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Global Top Cat

War Games

By Yiannis G. Mostrous, on Nov. 30, 2016

Last year marked the first time in a long while that 57 percent of NATO members increased their defense spending, with France committing to up its expenditures by 12 percent by 2019 and Germany targeting a 6 percent increase over the same time frame.

Geopolitical developments will increasingly shape the global economy and how investors allocate capital. More specifically, the world may be entering a period when countries steadily increase military spending.

In the US, one of President-elect Donald Trump’s campaign promises was to increase military spending. Early indications are that active-duty Army personnel could increase by about 13 percent to 540,000 soldiers; the Navy could expand its fleet by about 25 percent to 250 ships; and the military could add fighter aircraft.

Initial assessments put the cost of this plan at $80 billion to $90 billion, a range that would increase US military spending to at least $650 billion.

US, Canadian and European defense contractors stand to benefit the most in this scenario.

The president-elect also has talked about the need for NATO members to increase defense spending to 2 percent of their gross domestic product (GDP). Mr. Trump repeatedly has said that US support will be limited, if not nonexistent, to countries that ignore the 2-percent rule.

Two hurdles stand in the way of all NATO’s European members complying with this financial obligation in the future.

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