Asia sees Trump's 5%-of-GDP defense spending goal as unrealistic

Japan Times

2 days ago

U.S. President Donald Trump's push for Indo-Pacific allies to ramp up military spending to counter growing threats from the likes of China and North Korea is running into the hard reality of fiscal limits and jittery bond markets.
As with Europe, many economies in Asia have invested at much lower levels on defense than the U.S., expecting the support of Washington's military might. While regional powers like India and Australia acknowledge this must change to address the new geopolitical reality of China's ascent, few see the Trump administration's target of 5% of gross domestic product as economically or even politically viable.
To date, debates in democracies over how to square competing budget demands at a time of aging populations and tepid growth — overlaid by the threat of Trump's tariff regime — have been resolved with wider deficits and higher debt. A number of U.S. allies have also already begun to plug gaps in their defenses.
"To satisfy the Trump administration's goals, major shifts would have to come on top of what has been fairly significant expansion of around $55 billion' in Taiwan, Singapore, South Korea, Australia, Japan and the Philippines over the past decade, said Andrew MacDonald, head of defense budgets at intelligence firm Janes, referring to America's six major strategic partners in Asia.
The U.S. would have to spend almost $1.6 trillion in 2026 to meet its own target, he said. That's over "60% more than even the most expansive of the administration's plans for next year.'
Bond markets are already nervous about burgeoning budget shortfalls, making arms upgrades a source of financial, not just geopolitical, risk. Investors are demanding higher term premiums with fiscal policy and debt levels in focus.
In May, auctions of long-dated bonds in Australia and South Korea recorded softer demand, with analysts pointing to concerns about future deficits. Germany's yield curve steepened sharply this year after additional defense spending was announced, and the same happened to the U.S. Treasury curve as Congress moved forward on a bill proposing additional tax cuts. Japanese debt too has come under pressure.
"It's not economically sustainable,' said Kanti Prasad Bajpai, Wilmar Professor at the National University of Singapore, referring to higher outlays on security. "This is money going into basically non-productive capital expenditure.'
The mismatch between demands for a strategic realignment and the fiscal capacity of economies to do so also risks undercutting U.S. aims to boost arms exports as part of its new protectionist policies.
An AAV7 assault amphibious vehicle. Key defense officials in Asia understand the 5% ambition, but say the math just doesn't add up. |
bloomberg
A majority of the top 15 defense-spending countries have debt-to-GDP ratios above 100%, according to the International Monetary Fund. Japan tops the list with debt near 250% of GDP, while the U.S., U.K. and India all face mounting debt and political gridlock at home. South Korea, while better positioned fiscally, is still grappling with an array of challenges after its economy contracted in the first three months of the year.
The 5% target of Defense Secretary Pete Hegseth was designed for shock value, particularly when it came to NATO allies, according to a European defense official who was not authorized to speak publicly. It's meant to be a long-term goal and would in fact be lower given defense budgets are about much more than just weapons and soldiers.
The Trump administration needs the 5% goal to be set by NATO for domestic political purposes, the official said. Hegseth is trying to use the same strategy with the U.S.'s allies in Asia.
In interviews, key defense officials in Asia have been clear: the ambition is understood, but the math just doesn't add up.
"We will cut our suit as per our size,' said Anil Chauhan, chief of defense staff of the Indian Armed Forces. "We understand our threats, our challenges, our geography.'
India currently spends close to 2% of GDP on defense, and while Chauhan affirmed the government is investing in modernization, he ruled out any near-term move toward 5%. Its fiscal capacity remains constrained after the 2024 election left the government of Indian Prime Minister Narendra Modi with a reduced mandate, making major budget shifts more politically complicated.
The Philippines has openly ruled out reaching the target, citing limited fiscal capacity. "We really cannot afford 5%,' Defense Secretary Gilberto Teodoro told Bloomberg TV. "It's relative to the capacity of a country.'
Australia, for its part, is also caught in a bind. The government has committed to a historic defense upgrade — largely centered on AUKUS nuclear submarine program with the U.S. and U.K., and long-range missile systems.
Prime Minister Anthony Albanese said this week that Australia would determine its own levels of military expenditure, pointing out the government had invested an additional 10 billion Australian dollars ($6.5 billion) on defense.
"What we'll do is continue to provide for investing in our capability but also investing in our relationships in the region,' he said.