Morristown, New Jersey – President Donald Trump’s latest pronouncement that the U.S. should be exempt from his 5 percent GDP defense spending target, while allies must meet it, sets the stage for a significant financial reckoning at the upcoming NATO summit in The Netherlands. This demand, significantly higher than the alliance’s long-standing 2 percent guideline, places immense fiscal pressure on member states, many of whom are already grappling with economic constraints.
Currently, the U.S. spends 3.4 percent of its GDP on defense. If all NATO members were to meet Trump’s 5 percent demand, it would represent an unprecedented surge in global military expenditure, potentially even surpassing the world’s total defense spending in 2023. For many European nations, this target is not just ambitious; it’s a monumental financial undertaking.
The Economic Burden on European Economies
Most NATO states presently allocate just over 2 percent of their GDP to defense. While a growing number have outlined plans to reach around 3 percent in the next year or two, jumping to 5 percent would require massive additional investment. For countries like Spain, which currently spends around 1.5 percent, a 5 percent commitment would necessitate a dramatic reallocation of national resources. Spanish Prime Minister Pedro Sánchez has already rejected the 5 percent goal as “unreasonable” and “incompatible with our welfare state,” arguing it would require cuts to public services and hinder other critical spending, such as on the green transition.
Even countries that have recently increased their defense budgets are questioning the financial sustainability of Trump’s target. Germany’s defense minister, Boris Pistorius, acknowledged the need for a “realistic compromise between what is necessary and what is possible, really, to spend,” highlighting the substantial financial strain on national budgets.
The alliance has attempted to soften the blow by proposing a 3.5 percent “hard military spending” target, with the remaining 1.5 percent covering “defense-related” expenses like domestic infrastructure and cybersecurity. While this offers some flexibility, the core demand for significantly higher military budgets remains a formidable challenge.
Capacity Issues and Domestic Priorities
Beyond the sheer volume of money, a rapid increase to 5 percent also presents practical difficulties for the European defense industry. Critics, including Italy’s Defense Minister Guido Crosetto, argue that the industry currently lacks the capacity to absorb such a large influx of funds and produce the necessary equipment, like tanks and fighter jets, quickly enough.
Furthermore, increasing defense spending to this extent would inevitably mean diverting funds from other critical domestic priorities. As the Center for Strategic and International Studies’ Seth Jones points out, even the U.S. at 3.4 percent is lower than during the Cold War. For European welfare states, reallocating a “small fraction” of spending on pensions, health, and social security to the military, as suggested by NATO Secretary-General Mark Rutte, is a politically sensitive and economically challenging proposition.
Ultimately, Trump’s unwavering demand for a 5 percent defense spending target, coupled with the U.S. opting out, places significant financial pressure on NATO allies. It forces them to confront difficult choices between bolstering their military capabilities and maintaining their domestic welfare programs, while also raising questions about the capacity of their industrial bases to meet such an ambitious and sudden increase in demand.
