What Is NATO’s 5% Defense Spending Target?

By Adam Patti, Chief Executive Officer, VistaShares | Published November 13, 2026

NATO’s 5% target is a commitment, agreed by allied leaders at The Hague in June 2025, to spend 5% of gross domestic product each year on defense and security by 2035. It has two parts: at least 3.5% of GDP on core defense requirements, and up to 1.5% on related areas such as critical infrastructure, cyber defense, civil preparedness, innovation and the defense industrial base. The target more than doubles the previous 2% guideline and, if met, implies hundreds of billions of dollars in additional annual spending across the alliance.

How did the target come about?

In 2014, after Russia’s annexation of Crimea, NATO allies agreed at their Wales summit to move toward spending 2% of GDP on defense within a decade. Many allies reached that level only after Russia’s full-scale invasion of Ukraine in 2022. At the 2025 summit in The Hague, facing continued pressure from the United States and concern about Russia, leaders adopted a much higher goal. Their declaration was five paragraphs long, the shortest in recent NATO history.¹

What counts toward the 5%?

Core defense (at least 3.5% of GDP). Spending under NATO’s agreed definition of defense expenditure, which includes armed forces personnel, equipment, operations, maintenance, research and military infrastructure, and resources needed to meet NATO capability targets.²

Defense- and security-related spending (up to 1.5% of GDP). Investments to safeguard critical infrastructure, defend networks, strengthen civil preparedness and resilience, support innovation and build the defense industrial base.² Examples cited by allies include strengthening roads, bridges and ports to handle military traffic, and cybersecurity.

The declaration set 2035 as the deadline, with a review planned for 2029.³ Allies are expected to submit annual plans showing a credible path toward the target.

How much money is involved?

Janes estimated that meeting the 5% goal would require total NATO spending to rise by about $912 billion, to roughly $2.36 trillion, over the decade.⁴ Much of the increase would fall on European allies and Canada, many of which spent between 2% and 3% of GDP in 2025. The United States already spends more than 3% of GDP on defense under NATO’s definition.

Not all allies have committed equally. Spain negotiated flexibility before the summit and said it planned to spend about 2.1% of GDP on defense.⁴ Other governments face fiscal limits, debt rules and political debate over how to fund higher spending.

How does NATO measure defense spending?

NATO publishes annual estimates of each ally’s defense expenditure using a common definition, which can differ from the figures in national budgets. The definition includes spending on armed forces, defense ministries, military pensions, some paramilitary forces and military aid to other countries, such as support for Ukraine. Because the figures are expressed as a share of GDP, they also move with economic growth: a recession can raise the ratio even if spending is flat, and strong growth can lower it. Investors comparing countries should keep these measurement effects in mind.

How might the money be spent?

Allied plans and statements point to several priorities:

Air and missile defense, including interceptors and radars.

Munitions and stockpiles, after inventories were drawn down by transfers to Ukraine.

Long-range strike, including missiles and drones.

Land forces, with armored vehicles, artillery and logistics.

Space and cyber, including satellites and network defense.

Infrastructure and mobility, from rail and ports to fuel supply.

European governments have also expressed interest in buying more from European suppliers, while continuing to purchase some U.S. systems. Our article on munitions production capacity discusses one constraint on how quickly money becomes equipment.

How might European industry respond?

European defense companies have announced plant expansions, new hiring and joint ventures to raise output of munitions, air defense systems and vehicles. The European Union has created funding and loan programs to support joint procurement and production, and some governments have signed longer-term contracts to give suppliers more certainty. Capacity still takes years to build, and many European programs rely on components from a limited number of suppliers. Some analysts expect a mix of more European production and continued purchases of U.S. systems, especially in categories such as air defense, where U.S. products are already widely used by allies.

What are the uncertainties?

Fiscal capacity. Several allies face high debt and competing spending needs.

Definitions. The 1.5% category is broader and may include spending that would have happened anyway.

Timing. The deadline is a decade away, and governments, threats and economic conditions can change.

Industrial limits. Factories and supply chains may not expand fast enough to absorb rapid budget increases.

Political support. Public support for higher defense spending varies across countries and can shift with elections and events.

What does this mean for investors?

NATO’s target extends defense demand beyond the United States. It may support European defense companies, U.S. exporters, shipbuilders, munitions makers, electronics and space firms, and infrastructure contractors. Exposure varies by company and by how governments allocate spending. Our articles on the U.S. defense budget, the defense supply chain and international and emerging market ETFs provide related context.

Frequently asked questions

When was the 5% target agreed?

NATO leaders agreed to the target at their summit in The Hague on June 25, 2025. The Hague Summit Declaration committed allies to invest 5% of GDP annually on core defense requirements and defense- and security-related spending by 2035, with a review in 2029. It replaced the 2% guideline adopted at the 2014 Wales summit.

Why is the target split into 3.5% and 1.5%?

The split was a compromise. It sets a core defense level of at least 3.5% of GDP for armed forces and military capabilities, measured under NATO’s existing definition, while allowing up to 1.5% for broader security needs such as infrastructure, cyber defense and resilience. The structure gave allies flexibility while meeting U.S. demands for a 5% headline figure.

Do all NATO members have to meet the target?

All 32 allies endorsed the declaration, but NATO has no mechanism to force a member to spend a particular amount. Spain secured flexibility and indicated lower spending plans. Progress depends on national budgets, parliaments and public support. NATO tracks spending and asks allies for annual plans showing a credible path toward the goal.

How much does the United States spend relative to GDP?

Under NATO’s definition, U.S. defense spending has been a little above 3% of GDP in recent years. The FY2027 budget request proposed a large increase, which, if enacted, would raise that share. Because the U.S. economy is large, U.S. spending makes up the majority of total NATO defense expenditure in dollar terms.

What is the defense industrial base?

The defense industrial base is the network of companies, workers and facilities that design, produce and maintain military equipment, from prime contractors to small component suppliers. NATO’s declaration lists strengthening the defense industrial base among the areas that can count toward the 1.5% portion, reflecting concern that factories and supply chains must grow to support higher budgets.

How do thematic ETFs include European defense?

Some defense and aerospace ETFs hold European as well as U.S. companies, and a few focus specifically on European defense. Others are U.S.-only. Methodologies differ in how they define defense revenue and weight companies. Reviewing a fund’s country exposure and holdings shows how much it reflects NATO spending outside the United States.

Cite this page: Adam Patti, "What Is NATO’s 5% Defense Spending Target?," VistaShares, updated November 13, 2026, https://www.vistashares.com/nato-spending-targets/. Plain-text version.

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