In this post, I’d like to revisit a debate from early 2024, when Trump suggested that he would not favor defending NATO members that spent less than 2% of GDP on defense. Here’s what Tyler Cowen said at the time:
As you probably know, Trump threatened to let NATO countries that failed to meet the two percent of gdp defense budget obligation fend for themselves against Putin (video here, with Canadian commentary). Trump even said he would encourage the attacker.
Long-time MR readers will know I am not fond of Trump, either as a president or otherwise. (And I am very fond of NATO.) But on this issue I think he is basically correct. Yes, I know all about backlash effects. But so many NATO members do not keep up serious defense capabilities. And for decades none of our jawboning has worked.
Personally, I would not have proceeded or spoken as Trump did, and I do not address the collective action problems in my own sphere of work and life in a comparable manner (“if you’re not ready with enough publications for tenure, we’ll let Bukele take you!” or “Spinoza, if you don’t stop scratching the couch, I won’t protect you against the coyotes!”). So if you wish to take that as a condemnation of Trump, so be it. Nonetheless, I cannot help but feel there is some room for an “unreasonable” approach on this issue, whether or not I am the one to carry that ball.
That’s a plausible argument, but I had a different view:
I believe that both Trump and Tyler misunderstand the role of Nato. The most important aspect of Nato is not the amount it spends on the military, rather its role is to provide a mutual defense pact so large that no nation would dare to attack even its tiniest members. In that regard, it’s a smashing success.
Consider the recent war in the Ukraine, where Russia has been stalemated for 2 years. To say that Ukraine is weaker than Nato would be an understatement. Nato has 31 members, many of which are individually richer and more powerful than Ukraine. As long as Nato sticks together, Russia would not dare to attack even a small member like Estonia. It makes essentially no difference whether Germany spends 1.4% or 2.0% of GDP on its military. Nato is ten times over impregnable, if it sticks together.
But will Nato stick together? Late in his first term, Trump told aides that he hoped to pull the US out of Nato in his second term. That’s why Putin desperately wants Trump to win the election.
Over the past two months, events have tended to confirm that my worry was justified. Consider the following:
1. The 2nd Trump administration has been exceedingly hostile to NATO, with key members suggesting that the US leave the alliance. This despite the fact that most of the important members of NATO have recently boosted spending to a level above the 2% threshold demanded by NATO critics (see below.)
2. Yes, there’s a reasonable argument that even 2% of GDP is too low, as the US spends over 3% of GDP on defense. But Trump now demands at least 5% of GDP, a figure that he surely understands is not going to be met by countries already struggling to finance their big welfare states, and is an obvious pretext for the US to walk away from the alliance. That’s the sort of demand you make if you want the alliance to fail. Trump lacks the legal authority to explicitly exit NATO, but he’s doing everything he can to create the impression of a de facto exit.
3. In the Ukraine War, Trump has switched US support from Ukraine and NATO to Russia. Before the election, my critics pointed to the fact that the first Trump administration was fairly tough on Russia, suggesting I was delusional to view Trump as pro-Putin. They failed to understand that in his first administration Trump farmed out foreign policy to some mainstream Republicans. But during the campaign Trump promised a radically different approach in his second term, a promise he has fulfilled. The US is now voting with Russia and against Europe on the question of whether Russia is to blame for the war. (Even China abstained!) The US government calls Zelensky a “dictator” but refuses to call Putin a dictator. Far from being delusional, I actually underestimated Trump’s support for Russia. I expected him to cut off financial support for Ukraine, but didn’t expect him to needlessly hurt Ukraine in ways that did not save the US government any money, such as cutting off intelligence sharing and voting against resolutions that condemned Russia for the war.
Like Tyler, I am “very fond of NATO”; indeed, I regard it as one of the best innovations of the post-WWII era, an organization that moved Europe past the destructive nationalism of the first half of the 20th century. I can imagine how a supporter of this sort of multinational organization could favor putting pressure on its members in order to make the alliance stronger. That was Tyler’s view. But Trump is not a supporter of multilateral organizations; he is an avowed nationalist. He opposes NATO, just as he opposes the EU, NAFTA, and even his own renegotiated version of NAFTA (USMCA).
When you argue that a controversial figure may have a valid point in one particular area, you need to be careful that the valid point they have in mind is the same as the valid point that you have in mind. In the case of Tyler Cowen, Donald Trump and NATO, I don’t believe that was the case.
Some readers agree with me on economics but disagree with me on foreign policy. So let me address that group with an analogy. Suppose you are the sort of person that basically likes free markets, but didn’t at all care for the Trudeau government, and also believes the US has a few valid complaints about Canadian trade policy. What would be the optimal US strategy?
Perhaps the US government might quietly reach out and ask to renegotiate a few specific points, trading some favors to Canada in exchange for favors from Canada. I’m not sure this was necessary, but I can see how someone might hold that view. Perhaps the US would choose to wait until after the Canadian election, as the Conservative Party had a 25% lead in the polls, which was growing over time.
Now consider the effects of the recent US-Canada trade war:
1. The Canadian election is now a dead heat, almost entirely due to the fact that the Canadian public is outraged by US bullying. The party you favor might well lose an election that weeks before was a lock.
2. An anti-American mood in Canada makes it very difficult for any Canadian government to offer trade concessions; far more difficult than it would have been had the administration had a sincere desire to work quietly and cooperatively toward a win-win solution.
So what’s my point? It not enough to say you don’t like the current structure of NATO, or you don’t like the current structure of global trade. Not every critic of those structures will be offering constructive solutions. Some critics are nihilists, who simply want to blow it all up and start over.
Many people don’t like international organizations. But I suspect they will be missed when they are gone. If smaller countries cannot rely on military alliances, they’ll need to develop their own nuclear deterrent. Do you wish to see a world with dozens of nuclear powers?
What could go wrong?
Here’s the BBC’s estimate of NATO military spending:
READER COMMENTS
Brandon
Mar 12 2025 at 7:57pm
Thanks Scott, for keeping an important topic at the forefront here at EconLog. Have you ever read “An Economic Theory of Alliances“? It was published in 1966 but it’s still as fresh today as it was during the height of the Cold War.
Here’s the juiciest quote, near the end of the article:
What the authors instead propose are two different paths to solve the problem of alliances: 1) appropriate marginal cost sharing schemes (which were being pursued in the mid-60s and are still being pursued as we speak), or 2) “substituting a union for an alliance or international organization.” This second path hasn’t really been tried since, oh, 1789…
Craig
Mar 12 2025 at 8:12pm
” It was published in 1966 but it’s still as fresh today”
Well, a major things happened though, most of the Warsaw Pact joined NATO.
“since the less than proportionate contributions of the smaller nations are securely grounded in their national interests”
Well they are grounded in their national interests because somebody else was paying for it. And we’re seeing the results of the experiment today because the Europeans are now openly questioning America’s commitment to NATO even prior to an official American departure. The result? #rearmeurope 800bn euro proposal to bolster military spending.
Not surprised. So I’d say the argument that the smaller nations ‘less than proportionate’ contributions were grounded in their self interest has just been disproven because on the fear the US will leave NATO they are likely going to increase their defense spending.
Brandon
Mar 13 2025 at 4:29pm
Is that what you’d say? Really? Tell me more. Oh wait, looks like you’ve already worn out your welcome.
I appreciate your input, Craig, because you’re a poster child for why a “non-interventionist” foreign policy (Rothbard called this an “isolationist” foreign policy) is the wrong default for libertarians. It might be a good idea in specific situations (maybe in most), but liberty & cooperation need to trump nationalist platitudes when it comes to interpolity relations.
There’s a reason Hayek, in his chapter on the prospects for an international order in TRtS, quoted Lord Acton on federalism as a check against democracy (a check, and nothing more, nothing less). He knew, as did most liberals of the time and those that came before him, that nationalism was too dangerous to be left to the devices of national states. His warnings on international order are coming home to roost.
Hayek was thought to have lost the calculation debate to the socialists for many decades before he was ultimately proven right. He is right, too, about federalism being the best method out there for ensuring world peace. His argument has just had to wait a bit longer than the other one. Just as the Soviet Union’s collapse proved Hayek (among other liberals) correct, so too does the creaking and cracking of the US-led postwar international order.
Craig
Mar 12 2025 at 8:05pm
I’m sure its a nice sunny day in California. Hate to break it to you though but there are large swaths of this country with 2nd/3rd world life expectancies with nearly 100 million people. America’s defense budget isn’t just unconscionable, its morally wrong as bloated as the waistlines of the average American (I’m fighting the Battle of the Bulge too and this time the Germans are winning). In the last three years, Russia’s military has been exposed, defense spending and its cousin the VA doesn’t just need to be cut, it needs to be slashed by at least 50% (the VA will follow over time). If that happens the US will still be the single most powerful country in conventional terms on the planet capable of destroying it with nuclear weapons multiple times over. But if it were to cut military spending by 50% then military commitments would necessarily need to be cut by 50% as well and the low hanging fruit there is to pull back from NATO. Why NATO? Because NATO without the US is still insanely powerful, still much stronger than Russia 3:1 in every metric, which includes nuclear weapons of course. Indeed Tusk’s comment that Europe is a continent of 500 million asking a country with 350 million to defend it from a country with 140 million. Its frankly absurd. NATO is in such an impervious position that the HQ in Belgium is made out of glass.
For the average family the per capita defense expenditure is about 2200, for a family of 4 its 8800 and as I write this in TN I-40 is still closed and the life expectancy is below that in Bangladesh. What’s spent in South Korea? Taiwan? Japan? Far less on a per capita basis and Koreans are in artillery range while China seems to have its crosshairs aimed at Taiwan.
If I were to presuppose that the US would remain in NATO or its Pacific/Asian equivalent SEATO how should any country under that umbrella ask me to come to their defense, theoretically with my life or the life of my son, while they discriminate against me with any kind of tariff. The US should make Art V coverage dependent on 0% tariff treatment. I mean, seriously, who’s running this empire? I don’t know but they’re doing it wrong.
I’d even say I’m coming around to the UHC position just to crowd out the military spending. You know like our ‘allies’ do while enjoying higher life expectancies. At least then that money will be spent on things the US government is supposed to be spending money on. The people of the United States instead of pledging my blood, treasure and children to defend Ukrainian territorial integrity over areas of Ukraine that frankly don’t seem to even want to be part of Ukraine because the Russian separatists there actually DO have a gripe against Ukraine.
Briefly turning my attention to Canada, with respect to Canada, Greenland and Panama I likely agree with you. What Trump is doing with respect to these issues I found baffling, bewildering and nothing short of being, at least, para-militarism, bordering on straight up violent threats.
“Suppose you are the sort of person that basically likes free markets, but didn’t at all care for the Trudeau government”
Ok, but I don’t care about the government, honestly I just had a personal dislike for Trudeau’s persona and since I’m not emigrating to Canada their government is not any of my business, I’ve lived my life with various changes in Canadian regimes and honestly? Never noticed the differences. My personal experiences in the US dealing with Canadians have been largely positive.
“and also believes the US has a few valid complaints about Canadian trade policy. What would be the optimal US strategy?”
With respect to Trump’s barrage of tariffs I am not sure what Trump’s goal actually is. If he wants to replace income taxes with an across the board revenue tariff, I’d be on board with that though it seems highly unlikely and likely wouldn’t produce the kind of revenue the regime needs. If his goal is to get other countries to remove their barriers, then his strategy just seems to lack any kind of cogent approach. If it were me, I’d just impose a reciprocal tariff equal to the highest tariff charged and if the other country wants 0% the US government should do the same.
But I’d suggest there should be some perspective here:
https://www.piie.com/research/piie-charts/2025/trumps-tariffs-canada-mexico-and-china-would-cost-typical-us-household
“Trump’s tariffs on Canada, Mexico, and China would cost the typical US household over $1,200 a year” — Feb 3rd, 2025
Meanwhile the MIC costs a family of 4 $8900. And that’s been happening for decades now and in NJ I had to pay 50%+ of every dollar I earned in local/county, state (NJ/NY) and federal taxation while the countries whose defense I subsidize are going to tariff me? I have two words for that and its not Merry Christmas, those two words being ‘that’s unacceptable’ of course. 😉
#americafirst #outofnato
Scott Sumner
Mar 13 2025 at 1:10am
If you are going to write a long and childish rant, then don’t expect a reply.
Craig
Mar 13 2025 at 4:53am
And yet you did, with an insult no less. No worries, I’ll still wave when you fly over. You’re out of touch.
steve
Mar 13 2025 at 12:55pm
You seem interested in life expectancy today. Link goes to life expectancy by state. It varies a lot. If you look at the factors that influence life expectancy I think it’s pretty clear that it’s state policy that is most influential, not federal. Hard not to notice that red states dominate the bottom half. People may be moving to red states for lower housing costs and taxes but they potentially trade that for lower life expectancy.
https://www.cdc.gov/nchs/data/nvsr/nvsr71/nvsr71-02.pdf
Otherwise, I think Scott’s point is important. NATO and the EU have downsides, but it’s much better than the fighting that was so common before they existed. However, I think you can make a case that the US, given our emphasis on free markets, benefits more than any other nation in the world in having peace. War is bad for trade and prosperity. From a military standpoint I would much prefer to have a presence in Europe to help make that happen if necessary. Also, total direct NATO spending is not that large, around $4billion. What you really want is other nations to have prepared militaries. Finally, it should be noted that when we were attacked on 9/11 NATO countries honored their commitments and sent troops to aid us in Afghanistan providing significant numbers.
I am also not happy with the idea that other countries may develop nukes with our absence. The more countries that have nukes the more likely an accident. We have a lot to lose if that happens.
I am OK with some cuts in military spending, assuming it isn’t done randomly without thought in the DOGE style. I would be opposed to significant VA cuts. That is care for service already provided. Every soldier knows you risk life and limb but you also know, or knew, that you were being guaranteed care if needed. I guess I can see how it would appeal to a Trump supporter to be OK with breaking that deal since Trump doesnt value prior agreements. However, I think it’s the morally wrong thing to do. I also think its incorrect to think it will affect life expectancy in the states with lower life expectancy.
Steve
Craig
Mar 13 2025 at 1:34pm
I’d say do UHC, the UHC crowds out the military spending, its absorbs most of the VA Health System and yes all the countries under the umbrella have lower per capita defense spending, UHC and higher life expectancies. As for the VA being ‘cut’ I mean that as an eventuality, ie if we reduce the size of the military by 50% eventually the number of veterans will shrink that’s the long term dynamic effect. Instead I paid over 50% in NJ, nearly 45% in FL/TN and my health care premium in 2022 (pdf on my desktop) for a family of 4 was $20,412.75 for Florida Blue (BxBs). So the average for defense is 8800, I pay more but there are foreigners similarly situated who are closer to the danger in UHC countries with higher life expectancies paying far less than that. Its straight up unseemly. Things need to change and while I hope Trump is the guy to do that but trust me I’m not holding my breath. The Europeans have increased spending at least and are poised to increase it more.
Alexander Search
Mar 13 2025 at 11:31pm
Much of your comment, Craig, focuses, not on any particular U.S. policy or expense, but on American defense spending in general.
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Because of your budgetary concerns, or at least in part because of them, you oppose American engagement in Ukraine, American involvement in NATO, and lavish Veterans Affairs programs.
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Are there any defense programs that you support, Craig? In particular, any transnational defense “commitments” or alliances?
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If the U.S. defense budget were cut in half, as you advocate, how would you want Americans’ reduced number of security dollars spent? Who or what will likely be the gravest threats to America’s security over the next few decades? And what, in your view, would be the best strategic use of a limited budget to counter those threats?
Jon Murphy
Mar 13 2025 at 7:36am
The map at the end is enlightening. I was under the mistaken impression that only the US was meeting its NATO obligations.
Craig
Mar 13 2025 at 9:15am
Historically France was ok but then fell off. Germany never had, Merkel promosed to do it by 2032 back in 2019 with a plan then to hit 1.5% by 2024. Of course the war intervenes and NOW, today, they both just went over and now with Trump Germany is now pulling off its debt brake to finance infrastructure and military spending. As it should be, God helps those who help themselves.
Jon Murphy
Mar 13 2025 at 9:25am
Precisely my point. I was under the impression claims like this were correct. But they data show they’re not.
Andrew_FL
Mar 13 2025 at 11:13am
By NATO’s own most recent estimates (2024) the only countries not currently spending at the NATO guideline of 2% of GDP or higher are Croatia, Portugal, Italy, Canada, Belgium, Luxembourg, Slovenia, & Spain. This is a great improvement from 10 years ago, when only the US, UK, and Greece were doing so. And you should probably knock Luxembourg off that list because Luxembourg’s GDP is highly inflated by people who earn income in Luxembourg but aren’t Luxembourgers (ie their GNP is much lower). In 2014 even Poland wasn’t at 2% of GDP defense spending!
Jose Pablo
Mar 13 2025 at 2:10pm
the US spends over 3% of GDP on defense. But Trump now demands at least 5% of GDP
Perhaps the European approach is the more reasonable one—spending less than 2% of GDP on military forces. (By the way, “defense” is something of a euphemism; does the U.S. really need 13 aircraft carriers for protection? Is China’s military spending on “defense”?
Allocating scarce resources to the military is a massive waste. From any rational, humanistic perspective, it makes far more sense to invest in fighting cancer, advancing anti-aging research, building homes, and countless other endeavors that improve (not destroy) human lives.
Using steel to construct machines whose best possible fate is to rust away because the alternative is even worse, is deeply irrational. The triumph on an atavic simian approach to differences.
I find it heartbreaking that so little thought is given to the possibility that, perhaps, just perhaps, the Europeans, by spending less than 2% on arms and armies, are the ones making the wiser choice.
Kurt Schuler
Mar 13 2025 at 8:36pm
Jose Pablo, I leave you with two aphorisms:
“Wars are caused by undefended wealth.” — Apocryphally attributed to Douglas MacArthur
“You run the show or the show runs you.” — Harold Rood, soldier and later professor of international relations
Jose Pablo
Mar 13 2025 at 10:20pm
I am not sure if I understand what you mean Kurt. But what I do know is that the total military expenditures of the bad guys (Russia, China, Iran, and North Korea) amount to approximately $450 billion annually. I also know that the GDP of the free world (NATO + Japan + South Korea + Australia) is around $60 trillion.
Just 1.5% of the GDP of the free world is enough to outspend the bad guys 2 to 1. This should be more than sufficient to face even all of them at the same time. Especially considering that defense is significantly easier than offense (the conventional rule suggests a 3:1 advantage is needed for a successful attack).
I believe the real drivers behind this push for excessive military spending (3% of the GDP of the free world amounts to $1.8 trillion) are exaggerated nationalism and the fact that collective defense serves as a key justification for collective governments. Otherwise, how else could they convince us that we need to spend four times what our adversaries do just to “properly defend” ourselves?
We shouldn’t be so gullible, no matter how cleverly worded aphorisms they use to try to manipulate us.
Brandon
Mar 16 2025 at 6:39pm
If only geopolitics could be boiled down to spending. “Non-interventionists” would never lose an argument again!
BS
Mar 15 2025 at 11:46am
The threat as stated doesn’t mean much. The countries most at risk (sharing borders with Russia) seem to all be meeting or exceeding the GDP expenditure target, so in principle they aren’t on the list of those which might be abandoned by the US. See Andrew_FL’s list above. And in one special case, would the US tolerate Russia taking pieces of Canada?
NATO doesn’t need US participation to achieve its original purpose (defensive alliance against Russia in Europe). The value of NATO now is that it helps prevent Europe and the US from drifting into antagonistic blocs.
The US spends a lot because it has a lot of interests. I’ve seen some people argue that the US chose its role and should not complain about others being slackers if the US is providing benefits that no-one else asked for. Obviously, though, other countries calibrate their military expenditures – which most view as money which could better be spent on social programs or not spent at all – by calculating what the US already does. Free-ridership must exist unless no other countries are capable of this calculation or are assumed to be too righteous to pocket the advantage.
Jose Pablo
Mar 16 2025 at 4:49pm
Europe shouldn’t need the US’s help to defend against Russia. The combined GDP of NATO countries, excluding the US and Canada, is around $20 trillion, which is ten times the size of Russia’s economy.
If European countries spend 2% of their GDP on defense, Russia would need to allocate 20% of its GDP to match Europe’s defense spending. That would be unsustainable for Russia.
Despite all the noise, Russia’s economy is roughly the size of Spain and Portugal combined, and about a third of the size of France and the UK together.
If more resources are needed to face Russia, the most likely reasons are military incompetence or a lack of proper coordination and mutual commitment among European militaries. It’s not about money—the numbers simply don’t add up.
And all of this is without even considering ANY contribution from the United States and Canada. Therefore, the claim that NATO defense expenditures should surpass 2% (or even 1%!) of GDP, once the US and Canada are factored in, to fend off Russia in Europe, is not only difficult to believe but also insulting to the intelligence of the audience.
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