Europe has been lagging in contributions to their own defence budget and are only now starting to wake up.

For decades, Europe’s political, economic and security architecture has leaned heavily on the transatlantic alliance with the US. However, with US President Donald Trump in office, Washington’s priorities are beginning to turn inwards and the European Union (EU) is recalibrating.

Trump’s sweeping tariffs have once again highlighted the presence of geopolitical tensions and uncertainty between the US and their trading partners and it seems that the erosion of trust supporting the global framework of trade has already begun.

Europe and the US have been close allies for a very long time, with the US being one of EU’s top trading partners. In 2024, the US exported US$341.9 billion ($460 billion) worth of goods to the EU and imported US$555.6 billion worth of goods from the EU, making the trade deficit between them about US$213.6 billion, according to a Feb 2025 Investopedia article.

The US has also been a large contributor of military equipment and services to the bloc for the past decade. 

According to a 2024 report by former Italian Prime Minister and European Central Bank President Mario Draghi, from mid-2022 to mid-2023, 63% of all EU defence contracts were awarded to US companies. 

Furthermore, the United States was the highest contributor in the North Atlantic Treaty Organisation’s (NATO)’s 2025 budget, tied with Germany, contributing about EUR603.4 million ($893.4 million) towards their common budget.

This budget includes NATO’s military budget which in 2025, is expected to form about EUR2.37 billion out of the estimated EUR3.8 billion NATO budget this year. 

Europe has been a laggard in terms of contributions to their own defence budget and are only now starting to wake up and step up in taking responsibility for their own defence capabilities. 

Back in February, top officials from the US met with Russian negotiators to lay the grounds for talks on ending Russia’s three-year long invasion of Ukraine without consulting their European counterparts. 

This raised alarm bells across the European Union, with lawmakers demanding that Europe has to “double down” in strengthening their own defence capabilities and to continue supporting Ukraine in retaining sovereignty. 

Additionally, Washington has already bluntly told European countries in recent months that it can no longer be primarily focused on the continent’s security and that Europe will have to spend much more on defence.

A White Paper for European Defence presented on March 19 by EU High Representative for Foreign Affairs and Security Policy Kaja Kallas and European Commissioner for Defence and Space, Andrius Kubilius, outlined a blueprint for action and aims to deliver more capable, fully ready European defence by 2030.

“450 million European Union citizens should not have to depend on 340 million Americans to defend ourselves.” Kubilius stated. 

Self-sufficiency the new theme? The shift away from dependence on the US from such a major international bloc like the EU gives a clear signal to the rest of the world that trust in the US as an ally is fading and that self-sufficiency will be important going forward. 

The sentiment of “me first” has resonated with countries outside the EU too, particularly in the defence sector. Countries in the Asia Pacific have also started reworking their fiscal spending allocations in their defence to ramp up defence capabilities and infrastructure.

New Zealand, for instance, announced on April 7 its plans to boost defence spending by US$5 billion, which will ultimately pull up defence spending to form about 2% of the county’s gross domestic product (GDP). 

“New Zealand and our allies and partners across the world are no longer in a benign environment,” says New Zealand’s Prime Minister Christopher Luxon. “My primary focus is the economic importance of this country. However, there can be no prosperity without security, and defence is one vital component of that picture,” Luxon adds. 

When asked if defence was the next emerging theme for investors, JP Morgan’s chief marketing strategist, Asia Pacific, Tai Hui, replied that he believes that a “self-sufficiency drive” by countries is more likely the emerging theme and that defence is an “element” to it. 

For the example of Europe, Hui believes that there are other industries, or “elements”, that are also likely to see more investment from European nations. 

“If there is an America first, why not have a Europe first? The US economy and Europe are going to be less coordinated and things seem to be detaching. Defence is a clear candidate where Europe needs to beef up the investment, along with perhaps commercial aerospace, scientific research and financial sectors,” Hui adds. 

So far this year, increased defence spending by countries all over the world have resulted in a surge in defence stocks, with European and Asian defence stocks in particular rallying the most. 

German military technologies provider Rhinemetall has seen its share price rocket up by 112% year-to-date (ytd) as of April 8 to about EUR1286 per share. 

South Korean defence product manufacturers like Hyundai Rotem and Hanhwa Aerospace have seen their stock prices increase by about 75.8% and 114.4% respectively ytd to April 8.

Closer to home, Singaporean engineering company and defence equipment and service providers, ST Engineering, saw good growth this year as rising procurement budgets in Europe and the Middle East, especially for equipment, are expanding ST Engineering’s export runway. As of April 8, ST Engineering’s stock is up about 36% ytd, closing at $6.34.

Hui urges investors to stay on their toes and look for opportunities in opportunistic investments especially at the moment where uncertainty and volatility in the market are at a high. 

“That's why we emphasise on active management, because if you just go by the index, you cannot differentiate, but if you're able to pick the right companies or the right Sector, you are in a better position to avoid the worst and potentially grab some of the opportunities,” states Hui.