposed visa restrictions, has rekindled trade tensions.

Why We Care: This escalating dispute underscores the strategic importance of rare-earth elements, which are critical for various industries, including defense, electronics, and renewable energy. China's near-monopoly on heavy rare earth elements—crucial for electronics, electric vehicles, and military hardware—has become a significant obstacle in trade talks with the U.S. The U.S. government's response, including tightening tech export controls and considering higher tariffs on other Chinese goods, highlights the urgency to diversify supply chains and reduce dependency on Chinese rare-earth materials. For policymakers and investors, this situation emphasizes the need to invest in domestic mining efforts and establish a national critical minerals strategy to mitigate economic and security risks posed by potential supply disruptions.

The Fed Forecasts Stagflation - Wall Street Journal

What Happened: The Federal Reserve's May 2025 meeting minutes reveal heightened concerns about stagflation—a scenario characterized by rising inflation and slowing economic growth. Officials noted that recent tariff increases are expected to significantly boost inflation this year, with businesses likely passing these costs onto consumers. Despite weakening growth projections and anticipated increases in unemployment through 2027, the Fed emphasized a cautious approach, signaling that interest rate cuts are unlikely in the near term.

Why We Care: The Fed's apprehension about stagflation underscores the complex economic landscape shaped by recent trade policies. There may be challenges ahead, including higher borrowing costs and reduced consumer spending power. The anticipated persistence of inflation, coupled with slowing growth, may impact investment strategies and business planning. Moreover, the Fed's cautious stance on adjusting interest rates suggests that monetary policy may remain tight, affecting liquidity and access to capital. Stakeholders should closely monitor these developments, as they could influence market dynamics and economic stability in the coming years.

Defense & Policy

What Happened: Senator Ron Johnson (R-Wis.) is spearheading conservative opposition to President Trump's proposed multitrillion-dollar tax-and-spending bill, expressing concerns over its projected $2.7 trillion addition to the national deficit by 2034. Johnson criticizes the bill's reliance on economic growth to offset increased deficits and calls for deeper spending cuts, particularly targeting Medicaid expansions under the Affordable Care Act. His stance complicates the bill's passage in the narrowly divided Senate, with other Republicans like Senators Rand Paul, Rick Scott, and Mike Lee also voicing fiscal reservations.

Why We Care: Cracks may be showing up in the GOP where the debate over the "big beautiful bill" underscores a significant rift between fiscal conservatives and party leadership regarding deficit spending and entitlement reforms. Johnson's push for stricter fiscal discipline may lead to more austere federal budgets. It’s difficult to know which way this is going to go, but we know the bond markets and the rest of Wall Street will be paying attention. We’ll just have to wait and see how alliances form in the Senate.

What Happened: The Pentagon has launched "Project GI," an initiative by the Defense Innovation Unit aimed at accelerating drone development by incorporating real-time feedback from troops into a continuous cycle of design, testing, and deployment. The US seeks to emulate Ukraine's rapid innovation in drone technology, which has been pivotal in its defense strategies against Russian forces. By fostering a more agile development process, the U.S. military aims to enhance its adaptability in evolving combat scenarios.

Why We Care: Project GI would have been unimaginable years ago. It’s easy to miss, but this iterative approach represents a significant shift in the U.S. military's approach to technology acquisition. As we just saw with the Ukrainian attack on the Russian Air Force, this emphasis on rapid iteration and deployment aligns with the operational realities of modern warfare, where adaptability and speed are crucial. Moreover, this program underscores the importance of developing technologies that can withstand and adapt to sophisticated electronic warfare environments, a growing concern in global conflict zones. This is a program to watch.

What Happened: Meta and Anduril Industries have partnered to develop advanced mixed reality (XR) headsets for the U.S. military under the Soldier Borne Mission Command (SBMC) Next program. This collaboration, dubbed "EagleEye," integrates Meta's Reality Labs hardware and Llama AI models with Anduril's Lattice command-and-control software to enhance soldiers' battlefield awareness and control over autonomous systems. The partnership marks a reconciliation between Meta CEO Mark Zuckerberg and Anduril founder Palmer Luckey, who was previously dismissed from Facebook in 2017.

Why We Care: Money talks and seems to be able to heal old wounds. Who would have seen Luckey and Zuck coming together? This alliance signifies a notable shift in the defense technology landscape, highlighting the increasing convergence of consumer tech and military applications. It underscores the growing demand for adaptable, AI-driven solutions that can be rapidly deployed in complex operational environments. The EagleEye project exemplifies how private sector advancements in XR and AI can be leveraged to meet military needs, potentially opening new avenues for startups specializing in these technologies. Moreover, the collaboration reflects a broader trend of tech companies engaging more directly with defense initiatives, suggesting a fertile ground for innovation at the intersection of commercial and military tech sectors.

Technology

What Happened: Inspired by the agility of squirrels, researchers at Lehigh University, led by Assistant Professor David Saldana, are pioneering a novel approach to drone technology that combines adaptive control systems with reinforcement learning. This integration aims to enable drones to interact with flexible and unpredictable materials in real time, adjusting their actions instinctively without prior knowledge of the materials' properties. Such advancements could revolutionize applications in high-rise construction, emergency response, and other complex environments where adaptability is crucial.

Why We Care: This research signifies a transformative step in aerial robotics, moving beyond rigid programming towards machines that can learn and adapt dynamically, much like living organisms. This development opens avenues for creating drones capable of operating in complex, unstructured environments, such as disaster zones or contested military areas. The ability to handle flexible materials and adjust to unforeseen challenges in real time enhances the potential for drones in logistics, surveillance, and tactical operations. Moreover, the fusion of adaptive control with reinforcement learning could lead to more efficient training processes, reducing the time and resources needed to deploy functional autonomous systems.

Killing drones softly - Defense One

What Happened: The U.S. military is increasingly exploring non-kinetic methods to counter the growing threat of drones, moving beyond traditional shoot-down tactics. The Army has allocated $5 million to establish a research center at Virginia Tech focused on developing and testing non-kinetic counter-drone technologies. These methods include techniques like signal jamming, hacking, and spoofing to safely neutralize drones without causing collateral damage. Such approaches are particularly valuable for protecting critical infrastructure and military bases, where traditional kinetic responses may pose risks to surrounding areas.

Why We Care: The shift towards non-kinetic counter-drone strategies reflects a broader evolution in military defense tactics, emphasizing precision and minimizing unintended consequences. For defense technology developers and policymakers, this trend underscores the importance of investing in advanced electronic warfare capabilities and cybersecurity measures. As drones become more prevalent in both civilian and military contexts, the ability to neutralize threats without physical destruction becomes increasingly critical. This approach not only enhances operational safety but also aligns with legal and ethical considerations in modern warfare.

What Happened: U.S. Indo-Pacific Command (INDOPACOM) recently conducted an AI-enabled wargaming exercise aimed at evaluating how artificial intelligence can enhance operational planning and decision-making in potential conflicts with China. The exercise included participation from combatant commands, the Department of Defense’s Chief Digital and AI Office (CDAO), and several national labs. It focused on testing AI tools in fast-paced scenarios such as logistics planning, force deployment, and predictive threat modeling. One key takeaway: AI was particularly effective in improving coordination across commands and compressing the time required for operational decisions.

Why We Care: This marks a significant milestone in the DoD’s effort to operationalize AI in real-world planning and execution—not just in simulations. With tensions rising in the Indo-Pacific and China accelerating its own military modernization, time and information advantage may determine outcomes in a crisis. AI-enabled wargaming demonstrates how next-gen tools can provide that advantage. This is a signal that operational AI—especially in logistics, forecasting, and decision support—is no longer hypothetical.

Notable VC Deals

Technologies (TAE), the leading fusion energy company developing the cleanest and safest approach to commercial fusion power, announced that it has raised more than $150 million in its latest funding round, exceeding the company's initial target for the round. Chevron, Google, and NEA participated in the round, among other new and existing investors.

Joby Aviation, a company developing electric air taxis for commercial passenger service, announced the successful closing of the first $250 million tranche of a previously announced strategic investment from Toyota Motor Corporation.

Atomic Canyon, the developer of the Artificial Intelligence (AI)-powered search and generative AI tools for the nuclear power industry, announced it has raised $7 million to accelerate deployments across the country.

Horizon3.ai, a cybersecurity startup that provides tools like autonomous penetration testing, is seeking to raise $100 million in a new funding round and has locked down at least $73 million, the company revealed in an SEC filing this week.