While U.S. defense stocks are slumping, European defense stocks are rising quickly because the markets have concluded that those governments will be spending lots more on defense. And every government around the world knows what happened to Ukrainian President Volodymyr Zelensky last week in the Oval Office.
The conclusion that many leaders will draw from the altercation that U.S. President Donald Trump and Vice President J.D. Vance had with Zelensky is that U.S. security guarantees—a key reason why countries tend to buy U.S. weapons—are not going to be a convincing argument anymore. So far, Trump's efforts to "make America great again" have been miserable for that all-important U.S. power pillar: the defense industry.
Ouch. Since Trump's inauguration, shares in the six biggest U.S. defense companies have fallen by an average of 4 percent. Meanwhile, shares of Europe's largest defense groups—including Germany's Rheinmetall—"have surged" by almost 40 percent in the same period, the Financial Times reported on Feb. 25.
On March 3, the first trading day after Trump's acrimonious meeting with Zelensky on Friday and European leaders' subsequent defense summit in London over the weekend, European defense stocks made an even bigger leap: At close of trade on Monday, Italy's Leonardo was up by more than 17 percent and France's Thales by almost as much; Rheinmetall rose by 15 percent, and Saab of Sweden rose by nearly 12 percent.
In recent days and weeks, the markets have been watching the announcements from Washington and unsurprisingly concluded that the Trump administration wants to slash the defense budget. To be sure, Defense Secretary Pete Hegseth has said that he wants to grow U.S. warfighting capabilities while cutting administrative costs, but Elon Musk's newly established Department of Government Efficiency appears to be slashing funding across the government.
European countries, meanwhile, are getting serious about growing their armed forces.
"When countries buy weapons, they consider the equipment, and thus the manufacturer, and thus the country, because these things matter with equipment that you use for many years, up to 40 years," Limmergard said. "And U.S. foreign military sales have depended a lot on America offering security guarantees."
In other words, buying U.S. weapons was a way of buying the United States' friendship and protection. After months of agonizing debate in 2021, still nonaligned Finland chose to buy U.S.-made F-35 fighter jets to replace its aging fleet of fighter jets, even though Gripens from Sweden—Finland's close friend and neighbor—would have been cheaper. Although the F-35s have undisputed capabilities, it was lost on nobody that the Finns' $9.4 billion deal also included U.S. benevolence and security guarantees. Indeed, the deal was managed through the U.S. government's Foreign Military Sales program.
But with Trump now openly appearing to side with Russia and President Vladimir Putin, even the most generous buyers of U.S. weapons can no longer be sure that their money will result in Washington's benevolence and protection.
Such uncertainty is particularly problematic because modern weapons need constant software updates. That means that buyers of these extremely pricy products need complete certainty that the seller country will remain cooperative and that the software updates will thus be made available. Even the smallest doubts that Trump could decide to harm friendly governments by blocking software updates to their military arsenals is enough to make such governments reconsider U.S. military acquisitions.
How Trump Is Killing the U.S. Defense Industry – Foreign Policy
