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By Scott Hamilton and Karl Sinclair

Sept. 1, 2025, © Leeham News: New policies by President Donald Trump in the first six months of his second administration in trade, with the North Atlantic Treaty Organization (NATO) and the European Union (EU) are causing a what may become a significant shift in defense spending that will benefit European companies.

The added business could strengthen those that also participate in commercial aerospace, to the detriment of US companies, notably Airbus.

US companies that for decades were the major suppliers to allies are already beginning to see European countries redirect spending to EU firms. Following Trump’s imposition of high tariffs on certain EU countries and others on Aug. 1, US defense companies have been hurt.

India canceled deliveries of Boeing 737-based P-8A Poseidons. Spain and Switzerland canceled orders for Lockheed Martin’s F-35 fighter.

Figure 1. Boeing P-8, based on the commercial 737 NG. India suspended delivery of the P8 due to the Trump tariffs. Credit: Boeing. Airbus now proposes a rival airplane based on the A321. 

Airbus, Rolls-Royce, MTU, and others expect to benefit from these changes. And, as these companies see more defense work coming their way, then—at least in theory—their commercial business will benefit from stronger balance sheets, profits, cash flow, and perhaps the corporations' technology.

In an interview at the Paris Air Show in June, the consulting firm Accenture told LNA that it is beginning to see key trends and increases in the defense sector.

Figure 2. Spain and Switzerland canceled orders for the Lockheed F-35. Credit: Lockheed. Airbus stands to benefit, among other EU-based defense contractors.

“Obviously, things are changing in terms of the dynamics,” said Jeff Wheless, Growth & Strategy Research Leader at Accenture. “I think certainly from a NATO perspective, I think folks are increasing their spending.”

Mark Rutte, the NATO secretary general, said that Trump’s pressure on NATO countries to increase defense spending to 5% of their budgets paid off. For decades, NATO countries were committed to a 2% spending level, but often failed to meet this commitment.

“Europe is spending by far less money on defense acquisitions than the US,” said Airbus CEO Guillaume Faury in response to an LNA question at the Paris Air Show. “It's a ratio of one to four or one to five. On top of that, Europe is procuring a lot from the US. I think the message is loud and clear from the U.S. that Europe should take better care of its own security.”