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.