In mid-July, the heads of state from NATO’s 29 members will meet in the new headquarters building in Brussels for the first full-length summit since 2016. During the Brussels Summit, NATO Secretary-General Jens Stoltenberg will reportedly aim to address the following goals: to solidify the transatlantic relationship, intensify NATO efforts to combat terrorism, announce several new command and control initiatives, and strengthen defenses against cyberattacks and hybrid threats. President Donald Trump will undoubtedly have his own agenda and priorities, including assessing the Allies’ ongoing progress towards the coalition’s professed defense spending benchmark of 2% of gross domestic product (GDP), which was publicly set forth at the 2014 NATO Summit in Wales. Normally, the upcoming summit would be a pretty boring event, with no displays of division among the world’s most successful alliance. Yet, the fallout from last month’s G7 meeting in Ottawa and U.S. threats of a trade war over trade imbalances and tariffs raises the potential for a far more interesting event.
The Alliance in U.S. Strategy
Although President Trump berated the Allies at the 2017 NATO Summit for failing to meet the defense spending requirement, the administration’s published strategies express strong support and reliance upon allies and collective security. Both the U.S. National Security Strategy and National Defense Strategy stress the importance of European partners to the nation’s prosperity and security as well as the shared obligations to combat mutual threats. The following figure demonstrates how consistently U.S. strategic planning emphasizes both the important role of allies and the corresponding need for underfunded NATO member states to bring defense spending up to the agreed levels.
Figure 1: Text of U.S. National Defense and Security Strategies
The importance of allies to U.S. security is not a new trend. Ultimately, NATO facilitates security and prosperity through “a commitment to shared values and collective security.” The benefits of this relationship are mutual, not an act of American strategic welfare, but strategic self-interest. As Kori Schake of the International Institute for Strategic Studies notes, America benefits directly from supporting other nations as its security umbrella encourages cooperation and investment. The U.S. economy depends upon and benefits from regional stability as it facilitates significant trading and investment relationships. Europe remains a huge market for both U.S. exports and desired imports. The difference between prosperity for U.S. citizens and a flat economy is our international trade. Anything that puts the volume or value of that trade at risk, like a conflict with Russia, could severely impact transatlantic economic prospects. The National Defense Strategy and National Security Strategy clearly state that maintaining alliances with a free, stable Europe is of vital interest to the United States.
While President Trump emphasizes the necessity of burden-sharing, his administration has been supportive of the Alliance in concrete terms. This support is manifested in the increased U.S. forward presence, exercises, and pre-positioned equipment via European Deterrence Initiative which adds more than $15B to NATO’s hard power. The administration’s “encouragement” on increased modernization is certainly evident, but it is doing more than merely hectoring.
NATO Defense Spending
In anticipation of the 2018 NATO Summit, analysts have commented on several positive regional security enhancements: command and control structure changes, new headquarters for maritime forces, and higher defense spending levels. European scholars and policy experts would like to see the Summit move past the issue of burden sharing. Certainly, there is much more than burden sharing to discuss. Yet, a lack of consensus about Russia and threats from terrorism have limited the progress the Alliance should have gained since Wales in 2014. Coercive tactics with tariffs and trade imbalances will only increase resistance and weaken consensus on a way ahead with regard to security arguments.
At the Summit, the attendees will be able to see a clear reversal of declining defense spending as several NATO members are expanding their defense budgets. Despite President Trump’s desires for rapid achievement of the 2% threshold, European disarmament occurred over a long period of time, and given economic realities in Europe, it will not be overcome in a matter of one or two years, as Frank Hoffman noted last year on this topic. However, as shown in Figure 2, European and Canadian defense expenditures are on a clear upward trend. Given U.S. persistence, and a bit of patience from U.S. leaders, these positive improvements should continue.
Figure 2: Increase in NATO (less U.S.) Defense Expenditures (Percentage increase from 2010 baseline, in FY2010 $Bns)
However, this data shows discrete increases from a weak baseline. Policymakers should also want to measure progress towards a clear objective. NATO defense spending remains well below the overall 2% goal, which should represent roughly $375B using International Monetary Fund data. NATO reports the total FY17 defense budgets of its members (not counting U.S. armed forces) at $271B. Thus, NATO (excluding U.S. spending) has improved from the 2010 baseline by tens of billions of dollars, but it remains at least $100B short of the goal. Thus, the glass is three-quarters full, with an aggregate spending level that is over 75% of the desired goal. The upside is that if NATO maintains 4% real growth over the next seven years, it could reach the agreed level by 2024.
If there is a long pole in the tent, it will be German defense spending and capabilities, which have the furthest to go. The German defense minister has spoken about her country’s plans to increase spending and strengthen the readiness levels of the Bundeswehr. Progress has not been uniform, however, and concerns about German readiness and lack of investment will no doubt be discussed. Germany’s contributions are complicated by its domestic coalition government and internal politics at present, which Mr. Trump recognizes.
Many countries have actionable plans to move toward the desired investment level, and by 2024, NATO’s resources should be much closer to its goal. But the higher funding needs to be carefully focused on key capabilities to provide NATO’s political leaders with the tools needed to deter aggression, enhance the Alliance’s readiness, improve command and control, thwart terrorism, and deny insidious incursions from cyber intrusions and deliberate interference in free and open societies. That remains a worthy but tall order.
Overall, as the Secretary General notes, past trends of declining funding have been reversed. A total of 8 of NATO’s 29 members will reach the 2% of GDP goal this year, and as many as 15 are on track to meet the goal by 2024. The momentum has swung in response to a growing recognition that the existing regional order in Europe is under pressure. Yet, more progress is needed. NATO should move beyond two percent by achieving the stated goal, not by evading it, watering it down, or moving the goalposts.
A Fresh Approach for Assessment
National budgets are a crude and misleading measure of defense output. At one level, it is important to evaluate and compare U.S. defense spending with other major powers properly. Thus, some analysts note that U.S. national security spending is equivalent to the combined defense budgets of the next eight countries. However accurate this may be, it also lacks any context. As argued by the Heritage Foundation, these aggregate level of comparisons are shallow and largely meaningless for a few reasons. The most obvious reason is that countries differ in the scope and prioritization of their security goals and employ different strategies to achieve those objectives. The United States is a global power with interests in preserving regional balances of power in several critical regions. The key U.S. interests include domestic economic prosperity, treaty obligations, and access to markets and resources. As other countries are more regionally focused, it is a more reasonable generalization to equate their entire defense budget (say the German or Polish) with their regional defense needs.
Second, the comparison is complicated by an apples-to-apples problem as not every nation reports defense spending in the same way or with the same level of transparency. A handful of countries place research costs outside their defense accounts, or mix security, intelligence, space, or nuclear programs outside of defense. Finally, several countries like Russia have either conscripted militaries or armed forces with far lower manpower costs.
Another complication is the confusion caused inadvertently by national comparisons. One hears U.S. officials, and even other NATO member states, claim that the United States pays for 72% of NATO, suggesting that Europe is the minor partner in the transatlantic relationship and significantly underfunding its security needs. Comments like “the U.S., with just over a third of NATO’s population and less than half of its collective GDP, accounts for seventy-two percent of NATO’s defense spending” reinforce this claim. Even NATO’s own official documents repeat this point.
But this viewpoint overstates U.S. contributions and undermines the need for European contributions. The United States’ share of the aggregate NATO member defense spending may be 72% of the total, but that accounts for the entire U.S. defense budget. The U.S defense budget is not paid to NATO, is not entirely available to NATO for spending, and is not an allocation of the U.S. forces and combat power for which NATO can practically plan. Worse, this allotment exaggerates the resources available to Europe’s defense and undercuts the rationale for why increased contributions from NATO countries should be a priority for the Alliance.
Another technique may provide a more relevant presentation for comparison is the reallocation of U.S. defense spending into regional totals which reflect U.S. global interests and strategy. Figure 3, which demonstrates the application of this method in Europe, depicts U.S. defense spending in contrast to Russia’s in purchasing power parity (PPP) terms. This technique is often used to contrast national economies, to compare various currencies, and to account for anomalies. In his Destined for War?, Harvard’s Graham Allison emphasized the merits of this approach in his examination of the varying trends in China and the United States.
This framework assumes that U.S. defense resources are prioritized and allocated across different regions and challenges: to Asia, Europe, the Middle East, and Homeland Security per recent strategic planning documents. Our analysis assumes that 25% of the U.S. defense budget, and by implication combat power, is assigned to Europe. We convert Russia’s published defense spending (in PPP vice market exchange rate terms using the World Bank’s conversion rates) to make a more meaningful analysis of the relative inputs. We found that the allocated U.S. defense spending alone does not match Russia’s total spending, but with the inputs of the major European powers (Germany, United Kingdom, and France), a favorable regional balance of power can be obtained. The combined budget inputs from the other 25 NATO partners are also displayed at the top of the left column. This analysis presumes that NATO partner spending levels translate into combat power. This presentation depicts the total Russian defense budget in purchasing power parity, but some must be employed for non-European missions (e.g., at least 10-15%). But the basic point, that NATO retains a preponderance of power, remains valid in this assessment.
Figure 3: NATO FY17 Defense Spending (Russian total in PPP terms)
Broken down in this way, we can envision how the inputs of U.S. and allied spending correlate to a desired favorable regional balance of power. When considering the contributions of U.S. regional allies, the comparison offered does not suggest that the United States is over-investing in defense the way as some defense budget critics contend.
Using this method to illustrate U.S. strategic priorities and anticipated resource allocations provides a different insight. This depiction suggests that U.S. spending contributes a significant share of the resources that sustain a favorable balance of power vis-à-vis a security competitor. However, in this framework, the Europeans are providing the lion’s share of their own defense. By underscoring a clearer appreciation for a regional allocation of U.S. power, the importance of ally contributions can be better understood and more clearly communicated to the domestic populations of both the United States and its friends.
The balance of power appears quite favorable, but this may be deceptive. Since the aggregate total spending by European members of NATO is spread over 28 countries, which retain defense headquarters and industrial capacity for sovereign tasks and for domestic political reasons, it is not very efficient. Overall, however, the Alliance system’s collective capacity provides the margin which makes the balance of power favorable and stable.
Instead of evaluating contributions based off of economic figures or budget announcements, the United States should pursue assessment mechanisms that give credit to Allies for outputs and for in-kind expenses rather than national economic figures. At present, the Alliance is considering concrete war-fighting capabilities measured in terms of deployable combat power (30 battalions, 30 squadrons, and 30 ships postured to be ready in 30 days). This “Four 30s” plan employs a metric that is focused on outputs. This metric would focus military readiness and develop NATO into an even greater deterrent force. It would also encourage efficiencies, for example, by crediting allies with what they actually produce (deployable combat power) rather than simply what is being spent. Instead of focusing on the accounting ledgers, the Alliance will be looking to field and operate its collective capabilities.
Continued Progress Needed
While the Brussels Summit will no doubt raise the defense budgeting issue, it should be stressed that clear progress is being made. The glass is almost three-quarters full and rising. Additional resources, especially in Northern and Western Europe, have appreciably enhanced command and control capabilities and readiness. Ongoing exercises have served notice that coercion and intimidation will not be tolerated. NATO’s command structures have improved, as have readiness levels. U.S. contributions have been material. While the administration is right to not overlook Allied underinvestment, it should keep the larger picture in focus. As the international system becomes ever more complex in an era of great power competition, America should hold on to its allies. It is going to need them.
There is the potential for a train wreck and ultimatums at Brussels due to fallout about burden sharing and trade practices. Yet, there is one lesson to keep in mind when thinking about the return of geopolitical competition: the realization that complacency or false illusions about human progress can be fatal. We cannot afford to sleepwalk into the future. As Assistant Secretary of State Wess Mitchell notes, the United States is committed to honoring its responsibilities in our common cause, but “we must view the defense of the democratic West not as something that will succeed automatically because of the ‘end of history’ or ‘arc of history’ but as something that requires our conscious, dedicated effort, and the sacrifice of our societies, to ensure.” The values of the democratic West are worth the dedication and sacrifice of its members, and the Brussels Summit can be expected to reconfirm that.
 This methodology allocates U.S. defense spending to various regions and missions in accordance with security priorities. Half of the Department of Defense’s base budget is allocated to the Indo-Pacific theater to address security challenges in that region, while 25% is allocated to Europe. The remaining 25% of its budget is assigned to support allies and partners in the Middle East, combating terrorism and violent extremist organizations, and defending the U.S. homeland including strategic forces and missile defenses.