NATO’s Five Percent – Trump’s Bargaining Chip or Genuine Demand?

By Mika Horelli – According to sources in the Financial Times, former and future U.S. President Donald Trump might demand NATO member states increase their defense spending to five percent of GDP. This would significantly exceed the current two percent goal that members have committed to striving toward. But is this simply a bargaining tactic from Trump, intended to pressure allies into raising their spending to a more moderate level, or is five percent a realistic demand?

Trump’s tendency to set extreme goals has been evident in his previous negotiation tactics. During his presidency, he demanded NATO members increase their defense spending to two percent of GDP, often emphasizing even higher figures in his rhetoric. The result? While several member states accelerated their spending increases, most still fell short of the two percent benchmark.

The alleged leak of Trump’s five percent demand to the Financial Times may be part of a similar strategy. By setting the bar high, he creates room for a compromise—such as three or three and a half percent—that might appear attainable and acceptable to member states. This approach, often referred to as “anchoring” in negotiations, is an effective way to steer discussions toward a preferred outcome.

The U.S. defense industry would be one of the biggest winners if Trump’s demand were realized. If NATO member states raised their defense budgets to five percent of GDP, they would need to acquire more equipment, weapons systems, and logistical resources—much of which would come from the U.S. Currently, U.S. arms exports amount to approximately $170 billion annually. Meeting a five percent target could significantly boost this figure, as the majority of NATO members procure their weapons from the United States.

Rough estimates suggest that if European NATO members alone raised their defense budgets to five percent of GDP, their combined spending would increase by hundreds of billions of dollars annually. Even if only half of that went to American suppliers, it would represent a massive surge in demand for the U.S. defense industry.

While the U.S. defense industry has considerable production capacity, it is not unlimited. The COVID-19 pandemic and the war in Ukraine have already highlighted vulnerabilities in global defense supply chains and production limitations. Should Trump’s demands materialize, the defense sector would need to expand rapidly, potentially driving up costs and causing delays in delivery.

Additionally, many American manufacturers are already stretched thin meeting domestic requirements. The Pentagon’s budget is the largest in the world, and arms deliveries to support Ukraine are a priority. Could the defense industry also meet the growing demands of NATO allies? Likely, but only with time and significant investment in expanding production capacity.

If Trump’s five-percent demand became reality, it would transform the world in many ways. In Europe, defense spending would rise at the expense of other sectors. Could this weaken the welfare state and economic growth? And how would this impact U.S. relations with its allies in the long run?

On the other hand, Trump’s demand might be more than just a bargaining chip. It could signal a strategic step toward a new international order where the U.S. expects greater financial sacrifices from its allies while simultaneously paving the way for a golden age of arms production.

As NATO allies contemplate Trump’s return and his five-percent demand, one thing is clear: the current two-percent target will no longer suffice. The question is, how far are allies willing to go—and who stands to gain the most from it?

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