NATO summit's real rift is US troop pullout as Europe boosts spending 20%

President Trump heads to this week's NATO summit in Ankara demanding Europe pay more for its own defense, even as the Pentagon pulls US troops from the continent to pre-2022 levels — a contradiction that risks undermining the alliance's credibility.

"The Europeans are dependent on us, but not sure if we would actually show up if there were 200,000 Russians on the border of the Baltic states," said Max Bergmann, director of the Europe, Russia and Eurasia Program at the Center for Strategic and International Studies.

European allies increased defense spending 20% last year alone, NATO Secretary General Mark Rutte said during a recent Washington visit, though he cautioned the alliance is "at the max absorption capacity" given limited manufacturing capacity and personnel. The Pentagon under Defense Secretary Pete Hegseth has reduced the US footprint to pre-2022 levels, redeploying a brigade combat team in 2025 and cutting 5,000 more forces earlier this year, while launching a "NATO 3.0 review" of European posture.

The reductions come as Russia spends 40% of its budget on the military and continues probing NATO defenses with drone incursions and undersea cable espionage. Poland's prime minister said the country is preparing for various scenarios after US intelligence reports suggested Moscow was planning a provocation in Poland aimed at testing the alliance's resolve.

At last year's summit, allies committed to allocate 5% of GDP to defense and other security-related priorities by 2035 — a target that Poland and the Baltic states have already reached. Germany, Europe's largest economy, has begun ramping up spending to become the continent's strongest conventional force next decade. Yet others, including the UK, are moving more slowly, and the 5% target remains aspirational for most members.

The summit's timing is particularly fraught. Trump is scheduled to meet Ukrainian President Volodymyr Zelensky on the sidelines, as Ukraine has nearly doubled successful strikes more than 50 kilometers behind Russian lines, according to Defense Minister Mykhailo Fedorov. Russia launched 74 missiles and 496 long-range drones in a recent attack on Kyiv, highlighting the continued intensity of the conflict. The European Union is also pushing to pass its 21st sanctions package against Russia at a July 13 meeting of foreign ministers, though objections from southern member states threaten to dilute the measures.

The disconnect between Washington's demands and its actions has created confusion among allies. In May, the Pentagon abruptly canceled an Armored Brigade Combat Team's rotational deployment to Poland, triggering widespread concern among eastern-flank allies. Trump later sought to soothe the move by declaring he would send 5,000 additional troops to Poland on an unspecified timeframe, but building the infrastructure to house those forces will likely take years. The last time the US reduced its European footprint to this degree was in 2022, before Russia's full-scale invasion of Ukraine prompted a rapid reinforcement.

Defense Stocks and the Risk Premium

The uncertainty has tangible market implications. European defense contractors stand to benefit from the 20% spending increase, with an influx of cash chasing limited manufacturing capacity. The absorption constraint Rutte identified means higher prices for equipment and longer lead times — a tailwind for companies with existing production lines such as Rheinmetall and BAE Systems. The US troop reduction introduces a geopolitical risk premium that could support gold and the dollar as safe-haven assets, while keeping a floor under energy prices given Russia's continued aggression.

Ukraine's Leverage and the Path to Talks

Ukraine has expanded its advantage in drone warfare and developed successful counters to Russian tactical adaptations. Kyiv is pressuring Russian logistics with "middle strike" drones while pounding energy infrastructure deep in the rear, resulting in a worsening domestic fuel crisis that Putin acknowledged in late June. His objective of seizing the rest of eastern Ukraine's Donbas region looks increasingly dim, yet he continues to condition peace on maximalist demands that outstrip his military leverage.

The last time NATO gathered under similar transatlantic strain was at the 2023 Vilnius summit, when allies struggled to agree on Ukraine's membership path. This week's meeting in Ankara carries higher stakes: the alliance must demonstrate that the US remains committed to Article 5 even as it shifts more conventional defense responsibility to Europe. Trump's challenge is to deliver tough love on spending without breaking the trust that holds the alliance together.

This article is for informational purposes only and does not constitute investment advice.