Donald Trump has never been a fan of NATO. And given his criticism of the alliance and Ukraine, the prevailing assumption has been that America’s role in Europe’s defense would be reduced once he returned to the White House.
However, if recent reports are true, that may not be the case.
According to the Financial Times, the incoming president’s top advisers have assured their European counterparts that America will not only remain in NATO but continue to arm Ukraine even if the conflict is settled through a peace deal.
There’s just one catch…
President Trump is also demanding that NATO members drastically increase their defense spending, raising their target from 2% of GDP to 5% of GDP.
This has been a persistent issue for Trump, who spent his first term brow-beating NATO members for being “delinquent,” or not spending at least 2% of their GDP on defense.
However, while that criticism may have been reasonable eight years ago, it’s less viable today.
A record 24 of 32 NATO members met or exceeded the alliance’s 2% defense spending guidance last year, up from just three in 2014. And some members — those nearest and most concerned with Russia’s aggression — exceeded it.
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Poland leads by that measure and it’s not even close, as the country is the only NATO member that spends more than 4% of its GDP on defense. Latvia, Greece, Estonia, and the United States all spend 3.0%–3.5%.
The majority (17 countries) spend 2.0%–2.5% and just eight spend less. As a result, the average defense spend for a NATO country is 2.7%, well ahead of the bloc’s 2% target.
So, like I said, it’s not really fair to accuse NATO countries of failing to meet their target.
So Trump is moving the goalposts. He now wants European nations to spend 5% of GDP on defense — with 3.5% viewed as an acceptable compromise.
“It’s clear that we are talking about 3% or more for the Hague summit,” one European official told the FT. The Hague summit will be NATO’s headline 2025 event, set to take place June 24–26.
Additionally, Trump’s major point of emphasis isn’t just on higher defense spending, but also on trade. That is, he wants our European allies to buy American.
Again, though, that’s another trend that’s already gathered considerable momentum over the past few years.
Sales of American weapons, ammunition, and equipment to foreign countries climbed 55% in 2023 to a record-high $81 billion. And it’s believed that figure topped $100 billion in 2024.
That comes on top of the Pentagon’s budget, which hit a record $895 billion this fiscal year.
That, too, is likely to increase under President Trump.
Remember, the U.S. defense budget rose an astonishing 37% under Trump, climbing from $534 billion in 2016 to $733 billion in 2020. Defense spending as a percentage of GDP also increased under Trump, going from 3.1% to 3.4% in that time.
Total defense spending continued to climb 22% under President Biden but was also hampered by congressional budget caps. As a result, America currently spends 3.1% of its GDP on defense.
Pushing that back up closer to 3.5% would mean adding another $40 billion to that $895 billion figure, bringing us to $935 billion. That’s roughly where I’d expect President Trump’s initial defense spending proposal to come in when he releases it this spring.
And with a Republican-controlled Congress, he won’t have any problem getting it.
That makes defense contractors a really good bet this year. And if you want to get in on the latest and greatest defense investments, check out my premium stock trading service Secret Stock Files.
Fight on,
Jason Simpkins
Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…
In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor's page.
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