Factchecking Elisabeth Braws article: How Trump Is Killing the U.S. Defense Industry

https://foreignpolicy.com/2025/03/04/trump-zelensky-vance-ukraine-defense-arms/​

Conclusion

The unintended consequences of recent U.S. policy decisions have created a paradoxical situation where efforts to “make America great again” may be inadvertently undermining one of America’s greatest strengths: its defense-industrial complex. European defense stocks are surging as governments across the continent commit to unprecedented military spending increases, while U.S. defense companies face market uncertainty despite analysts like Citi’s Jason Gursky maintaining that the “market reaction is overly harsh”.

The diplomatic rupture between Trump and Zelensky has accelerated this trend, crystallizing doubts about American security guarantees that have been building since Trump’s return to office. Meanwhile, European nations are responding decisively, with countries like the UK and Poland setting ambitious defense spending targets that will fuel their domestic defense industries for years to come.
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This evolving situation represents a fundamental restructuring of the global defense landscape, with significant implications for international security, industrial policy, and geopolitical relationships. As European defense capabilities grow and U.S. influence potentially wanes, the world may be witnessing the early stages of a new era in global security architecture—one where European nations take greater responsibility for their own defense and rely less on American guarantees.

# The Shifting Landscape of Defense Industries: U.S. Decline and European Surge in the Wake of Trump's Foreign Policy

The current transformation in global defense dynamics represents one of the most significant shifts in decades, as European defense stocks soar while their American counterparts struggle. This comprehensive analysis examines the unintended consequences of recent U.S. foreign policy decisions, particularly following President Trump's contentious meeting with Ukrainian President Zelensky, and explores the broader implications for defense industries worldwide.

## The Diverging Fortunes of Defense Stocks

The stark contrast between U.S. and European defense market performance has become increasingly evident in recent months. European defense stocks have experienced remarkable growth, with the Stoxx Europe aerospace and defense index recording its largest one-day increase since November 2020, jumping 7% in a single trading session. This surge is part of a broader trend that has seen European defense stocks rise more than 30% in 2025 so far[11][2].

Individual European defense companies have posted even more impressive gains. UK-based BAE Systems saw a substantial 14.3% increase, while German defense contractor Rheinmetall rose 11.1%, and Italian defense firm Leonardo jumped 11.3%. These impressive figures demonstrate investor confidence in the future of European defense manufacturing[2]. The Monday following President Trump's confrontation with President Zelensky saw an even more dramatic leap, with Leonardo up by more than 17% and Rheinmetall rising by 15% at the close of trading[11].

Conversely, U.S. defense stocks have struggled in the wake of policy uncertainties. The U.S. Aerospace ETF (ITA) experienced a drop of over 3% in just one month, particularly following Trump's comments in mid-February suggesting that the U.S. might significantly reduce defense outlays[1]. Lockheed Martin, one of America's premier defense contractors, has seen its share price decline from nearly $500 to just under $450 since late January. This downturn has occurred despite some analysts, including Citi Research's Jason Gursky, maintaining an optimistic outlook for the sector and suggesting that the market reaction has been "overly harsh"[1][10].

## European Defense Spending Surge

A primary driver behind the European defense stock rally is the unprecedented increase in military spending across European nations. This trend stems from growing security concerns and uncertainty about America's commitment to European defense under the Trump administration.

The United Kingdom recently announced a significant boost to its defense budget, with Prime Minister Keir Starmer pledging to increase military spending to 2.5% of GDP by 2027, representing "the biggest sustained increase in defence spending since the end of the Cold War"[7]. This commitment includes an additional £13.4 billion (approximately $17 billion) annually in defense funding[12][15]. Starmer has further expressed ambition to reach 3% of GDP in defense spending during the next parliamentary term, signaling a long-term commitment to military reinforcement[15].

Poland has emerged as a leader in European defense spending, with President Andrzej Duda announcing plans to allocate 4.7% of GDP to defense in 2025, up from 4.2% in the previous year[19]. This translates to approximately 187 billion zlotys (€43.6 billion), constituting the largest defense budget among NATO countries[8][16]. Prime Minister Donald Tusk described this record allocation as a "great effort" from which "there is no turning back"[16].

These substantial increases in European defense budgets represent a deliberate response to changing geopolitical realities, particularly Russia's actions in Ukraine and diminishing confidence in U.S. security guarantees. European leaders recognize the necessity of enhancing their defense capabilities independently, as Ursula von der Leyen, head of the EU's executive, emphasized: "We urgently have to re-arm Europe... After a long time of under-investment, it is now of utmost importance to step up the defense investment for a prolonged period of time"[11].

## The Trump-Zelensky Meeting: A Diplomatic Watershed

The confrontational meeting between President Trump and Ukrainian President Zelensky on February 28, 2025, represents a pivotal moment in transatlantic relations, with far-reaching implications for defense industries. What was intended to be a diplomatic visit featuring a minerals deal signing, lunch, and joint press conference deteriorated into what sources described as a "shouting match" in the Oval Office[3].

Following the heated exchange, Trump made a decisive judgment: "Zelensky had to go." Secretary of State Marco Rubio and National Security Adviser Mike Waltz informed the Ukrainian delegation that the visit was terminated, leaving Zelensky without the minerals deal or any assurances of continued U.S. support[3]. Trump subsequently posted on Truth Social that Zelensky had "disrespected the United States of America in its cherished Oval Office" and could "come back when he is ready for Peace"[3].

This unprecedented diplomatic incident has profoundly altered international perceptions of American reliability. European nations are now confronting what one report describes as "a worrying new reality: that the US, the continent's longtime ally and security guarantor, may not help it defend itself in a future war"[11]. The market's swift response to this perception shift has been evident in the immediate surge of European defense stocks.

## The Department of Government Efficiency (DOGE) and Defense Spending

The newly established Department of Government Efficiency (DOGE), led by Elon Musk, has introduced additional uncertainty regarding U.S. defense spending. Created by executive order on January 20, 2025, DOGE aims to reduce federal spending, modernize government technology, and maximize efficiency[20]. While DOGE has reportedly saved over $1 billion by canceling various contracts, including diversity, equity, and inclusion initiatives, the specific impact on defense spending remains somewhat unclear[17][9].

President Trump has praised DOGE's efforts to combat inflation by "ending the flagrant waste of taxpayer dollars," while Musk has been a frequent presence in Washington, appearing at the White House and addressing Trump's Cabinet to outline DOGE's work[9]. However, the initiative has been controversial, with Democrats expressing concerns about privacy issues and potential conflicts of interest due to Musk's extensive business holdings[14][9].

Despite these cost-cutting efforts, Defense Secretary Pete Hegseth has expressed support for Australia's acquisition of nuclear submarines under the AUKUS agreement, stating that "the president is very aware, supportive of AUKUS, recognizes the importance of the defense industrial base"[6]. This suggests that while general government efficiency is a priority, strategic defense initiatives may continue to receive support.

## The Erosion of U.S. Security Guarantees

A fundamental aspect of American defense-industrial power has been the coupling of weapons sales with security guarantees. Countries purchasing U.S. weapons systems have traditionally done so not only for the equipment's capabilities but also for the implicit assurance of American protection and support. This dynamic has been crucial in securing foreign military sales, particularly for long-term, high-value acquisitions like fighter jets and naval vessels.

Trump's statement that he's "not going to make security guarantees beyond very much" and his suggestion that "Europe is the next-door neighbor" who should handle such responsibilities represents a significant departure from this established approach[3]. This shift creates profound uncertainty for nations that have historically relied on American security assurances.

The U.S. arms industry achieved record sales of $318.7 billion in 2024, representing a 29% increase from the previous year[5]. These sales included major deals such as $23 billion in F-16 jets to Turkey and $18.8 billion in F-15 fighter jets to Israel[5]. However, the sustainability of such performance becomes questionable if potential buyers lose confidence in associated security guarantees.

## Uncertainty Surrounding Defense Agreements

The AUKUS submarine program, a trilateral security pact between Australia, the United Kingdom, and the United States, now faces questions about its future. Under this agreement, the U.S. is scheduled to supply Virginia-class nuclear-powered submarines to Australia in the early 2030s, with Australia committing $3 billion to enhance American submarine industrial capacity[6].

While Defense Secretary Hegseth has expressed Trump's support for AUKUS, analysts note continuing "doubts about the delivery timeline for the Australia-bound nuclear submarines and Donald Trump's commitment to the deal"[6]. This uncertainty is particularly concerning given the enormous financial commitment Australia has made to the program, estimated at approximately $230.6 billion.

The dependence on regular software updates for modern weapons systems adds another layer of complexity. As warfare becomes increasingly digitized, weapons require constant updates to maintain effectiveness. If purchasing countries harbor even minimal doubts about continued technical support from the United States, they may reconsider their procurement strategies in favor of European or domestic alternatives.

## Implications for Global Arms Markets

The combination of increasing European defense spending and diminishing confidence in U.S. security guarantees creates favorable conditions for European defense manufacturers. Companies like BAE Systems, Rheinmetall, Leonardo, and Thales are well-positioned to capture a greater share of the expanding European defense market[11][2].

These companies may also gain opportunities in markets traditionally dominated by American firms. Nations concerned about the reliability of U.S. partnerships might increasingly look to European alternatives, particularly for critical systems where long-term support is essential.

The shift could ultimately reshape the global defense industrial landscape, potentially diminishing America's dominant position in international arms sales. U.S. defense companies may need to adapt their strategies to this new reality, perhaps focusing more on technological innovation or exploring new market opportunities.

## Conclusion

The unintended consequences of recent U.S. policy decisions have created a paradoxical situation where efforts to "make America great again" may be inadvertently undermining one of America's greatest strengths: its defense-industrial complex. European defense stocks are surging as governments across the continent commit to unprecedented military spending increases, while U.S. defense companies face market uncertainty despite analysts like Citi's Jason Gursky maintaining that the "market reaction is overly harsh"[1].

The diplomatic rupture between Trump and Zelensky has accelerated this trend, crystallizing doubts about American security guarantees that have been building since Trump's return to office. Meanwhile, European nations are responding decisively, with countries like the UK and Poland setting ambitious defense spending targets that will fuel their domestic defense industries for years to come.

This evolving situation represents a fundamental restructuring of the global defense landscape, with significant implications for international security, industrial policy, and geopolitical relationships. As European defense capabilities grow and U.S. influence potentially wanes, the world may be witnessing the early stages of a new era in global security architecture—one where European nations take greater responsibility for their own defense and rely less on American guarantees.

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