Europe re-arms as US slows defence spending
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A two-speed arms race is taking shape: the US is slowing its defence spending while Europe accelerates, according to a report.
Data published on Tuesday by the London-based International Institute for Strategic Studies in its annual Military Balance 2026 shows spending reached an all-time high of $2.63tn last year. But the headline figure masks a widening divergence: Washington is easing back while European capitals press ahead.
Global defence spending rose just 2.5 per cent in real terms in 2025, a sharp slowdown from the near 10 per cent annual growth recorded in the years after Russia’s full-scale invasion of Ukraine in 2022.
The US remains by far the world’s largest military spender, accounting for 36 per cent of global defence outlays in 2025. Yet a 7.1 per cent cut in US spending in real terms dragged down overall growth.
Europe, by contrast, continued its defence boom and now accounts for more than 21 per cent of global spending, up from 17 per cent in 2022. Germany is responsible for “much of this uplift”, according to the IISS.
Russia’s full-scale invasion, China’s military modernisation and mounting tensions in the Middle East have turned defence from a post-cold war choice back into a necessity.
Under pressure from US President Donald Trump, most Nato members pledged in June 2025 to raise defence and defence-related spending to 5 per cent of GDP by 2035, with at least 3.5 per cent devoted to core military expenditure — up from the previous 2 per cent benchmark.
Meanwhile, under revised EU fiscal rules, member states may exceed deficit limits if the additional borrowing is used to finance defence.
US defence secretary Pete Hegseth told Nato allies last year that while America remained committed to Nato, Europe must “take ownership of conventional security on the continent”. Washington has since begun to scale back certain defence commitments, demanding greater burden-sharing from allies.
Russia’s own wartime surge has also cooled. Military expenditure rose 3 per cent in real terms in 2025, after a near 57 per cent jump the previous year. Even so, defence spending still absorbs more than 7.3 per cent of GDP — the third-highest share in the world, after Ukraine (21.2 per cent) and Algeria (8.8 per cent).
Trump “has doubled down on the defence of the homeland and placed an emphasis on the western hemisphere”, said IISS. “His administration has begun to roll back on the United States’ long-standing defence commitments and demanded greater burden-sharing among its allies — both in Europe and the Asia-Pacific.”
Data visualisation by Alan Smith
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