With the global security environment continuing to degrade, 2024 saw non-US NATO members increase their share of the alliance's defence spend to its highest ever level, boosting their collective budget at its fastest ever rate.
Whether motivated by attempts to repudiate claims of insufficient national-security weight-pulling, hedge against diplomatic breakdowns or simply respond to the increasing likelihood of war, many of the US's allies appear to have already responded to president-elect Trump's most well-articulated defence policy; that they need to pay more.
Transcript
US election 2024
Hello and welcome to this Janes online intelligence briefing. My name’s Andrew MacDonald, manager of Janes Defence Budgets, and I’m joined today by my colleague Georgios Salapasidis, head of Platforms for Janes Markets Forecast.
The slides and audio recording from today’s briefing are available to download from the Janes customer website. I’d encourage you to ask questions about this presentation - to do this, please send your queries to us using the email address [email protected].
In today’s presentation we’ll be briefly examining the state of affairs in the global defence market, guided by some key bits of data that we’ve picked out as relevant to the current political moment, with a view to determining how much will change and how much will remain the same under the incoming administration in the United States.
With the global security environment continuing to degrade, 2024 saw non-US NATO members increase their share of the alliance’s defence spend to its highest ever level, boosting their collective budget at its fastest ever rate.
Whether motivated by attempts to repudiate claims of insufficient national-security weight-pulling, hedge against diplomatic breakdowns or simply respond to the increasing likelihood of war, many of the US’s allies appear to have already responded to president-elect Trump’s most well-articulated defence policy; that they need to pay more.
Today we’ll begin to examine whether that’ll continue once he takes office, and consider the extent to which Mr Trump’s ‘America First’ agenda is driving these responses, or is just a powerful symbol of a new era already underway in global defence policy.
In an already complex and uncertain world, most of the things we’re fairly sure we can expect from a second Donald Trump presidency are major changes that have the potential to affect politics, economics and diplomacy the world over.
But at the same time, outside of the president-elect’s few well-trailed policy focuses such as immigration, trade and military aid, it’s possible that bold rhetoric will give way to positions far closer to traditional US orthodoxy on the majority of defence and foreign policy issues once Mr Trump is in office, much as it mostly did in January 2017.
Given the extremity both of the breadth of the topic and of the uncertainty over much of its substance, we’re keeping the scope of today’s discussion deliberately limited.
First I’ll set out the current defence funding context for the US and its key allies – the state of play before President Biden leaves office.
Then I’ll move on to share some relevant views from our forecast, including of a small selection of the big defence budgets most likely to be impacted by any change in US policy.
I’ll then hand you over to Georgios, who’ll take you through some data on US military exports to Europe, and then on the wider global defence trade.
Global defence spending – strategic context
To begin it’s worth revisiting the recent history of the largest defence budget in the world – if only to emphasise that in the default Janes view, which adjusts for inflation to show you each year’s spend in today’s value, it’s still not as big as it once was.
While you can see from the orange bars that in nominal terms US defence allocations passed their post-financial crisis peak as long ago as 2018, in real terms 2010’s figure is yet to be surpassed.
In this view as well Donald Trump’s previous term stands out as a period of significant real growth, but one that was cut short by rising inflation as much as by fiscal restraint. This leaves US defence funding in a state of having still not quite escaped the decline that followed a decade of counterinsurgency overseas.
The first of the two major upward pressures on US defence spending, and the one that most directly concerns the largest number of its allies, is Russian belligerence abroad beginning with Georgia in 2008, Ukraine in 2014 and 2022 and in Syria in the interim.
Despite this escalation of its military engagements, a concurrent upward trend in Russian defence expenditure was cut short from 2017 onwards, likely due to the economic impact of falling hydrocarbon prices. The following years of contraction continued until a low point in 2022, when the Russian defence budget was equivalent to just under 47 billion US dollar in real terms – more than 40% lower than its 2016 peak.
This occurred even as the initial full-scale invasion of Ukraine in February of that year failed and the war developed into a long attritional campaign. In 2023 however, Russia’s annual defence spend eventually jumped by nearly 150% in real terms – the fastest rate on Janes record by a large margin.
Although subsequent budgets saw much smaller rises – with growth of 17.5% due for 2025 – and contractions are scheduled in official forecasts, the new scale of Russia’s defence budget is expected to broadly persist.
At around 280 billion dollars in 2024, China’s defence budget is less than a third of the United States’, but its rate of growth, as well as likelihood of superior domestic buying power, especially in the early 2000s, was sufficient to prompt concerns.
However, despite Chinese defence budget growth consistently outpacing that of the US, if current trends continue parity between Chinese and US defence spending remains a distant prospect; by 2034 China is expected to spend funds equivalent to 47% of the annual US defence spend – up from just under 31% this year.
Such a swift and sustained rise in expenditure has defined the global strategic environment for decades, and is likely to continue to do so for the foreseeable future. A second Trump administration will doubtless prove even more hawkish on China than the last, but though the future president may bring the issue to the fore, its growth has been a story of long-term Chinese economic empowerment, rather than the contingencies of a relatively recent trade dispute.
The next five largest defence budgets in Asia-Pacific, four of them close allies of the US, have either increased their defence expenditure markedly in the past decade, or have embarked on the process of doing so.
So instead of surpassing the rest of the region combined, as might have been expected of China’s defence budget had its trajectory until 2015 been sustained, the share of Asian spending it accounts for has still be growing, but more slowly. For the rest of the 2020s and early 2030s this proportion is forecast to remain static at close to 48% of all Asian defence budgets, as the country’s budget growth converges with that of the rest of the region.
With the five next-largest defence-spenders in Asia highly motivated by perception of a threat from China (and from North Korea and Pakistan in addition in the cases of South Korea and India), funding trends in the region have long been driven by more than admonishment from Washington. While the new US administration may bring uncertainty to critical security relationships in Asia, most US allies in the region can point to significant efforts to enhance strategic independence to bolster their security credentials with Mr Trump.
Until relatively recently, the same could not be said for US allies in Europe. Prior to the NATO funding pledges made in 2014 - for alliance members to ‘move towards’ spending the equivalent of 2% of GDP on defence, and 20% of their defence budget on investment activities – only France and the UK fulfilled both criteria.
Annual defence funding in Europe had reached a nadir of 313 billion dollars in 2014 following a protected period of economic crisis and austerity, and the average defence budget equalled 1.6% of GDP, compared to 3.5% in the US at the time.
At the same time investment expenditure had dropped to an all-time proportional low of close to 17% of total spending in both Eastern and Western Europe.
However, this appears to have represented a genuine turning point for US allies in Europe. The commitments made in 2014 would eventually have a major impact, although it would take some time to be felt, and even today has not been fully achieved.
From 2015 onwards European defence funding, especially for equipment acquisition, grew at an increasing pace almost every year, hitting a peak of 22% real investment growth following Russia’s invasion of Ukraine in 2022.
Between 2005 and 2015 European investment had contracted at a compound annual growth rate of 1.8%, but in the following decade it grew at a CAGR of 11.7%.
The budgetary effects of Russia’s invasion were felt relatively swiftly in Eastern Europe, but made their mark on Western European allocation more obviously from around 2017 – coinciding with the year that Donald Trump first took office and his criticisms of low military spending in NATO began to be taken more seriously.
While it’s highly likely that national security concerns driven by Russia’s unprovoked wars of territorial expansion were the main driver behind this initial revival of serious European defence investment, repeated prompts from the region’s security guarantor and critical enabler of NATO doubtless increased the urgency felt.
This strategic shift was vastly accelerated by the full scale invasion of Ukraine in 2022. Total European defence expenditure grew by 10.5% in real terms in 2022 (its fastest rate on Janes record) and by 9.2% in 2023. Meanwhile within this jump, defence investment funding growth spiked to 23.8% and 13.4%, also unprecedented rates of increase.
In total between 2021 and 2024 Europe added more than 100 billion dollars to its annual defence expenditure and 55 billion to its investment spend.
The war’s effects on funding plans were felt well outside of Russia and Europe, especially notably in Asia, where parallels with fears over Chinese claims over Taiwan focused attention on the potential for conflict, including in previously static budgets like Japan’s.
Although Europe’s budgetary response to the invasion was fairly immediate, it’s also likely that it drove a spike in worldwide budget growth in 2023, when total budgets rose by 11.6% and investment levels increased by 16.2% year on year – both the fastest rates recorded since the start of Janes data in 2005.
Forecasting a new era
The security challenges I’ve briefly described, as well as the response to them from US allies and others, mean that for more than a decade and a half we’ve been witnessing the relative, though not absolute, decline of the United States as the largest defence budget in the world.
It should of course be noted that by the fact of the sheer scale of the US budget’s size, and the size of the gap between the US budget and others, the impact of this gradual relative decline has not been dramatic, and is unlikely to be so for some time.
However, from a peak of 52.5% prior to the cuts that followed the global financial crisis, the latest official forecasts would put the US defence budget close to 30% of the total by the mid 2030s – a share which would still leave it larger than the next five biggest spenders combined, but which would lack the overwhelming overmatch of purchasing power versus China which the country currently enjoys.
Look within the functional makeup of regional defence budgets and the picture is not quite as negative for the United States. Just under 35% of 2024’s defence budget is dedicated to investment spending – far higher than any other region’s – Russia aside – and a significant increase versus the 26% recorded a decade ago.
Even as Asia and Europe have greatly increased their defence investment commitments over the past decade, US procurement and RDT&E spending has grown to almost match its all-time peak in 2008, with a recent high of 332 billion allocated last year in real terms equal to 48% of the global total.
As you can see from the chart on the right it’s only Asian defence investment that’s likely to even come close to America’s in the coming decades, and only around half of that total represents Chinese spending.
The potential impact of a second Donald Trump term on any policy is extremely difficult to assess, and this goes for the US defence budget as much as anything.
There exists potential for major changes in almost all of the country’s diplomatic, defence and trading partnerships, but the likelihood of these influencing the domestic political process – over which the president in any case has imperfect control – is fairly low.
Potential for major shifts in the US economic environment, if radical new policies are implemented, say, could exert restraining pressure, as could Mr Trump’s distaste for unnecessary military engagements overseas.
However, the president-elect appears to nevertheless value a strong military, and in his previous administration total defence expenditure grew at an average annual rate of just over 5.3%.
If the new administration did seek to achieve similar levels of expansion from 2025 onwards, or even to attempt to maintain funding at a constant percentage of GDP, then the budget could quickly hit a new peak in real terms, potentially taking it well above 1 trillion dollars before the end of the decade.
To consider what our forecast looks like for US allies in Europe from 2025 onwards, it’s worth returning to the view I showed earlier of countries’ performance against the two NATO benchmarks.
From the same chart showing 2010, if I click forward you can see the scale of the change we’ve already witnessed.
From just two countries meeting the 2% of GDP benchmark and six spending 20% of their defence budget on investment in 2010 in 2024 16 countries reach the 2% target and 22 hit the investment target – with several others relatively close, as well as some notable overperformers.
Non-US NATO members increased their defence budgets by 7.5% in 2023 and 9.6% in 2024 in real terms – both faster rates than any year on Janes record. Investment spending growth amongst these countries jumped to 17.7% in 2024 as budgets were increasingly focused on equipment acquisition.
Non-US members of NATO now account for 33.4% of the alliance’s military expenditure; up from 28.4% in 2016, and by 2034 non-US NATO members will account for almost 40% of the alliance’s military expenditure, or 571 billion dollars in real terms.
Let’s take a very quick look now at a couple of the countries which have been driving this trend, and some that haven’t yet felt the need, or ability, to pursue a major strategic shift in their defence policy.
Germany can claim to have made one of the most significant contributions to the recent change of European direction on defence thanks to Olaf Scholz’s ‘zeitenwende’ speech, as well as the 100 billion euro sondervermögen, or special fund for defence which has helped lift the German budget to 1.7% of GDP this year (with additional allocations for aid to Ukraine).
The German government had published financial plans which indicated a peak defence allocation of almost 84 billion euros in 2026, but the collapse of the ‘traffic light’ coalition means these are likely to be revised.
With a compound annual growth rate for defence investment of 7.2% from 2010 to 2020, Poland’s defence build-up has been underway for far longer than the massive 47% increase in its 2023 budget would suggest.
A planned budget contraction in 2025 and return to lower growth rates thereafter suggests that current levels of investment will be maintained rather than significantly expanded upon, but these figures exclude spending from the country’s large Armed Forces Support fund, which is financed mostly through borrowing.
Consider the UK and France, however, and you’ll see that not all of Europe is reforming its defence planning at the same pace. These countries were the two which already met NATO’s funding benchmarks prior to 2014 but both budgets have remained broadly static as a percentage of GDP since then.
After reaching a recent high point in 2025 our forecast for French budget growth is only moderate, while in the UK a stated ambition to increase defence expenditure to 2.5% of GDP is unlikely to have a set timeline anytime soon.
Moving on to Asia we’re presented with an even more diverse picture, where long-term expansion of large budgets such as India, South Korea and Australia has been recently joined by sudden and sustained major expansion in Japan which is expected to have a huge impact on the region.
It was Japan and South Korea that contributed most outside of China to a big spike in budget growth in Asia-Pacific last year – the fastest rate we’ve seen since 2009. This year spending expansion dropped down to a much more pedestrian 2%, but as you can see from these charts we’re expecting some fairly significant funding expansion over the coming five years.
The shift which has finally occurred in Japan’s defence budget after many years of debate comes close to the scale of that of Germany’s in Europe.
While the Japanese government’s budget request for 2025 would raise defence spending far less than the historic rise of almost 25% implemented in 2023, the proposal would take MoD funds more than JPY600 billion, or 7.6%, higher than the budget approved for 2024.
July 2023’s ‘Defence of Japan’ white paper included a commitment that military expenditure would reach 2% of 2022’s GDP by 2027. 2024’s relatively sedate funding increase had put the achievement of this goal in some doubt, and 2025’s budget request would go some way to creating a viable path to meeting it if it was granted.
If signed into law in its current form Taiwan’s draft budget for 2025 would likely represent a return to the previous robust upward trajectory, following a notable slowdown in 2024. Core MND funding would rise by more than 9.5% nominally, while MND special funds would expand at a more moderate 4%.
Taiwan’s recent return to an expansionary defence budget trajectory after a decade of static budgets from 2009 has thus far been largely thanks to its two largest special funds. Total MND funding is in nominal terms 58% greater in 2024 than it was 5 years earlier, but the core budget has expanded by less than 28%.
South Korea’s budget proposal for 2025 would maintain defence budget expansion at largely the same rate in nominal terms as was seen in 2024, resulting in a core defence budget just under KRW2.2 trillion greater than the previous year.
Although this rate of expansion is broadly in line with that of most of the previous decade, this appears to suggest that 2023’s extremely swift acceleration of growth to 16% year on year was an outlier rather than a turning point.
In 2023 the MND set out a goal of spending KRW348.7 trillion on the country’s armed forces between 2024 and 2028. With the level of spending currently proposed for 2025 this will be very hard to achieve.
Australia’s 2024-25 budget authorised a total annual defence spend of 39 billion US dollars, including funding for the Australian Submarine Agency formed in 2023 to support the acquisition of boats which will form the core of the AUKUS security partnership with the US and UK.
While the government forecast detailed in the 2024 budget does appear to broadly align with a growth path necessary to achieve the targets set out in the most recent National Defence Strategy, it does so mainly by planning a major acceleration in expansion in its final year, 2027. Aside from 2027, the nominal growth rates projected in the budget are actually far slower than the recent norm.
Now let me pass you over to my colleague Georgios, who’ll take you through some analysis of US military exports.
US Exports to Europe and the changing trade landscape
Thank you Andrew.
Andrew has examined changing patterns in defence spending in Europe, and the world. Naturally, major changes in procurement and the dynamics of international relations indirectly affect defence trade between countries, in this case the trade of military systems between the US and European countries.
This is an attempt to use Janes Market Forecast data to provide a snapshot of transatlantic trade from as far back as 2014 and out to 2033. Please note, Janes Market Forecasts, covers a total of 60 countries, 18 of which are in Europe.
The trade of defence materials, among other factors, serves as an indicator of the transfer of military capabilities between nations, and provides insights into the depth of bilateral relations, and the stability of political and military alliances. The main finding derived from Janes data is that there is an element of continuity in trade relations between the US and European powers, but it is possible that this relationship may be called into question as Europe becomes increasingly self-reliant in the mid-to-late 2030s.
Transatlantic defence trade has been characterised by continuity for decades. Since 2014, US exports commanded a share between 5% and 18% of total European defence spending and the US is, according to Janes data, among the largest contributors to European defence.
A variety of defence programmes have contributed to the volume of US exports to Europe, however, airborne platforms and specifically the F-35 programme are responsible for a significant part of US exports from the late 2010s onward. The impact of the F-35 programme on transatlantic defence trade cannot be overstated; spending on the F-35 alone commanded a 30% share of the total value of US exports to Europe between 2014 and 2023.
The F-35 is the flagship US programme in Europe for ten years now; it was selected as the only 5th generation fighter aircraft available and it developed into a multinational programme with several European partner nations contributing to manufacturing and support. Operating, maintaining, and upgrading it will involve political, military and industrial collaboration that could underpin transatlantic unity for decades.
That being said, transatlantic defence trade is likely to begin a gradual transformation towards the end of our forecast window.
What you can see on this slide is a view of the backlog of the European defence market, captured by Janes, as of early November 2024. It is a static snapshot of the contracts that have been awarded up to this point to various suppliers, grouped by country of final assembly. Since this is a static representation of the backlog, these values will change over time as suppliers secure more contracts. It is, however, an indication of where suppliers stand right now, and provides a glimpse of the future.
Based on current orders, Janes estimates that the share of US exports will increase to around 20% of European spending and the volume of trade will continue to be based on sales of airborne platforms and systems, primarily the F-35. Military aircraft will indeed occupy more than half of US exports out to 2030. Towards the end of our forecast window, however, the composition of US exports will gradually shift, highlighting the constraints the US industry may encounter thereafter.
Beginning in 2031, Janes expects a gradual decline in the US military aircraft market share primarily due to diminishing spending on new F-35s. Deliveries of new aircraft will continue for late adopters, options exercised and units already contracted but the cumulative quantity will decline significantly from the high delivery rates expected between 2024 and 2030. By the mid-2030s, opportunities to fully offset this decrease by selling or upgrading other airborne platforms may prove limited.
The principal reason is mounting competition in Europe for airborne platforms that will likely succeed the F-35 and replace other aircraft. In addition to European fighter aircraft already in service and receiving upgrades, the Future Combat Air system, with France, Germany, and Spain as participating nations, is planned to reach production stage by early 2040s and the UK, Italian, and Japanese Global Combat Air Programme is expected to deliver units earlier, possibly as early as 2035.
The land and naval market will be no less competitive. With the exception of air defence, the land market is and may remain dominated by non-US suppliers in key segments, primarily heavy armour. In addition, there is already work underway for France and Germany to jointly develop a next generation main battle tank which, despite still being in embryonic state, may pose a significant threat to other main battle tank suppliers operating in Europe.
The naval sector follows the same trend, albeit at lower levels. The US share is below 5% of total European spending, facing fierce competition from four large naval suppliers already operating in a saturated European market. Furthermore, some joint European programmes are progressing, although they are still far from the point of realization.
The above indicate that Europe is seeking and could, realistically, become self-reliant in key defence sectors by the 2040s. This prospect will undoubtedly limit the ability of the US to increase, or retain, its footprint on the European market.
European trade patterns could also be analyzed within the framework of the global defence trade system. The ranking of export countries on this slide is based on the total value of captured exports in backlog versus previous captured exports in the 2014-2024 period. As mentioned before, backlog is a snapshot of the export market at this specific point in time, and it will change. Bars in the rightmost column reveal backlog export values by domain: air, land, sea, and other.
Janes estimates that the US will remain the top exporter of military goods globally for the foreseeable future. However, the global landscape is changing as more military industrial powers vie for a share of the global market.
The emergence of new exporters is the result of past and current geopolitical competition that incentivizes investment in indigenous technology and production capacity. It is supported further by joint ventures, offset programmes, and the proliferation of ITAR-free systems and components that accelerate the transfer of technology between states. Lastly, exporters are also benefitting from a permissive international environment that has seen political limitations previously imposed on defence trade altered or removed. In essence, the trade of military material has become less political and increasingly focused on cost, performance and potential benefits to indigenous industries.
The examples are numerous. To ensure its integrity in a volatile region, Turkey has embarked on a policy of strategic autonomy since the early 2000s and South Korean governments actively pursued autonomous production capability for decades to survive in an increasingly hostile international environment. Exports thus become secondary products of government policies that fund research and development, promote international industrial cooperation, and support indigenous industries to generate production capacity that meets the demands of national security.
Janes data reveals that past export growth rates for the newcomers on this list have been fairly positive, and the backlog suggests they have positioned themselves well for the future. South Korea and Israel show strong performance in the land domain, with a particular focus on air defence, while Turkey is balancing its exports between domains. All of them, to differing degrees, have also made headway in attracting European customers.
The increasing number of exporters, the geographical reach, and the expanding range of offerings suggests that competition in the European and global trade of defence material will escalate. If this scenario materializes, the US may face many more challenging and frequent struggles to safeguard its status as the top global supplier of defense materials and to maintain the political benefits associated with it.
With that, I will hand over to Andrew who will conclude our presentation.
Summary
I’m afraid that takes us to the end of our presentation today, but I’ll leave you with some charts summarising our forecast for the years to 2034.
Here you can see that the long term trends which have shaped the defence market for decades; a widening range of large and growing funding sources, a shift in spending power from the US to Asia, and now a resurgence in the importance of Europe, are expected to continue to play out under the next president of the United States – no matter how radical, turbulent, or perhaps even surprisingly sedate, his coming four year term is.
We hope you’ve found our data and analysis informative - if you have any questions at all about the content we’ve shown today, or any other aspect of our work, please don’t hesitate to get in touch with us at [email protected].
Thanks very much, and goodbye.
