Allied Defense Spending: Not Just Quantity

In February, in his first visit to NATO allies in Europe, US Defense Secretary Pete Hegseth delivered a stark message: “Now is the time to invest, because you can’t make an assumption that America’s presence will last forever.” US allies in Europe—and likely the Indo-Pacific, too—have been shaken by Hegseth’s broadside, even if some retain hope that the reset will not be permanent. 

Allied recognition of the need for more self-reliance is not new. The goal of greater strategic autonomy was formalized by the European Council in 2013. The growing weight of Russian aggression, the People’s Republic of China’s (PRC) rapid military expansion and increasing cooperation with Moscow, deepening broader global risks, bipartisan US pressure to spend more, and uncertainty about the character of US security guarantees has provided further reinforcement in the decade since. 

The shock treatment being meted out by the new US administration has provoked stronger resolve. On February 19, in response to alarming US policy shifts on Ukraine, French President Macron affirmed that the European bloc was “convinced of the need to increase the defense and security spending and capabilities of Europe”.  Presumptive new German Chancellor Friedrich Merz has gone further, stating that his “absolute priority will be to strengthen Europe as quickly as possible so that we can achieve real independence from the USA, step by step”.

Fulfilling these convictions is a work in progress: even with successive increases over the past ten years, EU member states’ aggregate defense spending remained short of 2% of EU GDP by 2024. 

In the Indo-Pacific, US treaty allies—Japan, South Korea, the Philippines, and Australia—also began to ramp up defense spending well before the upheaval of Trump 2.0. The PRC’s militarization and regional assertiveness has been a primary motivation, although it is not the only driver.

The most notable uplift is Japan’s, given its postwar aversion to large-scale defense investments. Japan has now decisively moved beyond this constraint to address what it describes as the “most severe and complex security environment since the end of World War II”. It anticipates an increase in defense spending to 2% of GDP—double the share over the past ten years. 

South Korea, which faces the most direct challenges from a North Korea emboldened by a deepening partnership with Russia, has programmed annual increases of 11% over the next four years. Its total defense spending over this period is expected to reach $262 billion. 

Australia has embarked on a major expansion and reorientation of its defense investment, underpinned by its decision to acquire a conventionally armed nuclear submarine capability at a cost, over three decades, of up to $232 billion. The Philippines, too, is increasing its military and coastguard budgets (by over 6% in 2025) to uphold “sovereignty and territorial integrity” in the face of relentless PRC pressure in the South China Sea.

How Much Is Enough?

GDP share targets show political commitment but are not ideal measures of whether allies are pulling their respective weights. They don’t necessarily reflect a needs-based approach to strategic risk management and are subject to year-on-year fluctuations due to lumpy defense capital acquisitions and variations in underlying GDP. The proof is in the pudding, not in how much it cost. 

Scale matters, but good choices matter more when making complex capability decisions across an ever-widening technology universe. So better questions are whether the expenditure:

• supports delivery of coherent strategies and military force structure plans that align capability delivery with expected long-term strategic risks and opportunities;
• will deliver tangible and deployable capabilities cost-effectively and in good time;
• and contributes to integrated, interoperable systems that maximize partnership-wide deterrence.

This last consideration is paramount. For all members of the US alliance system, the overarching aim must be to maintain reliable deterrence across a broad spectrum of existing and emerging threats. 

The broader alliance system is not starting from a good place. Nuclear deterrence and detente have taken some knocks with more overt threats in recent years from Russia, the PRC, and North Korea. Particularly egregious was Russia’s unprecedented nuclear sabre-rattling towards Ukraine, a non-nuclear-armed state, when Moscow’s invasion looked in danger of disintegrating in 2022. Firm political intervention by the Biden administration restored an effective level of deterrence, but this episode muddied expectations around tactical weapons use and weakened the legal and moral taboo against threats to non-nuclear states. 

Trump’s actions since January have intensified uncertainties that arose during his first presidency about his fundamental attitudes to alliances and US extended nuclear deterrence. Amid the policy turmoil, underlying US assurances likely remain robust enough (for now) to discourage adventurism against US allies that could risk high-level conflict. Hegseth took care in Brussels to reaffirm core US commitments to NATO. Non-European allies will be relieved by US prioritization of “core national interests in the Indo-Pacific”, even if they share European concerns about US policy directions. However, US policy signals are evolving rapidly and even small gaps in the deterrence framework will demand more robust conventional effort by allies to help fill any perceived void.

Below the most alarming thresholds, coercion and grey-zone risks will undoubtedly intensify as Russia, the PRC, and others continue to test boundaries. We can expect greater exploitation of global digital connectivity to increase cyber and foreign interference threats, and this underscores why “total defense” concepts—pulling together the full suite of a country’s security capabilities—are crucial. If we cannot escape spending-league tables, accounting should include contributions outside the traditional military domain to recognize and incentivize broader security investments.

How, Not Just How Much

US calls for allied defense spending levels of 5% of GDP are unrealistic in the medium term and far exceed the United States’ own contracting expenditure outlook. But, even if substantial new allied resources are forthcoming, rapid reforms are needed to deliver better capabilities and deterrence effects within meaningful timeframes.

Incremental improvement will not be enough for Europe to compensate for US retrenchment. As Max Bergman of the Center for Strategic and International Studies observed in January, “Europe, presently, is not structured to fight as Europe, for Europe.” Fixing this will require “a dramatic political, cultural, and organizational transformation in how Europe approaches defense”. 

The picture is even more fragmented among US “hub and spoke” allies in the Indo-Pacific, where there is no NATO-style coordination mechanism. That said, defense engagement among Japan, South Korea, the Philippines, Australia, and other regional partners is strengthening rapidly and must continue. 

There is enormous need for greater programmatic efficiency. Alliance partners struggle to deliver new platforms and capabilities quickly and on budget. Munitions support for Ukraine has also highlighted shortcomings in production sustainment and interoperability. The accelerating pace of technology development will not make improving these processes easier, nor will parochial defense industry support considerations. 

Allies will need to get strategies and military force structure planning modernized and integrated rapidly to drive resource allocation effectively—noting that several have large, legacy expeditionary force structure components driven by the last major US pivot after 9/11. Prioritization will be vital but difficult to settle in a complex threat environment, and paralysis could be fatal. Obvious targets for accelerated investment include cyber and interference defenses, AI and emerging technologies (including unmanned and autonomous systems), missiles and missile defense, munitions production, resilient C4ISR (command, control, communications, computers, intelligence, surveillance, and reconnaissance), logistics, rapid deployment capabilities, and exercising. 

Better coordination across allied systems is also vital, with US leadership indispensable regardless of sentiments towards the current administration. The United States will remain, for the foreseeable future, the source of the most effective command and control, weapons systems, innovation, intelligence, and nuclear deterrence. Reform of foreign military sales regulations is crucial and is an area where US commercial interests could be activated. Closer engagement and information-sharing among allies in these more sensitive areas will become even more important if the United States is less forward-leaning. 

The challenges involved in achieving such transformations are monumental. We can only hope that the assumption underpinning Hegseth’s broadside is correct: that there is still time to do so.