AI investment surge in defence under Trump policies

Donald Trump’s stance on NATO, Ukraine and tariffs has significantly affected global politics and economic dynamics. This is one factor which has led to a notable shift in defence spending, particularly in artificial intelligence (AI).

Trump’s stance on NATO

Trump has repeatedly criticised NATO allies for not meeting the two percent GDP defence spending target, arguing that the US bears an unfair burden. He has also cast doubt on whether the US would defend its NATO allies. Some have suggested he is weakening NATO and tearing up the Truman Doctrine. Others are saying his policies are actually boosting NATO.

Before the Trump administration, US defence policies often made it challenging for European countries to enhance their defence capabilities. The US has maintained a dominant role in NATO with military bases in Europe, leading to a reliance on American military support and technology. Some argued that this dependency limited the incentive for European nations to develop or fully invest in their own defence industries. Additionally, stringent export controls and restrictions on technology transfers hindered European access to advanced US defence technologies.

NATO members are now looking to meet the spending target. Some countries, such as the UK and Germany, are committing to increasing beyond that. In 2022, the European Union pledged to raise military spending by nearly €200 billion annually. This year, it has revealed details of a €150 billion rearmament fund.

Tariffs and economic policies

Trump’s “America First” approach has created economic uncertainty. His on-off tariff policies, particularly those targeting China, have strained international trade relations. This lack of certainty and increased costs are disrupting global supply chains.

It is also leading nations to prioritise their own industries and defence capabilities. In a significant move, the European Union has decided to exclude arms companies from the US, UK and Turkey from its new €150 billion defence funding initiative. This is part of a broader strategy to promote a “Buy European” approach, championed by France and other EU members, and is intended to enhance the EU’s long-term security autonomy benefitting local companies. This new priority on defence spending is also seeing companies who were previously hesitant to have a secondary military use for their products, now actively seeking to enter the defence market.

Boom in AI spending in defence

The increased defence spending and focus on technological advancements have led to a boom in AI investments within the defence sector. The US Department of Defense (DoD) has significantly ramped up its AI-related expenditures, with the potential value of AI-related federal contracts increasing by almost 1,200% from 2022 to 2023. Also, €1 billion from the

European Defence Fund is being allocated to next-gen military innovations including AI.

In the UK, the Chancellor used her spring statement to announce that a minimum of 10% of the MOD equipment budget will be ringfenced for innovative and new technologies – including AI.

What next?

The increased funding commitments from NATO members, coupled with the economic uncertainties caused by tariffs, is leading European countries to prioritise technological advancements in defence. This is also encouraging tech companies to explore dual-use applications for their products and to seek to access the defence market to benefit from increased defence spending. Specific SME spending targets are set to be announced from June, in addition to the recently announced SME Support Hub, to offer support to businesses wishing to access the defence supply chain.

Trump’s policies, together with increased and ever evolving threats to the UK’s interests are leading to a boost in UK and European expenditure for next-gen technology in defence, including AI.

It’s clear that, given the landscape, the need for technology companies, particularly those with innovative and novel capabilities powered by AI to engage with defence, has never been greater – nor has the opportunity.