Defence Sector Outlook: How Trump’s Policies Could Reshape Global Military Spending

The global defence landscape is experiencing significant changes, driven by evolving geopolitical tensions and shifts in policy from major powers. In our view, Trump’s policies have played a pivotal role in reshaping military spending worldwide. His stance on NATO burden-sharing, reduced military aid to Ukraine, and an emphasis on “America First” defence policies have forced many nations, particularly in Europe and the Indo-Pacific, to reassess their defence strategies.

As a result, global military expenditure has surged, with European countries ramping up their defence budgets and Australia strengthening its military alliances. At the same time, rising tensions in the Indo-Pacific, such as China’s military drills in the Tasman Sea, have further underscored the need for stronger defence investments.

This article examines the impact of Trump’s policies on global defence expenditure, focusing on the opportunities arising for European and Australian defence companies. It also explores recent geopolitical developments, such as China’s increasing military assertiveness, and how they are influencing global military spending trends.

 

Trump’s Defence Policies: A Push for Burden-Sharing

During his presidency, Trump repeatedly criticised NATO allies for failing to meet their defence spending commitments. His administration pressured European nations to increase their military budgets. Trump urged NATO members to meet the existing 2% of GDP defence spending target and occasionally suggested that some allies should contribute even more, though he did not set a formal 5% requirement.

In addition to pushing NATO allies to contribute more to their defence, Trump temporarily withheld military aid to Ukraine in 2019, citing concerns over corruption. The aid was later released, but this occurred before the full-scale Russian invasion in 2022. This decision had a significant ripple effect, forcing European nations to step up their military commitments.

His broader “America First” approach to foreign policy, including a reassessment of U.S. military aid and alliances, led to an increased focus on self-reliance among America’s allies, compelling them to boost their defence industries and procurement strategies.

 

The Impact on European Defence Spending

Trump’s policies and the shifting security landscape have led to a renewed focus on military self-sufficiency in Europe. With U.S. aid to Ukraine suspended and continued concerns over Russian aggression, European nations have recognised the need to bolster their defences.

The “ReArm Europe” Initiative

In reaction, European Commission president Ursula von der Leyen announced the “ReArm Europe” initiative, aimed at increasing defence spending by up to €800 billion over the next few years. This ambitious plan includes:

• €650 billion of new military spending via the loosening of EU Stability and Growth Pact rules.
• €150 billion in EU-backed loans to member states addressing essential military capabilities, such as missile defence systems, drones, and cyber security.
• Increased investment in joint European defence projects to reduce reliance on U.S. military support.

Surge in European Defence Stocks

The policy shift has already driven substantial gains in European defence stocks. Investors are wagering on higher military outlays, and companies like BAE Systems, Thales, and Rheinmetall have all seen their market value soar. European states have been moving rapidly to increase their defence budgets while expecting that demand will rise sharply for weapons systems, ammunition, and defence technology, opening lucrative opportunities for defence contractors.

Challenges in Scaling Up Defence Production

However, while European countries are committed to increasing defence spending, challenges remain. Many European defence firms are constrained by capacity following years of deindustrialisation and dwindling domestic military production. Over the last two decades, many European nations have considerably decreased their military manufacturing capability, whereas the U.S. has a large and advanced defence industrial base.

Now, with urgent demands for tanks, artillery, drones, and air defence systems, European defence makers are finding it difficult to keep up with production requirements. Countries such as Germany and France are investing in new production lines, but scaling up military manufacturing is a slow-moving process, and it will take years to produce significant output.

 

Opportunities for Australian Defence Companies

As a vital U.S. ally and an important component of AUKUS (Australia, United Kingdom, and the United States), Australia is undergoing an important period of growth in its defence field. The partnership paves the way for more in-depth integration with the U.S. and UK defence supply chains, especially in advanced defence technology and electrification.

One specific example of such efforts is 3ME Technologies, an Australian firm that develops high-performance battery systems for military vehicles. With an emphasis on electrification and more sustainable defence mobility, the company is growing its footprint in the region, strengthening supply chains that underpin U.S. military logistics activities. This aligns with Australia’s broader drive to advance its tech capabilities in defence.

Adding to this growth momentum, the U.S. Congress recently passed partial exemptions from International Traffic in Arms Regulations (ITAR) for both Australia and the U.K. The move removes a significant amount of bureaucracy, enabling quicker and easier defence deals to go forward between the three allies. This deal means Australian firms will have increased access to U.S. and U.K. military markets, streamlining how they supply advanced equipment and technology and removing previous regulatory barriers.

Supporting this expansion is Australia’s $270 billion plan to invest in its military over the next decade. The financing will focus on expanding naval and air defence, rising cyber threats, missile capabilities, and space technology. With increasing regional security concerns, Australia is prioritising the development of modern warfare capabilities to ensure its military is prepared for emerging threats.

 

Regional Security Concerns: The Tasman Sea Incident

As much of the world’s attention is on conflicts in Europe and the Middle East, tensions are rising ever more sharply in the Indo-Pacific region. Security concerns have intensified in recent weeks following an incident in which the Chinese state-controlled warship, the Changsha, conducted live-fire drills in the Tasman Sea without notifying Australia ahead of time, underscoring the need for maritime defence to be strengthened.

The unannounced naval drills caught Australian defence officials off guard and have ignited fresh debate around the need for jet-fuelled maritime surveillance and protection procedures. As China expands its military footprint across the Pacific, Australia is likely to accelerate its naval investments to hedge against potential risk. This includes the procurement of new submarines, warships, and advanced surveillance technologies under the AUKUS framework.

The Tasman Sea incident highlights the rising volatility in the Indo-Pacific region and also stresses the strategic importance of AUKUS in ensuring the long-term security of Australia. In the face of escalating geopolitical uncertainties, trusting relationships with the U.S. and U.K. will remain extremely important in supporting regional stability and a rules-based international order.

Apart from naval security, Australia might also increase its cooperation in defence with other Indo-Pacific nations, such as Japan, India, and South Korea, to deter militarily aggressive manoeuvres in the region. The incident is a stark reminder that Australia needs to constantly stay a step ahead whenever dealing with emerging threats to security if it is to protect its sovereignty and national interests.

 

Global Defence Spending Trends and Challenges

The broader impact of these policy shifts is evident in global military expenditure, which reached record highs in 2025. Countries around the world are prioritising modernisation initiatives to improve defence preparedness, resulting in a growing demand for advanced weaponry, cyber defence capabilities, and AI-supported warfare systems.

However, this surge in spending is not without challenges. In Europe, the growing defence budgets need to be counterbalanced with economic constraints. Many EU countries suffer high debt levels, making long-term military spending politically sensitive.

For Australia, integrating into the U.S. defence industrial base presents regulatory and logistical hurdles. Though ITAR exemptions have alleviated some restrictions, Australian defence companies still have to satisfy rigorous U.S. military standards — a process that can take time and complexity.

Also, keeping a qualified defence manufacturing workforce is a growing challenge. As many countries ramp up production, a competitive environment is developing for skilled engineers and technicians, which could lead to bottlenecks in the defence supply chain.

 

Conclusion: A New Era in Global Military Spending

Trump’s defence policies have undeniably reshaped global military spending, compelling allies to take more responsibility for their security. Europe has responded with defence budgets at record levels, while Australia is using its AUKUS partnership to deepen its military capabilities.

Simultaneously, increasing tensions, including China’s recent military activity in the Tasman Sea, are driving the urgent need for more defence spending. Although these adjustments provide opportunities for defence firms around the world, they also pose hurdles in areas such as supply chain capacity, workforce availability, and fiscal sustainability.

As the world adapts to this new security landscape, nations will need to balance their defence priorities with broader economic and political considerations. The next decade will likely see further shifts in global military alliances and defence expenditure patterns, shaping the future of international security.

 

What are the Best ASX Stocks to invest in?

Check our buy/sell tips.

Frequently Asked Questions (FAQs)

• How have Trump’s policies influenced NATO defence spending?

  Trump urged NATO allies to pay more for their defence, even calling for all allies to raise their military budgets to at least 5% of GDP. This was followed by a dramatic increase in European defence spending, especially among countries near Russia.

• What is the “ReArm Europe” initiative?

  It is a European Union proposal to boost regional defence spending by nearly €800 billion, including €650 billion in increased national budgets and €150 billion in EU-backed loans for military upgrades.

• How are Australian defence companies benefiting from these changes?

  The AUKUS pact and the recent ITAR exemptions are giving Australian firms, especially advanced defence technology companies, greater access to U.S. and UK defence markets. This enables them to widen their global presence.

• Why is the Chinese warship incident in the Tasman Sea significant?

  The incident highlights growing regional security concerns in the Indo-Pacific. China’s unannounced live-fire drills have raised alarms in Australia, reinforcing the need for stronger naval defence and surveillance capabilities.

• What are the main challenges in increasing global defence spending?

  The three key challenges include supply chain constraints, workforce shortages in defence manufacturing, and balancing military investments with economic priorities, particularly for countries with high levels of debt.