With President Donald Trump’s tariffs and changes in US foreign policy causing unrest in global stock markets, European defense firms are thriving as investors anticipate the continent will take on more responsibility for its own defense.
As Trump’s actions towards Russia and the suspension of military aid to Ukraine raise concerns about the US commitment to Europe’s security, European leaders are increasing their defense spending.
European defense companies have seen significant gains, with shares reaching all-time highs as investors expect profits from Trump’s “America First” approach to the global order. Germany’s Rheinmetall and Hensoldt have surged by over 90 percent and 100 percent respectively since the beginning of the year, while Leonardo and Thales have both gained over 70 percent. Meanwhile, the benchmark S&P 500 has experienced a decline in value.
The European Commission President Ursula von der Leyen has announced plans to mobilize up to 800 billion euros in new defense spending over four years. She stated that 650 billion euros could be achieved by member states raising their defense budgets by 1.5 percent of gross domestic product.
If the US were no longer providing security support to Europe, it is estimated that the continent would need to assemble an additional fighting force of 300,000 soldiers. Currently, the EU’s combined defense spending falls short of NATO’s target of 2 percent of GDP.
Despite the increased defense spending, the EU’s military-related expenditures in 2024 were still only 326 billion euros, which is less than 2 percent of the combined GDP. However, there is optimism for the future growth of the European defense sector, with predictions of higher defense spending in the coming years.
The European defense industry generated a turnover of 158.8 billion euros in 2023, marking a 17 percent increase from the previous year. Nonetheless, the continent’s defense sector is still smaller compared to its US counterpart, with US firms dominating the list of highest-grossing defense contractors.
Experts predict that the European defense sector will need to drive consolidation, increase efficiency, invest in innovative technologies, and strengthen the resilience of its supply chain. The current US ambiguity towards Europe’s security could provide an opportunity for the European defense sector to increase its capabilities.
Source: https://www.aljazeera.com/economy/2025/3/5/as-trump-rattles-stock-markets-investors-bet-on-europes-defence?traffic_source=rss
