By Brian Swint
President Donald Trump has long said the U.S. spends too much on defense while its allies spend too little. But his administration's recent remarks about Russia's war in Ukraine have created a sudden urgency for European countries to start stepping up, and that's providing a boost to companies across the Atlantic.
As the annual Munich Security Conference draws to a close, European defense stocks are surging while shares of U.S. companies are hurting. Vice President J.D. Vance spoke at the event days after Defense Secretary Pete Hegseth said it would be unlikely Ukraine gets all the territory back that it has lost, and Trump had a phone call with Russia's President Vladimir Putin, ending his three-year isolation from Western world leaders.
Last week, Trump said U.S. military spending should be cut in half. Shares of Lockheed Martin, the biggest defense contractor, are down 13% so far this year. Shares of General Dynamics, Northrop Grumman, and L3Harris Technologies have declined 8%, 6.5%, and 6%, respectively.
But there has been the opposite effect on shares of big European defense companies. The U.K.'s BAE Systems was up 6.4% on Monday alone, and it has risen 14% since Jan. 1. French contractor Thales, which specializes in artificial intelligence software similar to U.S. counterpart Palantir, jumped 5.5% Monday. Italy's Leonardo also rose 5.5%, while Germany's Rheinmetall surged 8.8%.
By comparison, the Stoxx Europe 600 index was up 0.4.% Monday.
Trump has a point when he suggests others have been getting a free ride on defense. When Russia annexed Crimea in 2014, members of the North Atlantic Treaty Organization agreed to spend 2% of gross domestic product on defense, yet large economies such as Spain, Belgium, and Canada still spent less than that last year. The U.S. spends about 3.5% of GDP on defense, compared with about 2.3% for the U.K. and 2.1% for Germany, according to NATO figures.
Write to Brian Swint at brian.swint@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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February 17, 2025 06:43 ET (11:43 GMT)
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