NATO Seeks 30% Boost in European and Canadian Military Capabilities

In a significant move to bolster Europe's defense posture, NATO is set to ask its European allies and Canada to increase their military capabilities by 30%. This proposal, which aims to enhance the alliance's force posture, comes as geopolitical tensions continue to rise and the need for a robust defense becomes more pressing. The proposed capability targets, which have already been accepted by 80% of NATO allies, are expected to be finalized before the NATO summit in The Hague in June 2025.

The push for increased military capabilities is part of a broader effort to ensure that NATO remains a strong and effective defense alliance. According to NATO Supreme Allied Commander Transformation Adm. Pierre Vandier, the proposed capability targets focus on providing specific capabilities such as a localized brigade or an air and naval group, rather than just numbers of troops or equipment. This shift in focus reflects the need for NATO allies to invest in capabilities that enhance their overall military readiness and lethality.



The economic implications of this proposed increase in military capability targets are substantial. Defense Secretary Pete Hegseth emphasized that "doing more" for defense means spending more money, contributing more guns, missiles, troops, and hardware, and taking more leadership responsibility. President Donald J. Trump set a target for NATO-nation defense spending at 5% of gross domestic product (GDP), with NATO allies Estonia and Lithuania already meeting this target. However, many European NATO allies are still struggling to meet the current goal of spending 2% of GDP on defense. The proposed increase in capability targets will likely require these countries to allocate even more of their GDP to defense spending, which could divert resources from other sectors such as healthcare, education, and infrastructure.

The potential economic implications include increased defense spending, which could stimulate economic growth through job creation in the defense industry and increased investment in defense-related technologies. However, it could also lead to higher taxes or reduced spending in other areas, which could have negative impacts on economic growth and social welfare. Additionally, the proposed increase in capability targets could lead to a rebalancing of defense responsibilities within NATO, with European countries taking on more of the burden of conventional defense and critical infrastructure, while the U.S. remains in charge of air or space as well as nuclear deterrence. This could have implications for the trans-Atlantic defense industrial base, as European countries may need to invest in their own defense industrial capabilities to meet the increased capability targets.

In response to the increased capability targets set by NATO, allies are likely to prioritize several specific military capabilities and technologies. One key area of focus will be the revival of the trans-Atlantic defense industrial base. Defense Secretary Pete Hegseth emphasized the need for NATO allies to "revive their defense industrial bases" to ensure they can produce munitions and emerging technologies rapidly. He noted that the war in Ukraine exposed the underinvestment in defense industrial bases, which hindered the ability to produce and field weapons and technologies quickly. This will likely lead to increased investment in domestic defense manufacturing capabilities, including shipbuilding, as Hegseth mentioned the need to "vastly increase our ability to build ships and submarines."

Another critical area is the development of offensive weapons and technologies. Vandier highlighted the importance of rebuilding an arsenal of offensive weapons to ensure deterrence. He stated, "If we want to avoid war, the offensive tools must be sufficiently dissuasive." This includes investments in battlefield ballistics, offensive electronic warfare, and weapons to destroy enemy air defenses. The European Long-range Strike Approach project for long-range, ground-based conventional missiles is cited as a "very, very good initiative that recreates deterrence tools."

The emphasis on offensive capabilities is also reflected in the need for more battalions, tanks, ships, artillery, and other equipment. Vandier described this as a "big shopping list" that NATO allies will need to address to meet the new capability targets. This will likely drive significant demand for advanced military hardware and technologies from the global defense industry.

Additionally, the focus on readiness and lethality will require investments in emerging technologies such as artificial intelligence (AI) and advanced air mobility (AAM). Deloitte’s 2025 Aerospace and Defense Industry Outlook indicates that AI is likely to help accelerate progress in various areas, including enhancing aftermarket services and optimizing supply chains. This suggests that NATO allies will seek to integrate AI into their military operations to improve efficiency and effectiveness.

The increased capability targets will also influence the global defense industry by driving demand for advanced military technologies and equipment. The U.S. Department of Defense (DoD) budget for 2025 is $850 billion, with a focus on unmanned systems and the space economy. This budget priority is likely to act as a catalyst for further industry spending in these areas. The commercial sector is also likely to continue advancing toward AAM solutions, which will benefit from increased defense spending and investment in emerging technologies.

In summary, NATO allies are likely to prioritize the revival of their defense industrial bases, the development of offensive weapons and technologies, and investments in emerging technologies such as AI and AAM. These priorities will drive significant demand for advanced military hardware and technologies from the global defense industry, influencing its growth and development in the coming years. The proposed 30% increase in military capability targets by NATO is a significant step towards ensuring the alliance's continued strength and effectiveness in the face of evolving geopolitical challenges.