In a speech that made headlines worldwide, Donald Trump suggested that NATO member states increase their defence spending to 5% of GDP, a figure significantly higher than the current 2% target established in 2014. This potential increase could not only transform NATO’s structure and capabilities but also revolutionize the global defence industry and its key players.
What if NATO nations spent 5% of their GDP on defence?
Only a few NATO members meet or exceed the 2% GDP target for military spending, with many far from achieving it. Raising this threshold to 5% would require a massive reconfiguration of national economies. For example, Germany, the largest economy in Europe, would need to quintuple its defence budget, increasing it from approximately $60 billion to over $150 billion annually. This shift would enable the acquisition of advanced technologies, the strengthening of armed forces, and the establishment of new logistics, cybersecurity, and intelligence hubs across the continent.
If all members adopt this level of spending, NATO could significantly surpass any global competitor in military capacity, including China and Russia. While this would provide a strategic deterrence advantage, it could also heighten geopolitical tensions, as other actors might view it as a direct military escalation.
The defence industry would undoubtedly benefit most from this increase. Companies such as Lockheed Martin, BAE Systems, Thales, Northrop Grumman, and Rheinmetall could witness an explosive rise in contracts and international business. With the global defence market currently valued at around $2.2 trillion annually, this boost could inject hundreds of billions more into research and development, manufacturing, and procurement.
Emerging military technology sectors would also see significant gains. Advances in artificial intelligence, autonomous systems, cybersecurity, hypersonic weaponry, and space technologies would receive unprecedented capital investments. This could accelerate the adoption of highly sophisticated military systems, creating a virtuous cycle where private companies innovate and governments purchase, generating new business and employment opportunities.
While increased defence spending could bolster NATO’s collective security, it also carries the risk of triggering a global arms race. Countries like China and Russia might interpret this move as a direct threat, prompting them to escalate their military expenditures and develop strategies to counter NATO’s power. In this context, diplomacy and arms control mechanisms will be essential to prevent unnecessary escalations.
The proposal for NATO countries to allocate 5% of their GDP to defence spending could redefine the global balance of power. While defence companies and tech-driven economies might experience a golden era of innovation and growth, the economic costs and the risks of geopolitical tensions remain significant.
