Europe’s rearmament push drives global military spending to record $2.9 trillion despite U.S. pullback

Europe ramped up military spending in 2025 — a longstanding demand of U.S. President Donald Trump — helping drive global defense outlays to a staggering $2.89 trillion, according to the Stockholm International Peace Research Institute.

Major rearmament programs in Asia also pushed global defense spending higher for an 11th straight year in 2025, SIPRI said in a report published Monday.

SIPRI said the increase was fueled by "another year of wars, uncertainty and geopolitical upheaval with large-scale armament drives."

Global military spending as a share of GDP climbed to 2.5%, its highest level since 2009, the report showed.

Europe was the main driver of the increase in global spending, with spending rising 14% to $864 billion.

Excluding Russia, Germany was the region's largest military spender, with expenditure climbing 24% from a year ago to $114 billion. Berlin's military burden exceeded NATO's guideline of 2% GDP for the first time since 1990 — reaching 2.3% in 2025 — a benchmark alliance members are encouraged to meet.

Spain's military spending jumped 50% to $40.2 billion, bringing its defense burden above 2% of GDP for the first time since the NATO spending target was agreed in 1994.

In June 2025, NATO members, except Spain, had outlined a long-term goal to raise defense spending to 5% of GDP by 2025. Madrid had opted out of the 5% commitment.

U.S. spending declines

While global defense spending continued to grow, the growth rate slowed to 2.9% in 2025, markedly lower than the 9.7% rise in 2024. This was largely due to a 7.5% reduction in U.S. military expenditure after no new financial assistance for Ukraine was approved during the year.

The U.S. remained the world's largest defense spender at $954 billion. China, the second largest, increased spending by 7.4% to an estimated $336 billion. Some experts have argued that China's actual number could be much higher, as Beijing does not fully disclose its military spending.

"The decline in U.S. military expenditure in 2025 is likely to be short-lived,' said Nan Tian, director of SIPRI's military expenditure and arms production program.

The Pentagon has requested about $1.5 trillion in defense spending for fiscal 2027, which would mark the largest request in history.

Asia splashes out

Spending in Asia and Oceania rose 8.1% to $681 billion in 2025, marking the largest annual rise since 2009.

"U.S. allies in Asia and Oceania such as Australia, Japan and the Philippines are spending more on their militaries, not only due to long-standing regional tensions but also due to growing uncertainty over U.S. support," said Diego Lopes da Silva, a senior researcher at SIPRI.

Taiwan's military spending rose 14% to $18.2 billion, equivalent to 2.1% of GDP, marking its largest annual increase since at least 1988.

The increase came amid intensifying military activity around the island by China's People's Liberation Army, SIRPI said.

In 2025, China conducted two major military exercises around the island in April and December, while aircraft incursions around Taiwan rose sharply from 380 in 2020 to a record of 5,709 in 2025, local media reported.

Separately, Japan's military expenditure rose by 9.7% to reach $62.2 billion in 2025, equivalent to 1.4% of GDP — the highest share since 1958.

Prime Minister Sanae Takaichi has pledged to increase defense spending to 2% of its GDP when she took office, reflecting a broader shift in Tokyo's security posture.

Tokyo lifted its export ban on lethal weapons in April and signed its first warship export project with Australia, under which Mitsubishi Heavy Industries would build three new frigates for the Royal Australian Navy.

Defense stocks soar

The spending boom has lifted defense stocks across Asia and Europe.

Shares of Hanwha Aerospace, Seoul's largest defense player, surged 193% in 2025, building on a 154% gain in 2024.

The company is best known for producing the K9 self-propelled howitzer, one of the most widely exported systems of its kind.

Other defense firms, such as Hyundai Rotem, maker of the K2 main battle tank, as well as air defense manufacturer LIG Nex1, also saw gains of 278% and 91%, respectively, in 2025.

In Japan, increased defense commitments by Takaichi lifted shares of companies in the sector, even before Tokyo eased restrictions on weapon exports.

Mitsubishi Heavy Industries rose 72.7%, while Kawasaki Heavy Industries climbed 42.6% for 2025. IHI Corp spiked 107.1% during the year.

European defense firms have also rallied. Germany's Rheinmetall climbed 154% while ThyssenKrupp gained 215%.

In 2025, the European Union outlined plans to mobilize up to 800 billion euros ($883 billion) by 2030 to bolster regional security.

Rhienmetall makes infantry fighting vehicles, large-caliber guns and air defense systems, while ThyssenKrupp produces naval platforms such as frigates and submarines.

Berlin passed a historic debt reform in March 2025, paving the way for a significant increase in defense spending.

In the U.K., BAE Systems, which makes components for the Eurofighter Typhoon and F-35 Lightning II, rose 49.2% over 2025, as the government pledged to raise Britain's national defense spending.