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Trump Urges NATO Allies to Pay More: 4 Defense Stocks to Buy (LMT, BA, TXT, RTN)

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In keeping with his image of making impactful and at times controversial statements, U.S. President Donald Trump recently urged a few North Atlantic Treaty Organization or NATO member nations to loosen their purse strings and cough up a ‘fair’ amount.

Trump Urges NATO Allies to Pay More: 4 Defense Stocks to Buy (LMT, BA, TXT, RTN)In a joint press conference with German Chancellor Angela Merkel, on Mar 17, Trump expressed his disapproval of how a few nations including Germany owe ‘vast sums’ to the U.S. as well as NATO. He described the situation as a ‘very unfair’ one, especially for his country.

Notably, in another of his debatable tweets, Trump particularly targeted Germany for having the benefit of an expensive defense base at the cost of the U.S.

What’s Germany’s Reaction?

In response, Merkel applauded the President’s acknowledgement of the importance of NATO. She further pledged that her nation will raise its own contributions and meet the target of spending 2% of GDP on defense for the NATO alliance by 2024.

Later, German defense minister Ursula von der Leyen vehemently protested against Trump’s claims, stating that’s not how NATO works. She also added that NATO does not hold any debt account.

According to Leyen, the nation’s defense spending goes into UN peacekeeping missions, European missions as well as into the fight against IS terrorism, making it difficult to shell out more for the alliance.

How Did the Others React?

Trump’s claims were strongly opposed by experts in the U.S. as well. In particular, Ivo Daalder – former U.S. Ambassador to NATO – responded to Trump’s tweets by saying that the U.S. can only decide for itself in terms of contribution to NATO.

He also appreciated the fact that the NATO allies who currently spend less than 2% of GDP on defense are increasing their budgets.

What’s the Real Story?

NATO is an intergovernmental military alliance based on the North Atlantic Treaty, which was first signed in 1949. Currently it constitutes 28 member countries who offer defensive protection to each other in events of any hostile attack from external nations. In its 2014 Wales summit, NATO members reaffirmed their commitment to spend 2% of their GDP for defense and achieve that target by 2024.

Herein we note that Germany is among NATO members’ countries that have come up short of the 2% target and spend 1.16% of GDP in 2016. In comparison; the U.S.’s spending was 3.2% of GDP. Probably from this point of view, Trump’s describing U.S.’s situation to be an unfair one can be taken into consideration.

However, Trump’s claims of Germany owing money to the U.S. as well as the NATO are clearly baseless and mischaracterize the commitments that NATO members currently follow. They are under no strict obligation to spend 2% of GDP anytime before 2024 and to anyone apart from NATO.

Which Defense Stocks Are Likely to Gain?

Although Trump’s comments were widely criticized, the U.S. is the largest contributor to NATOwith the volume of defense expenditure representing 72% of the total defense spending of the alliance.

Considering this, Trump’s pressure on NATO members to spend more on defense is expected to increase defense funds for the allied members as a whole.

Clearly, defense biggies in the U.S. that generate a substantial share of their revenues from international customers will be the direct benefactors of the situation.

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Article printed from InvestorPlace Media,

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