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Defense Budgets in an Uncertain Security Environment
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This commentary is part of a report from the CSIS Defense and Security Department entitled War and the Modern Battlefield: Insights from Ukraine and the Middle East.
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War and the Modern Battlefield: Insights from Ukraine and the Middle East
Digital Report by The CSIS Defense and Security Department — September 16, 2025
Decisions on defense spending levels remain as much a product of political and economic realities as they are a response to strategic demands and the security environment.
Global defense spending has increased dramatically since the outbreak of the war in Ukraine in February 2022. As Russia has poured resources into funding its invasion and ongoing operations, NATO allies have sought to boost their own defense capabilities in light of the threat on their borders. Meanwhile, China has continued to report sustained annual growth in its defense budget as it modernizes and grows its military in pursuit of its strategic objectives. And in the summer of 2025, Congress provided an additional $156 billion for defense as a one-time supplemental fund to enhance the United States’ military capabilities.1
Uncertainty in the current global security environment and heightened threats have prompted much of this growth in defense spending as states perceive themselves and their interests to be at greater risk. However, despite these increases, and an agreement among NATO allies for further growth, decisions on defense spending levels remain as much a product of political and economic realities as they are a response to strategic demands and the security environment. States will ultimately balance the urgency of their security concerns against fiscal concerns and other spending priorities.
This chapter explores trends in global defense spending, particularly since Russia’s 2022 invasion of Ukraine. It first tracks changes in spending levels from NATO allies and the United States in the context of the alliance’s defense budget commitments and the ongoing conflict. It then assesses trends in defense spending by Russia and China. The chapter concludes with a discussion of considerations that may impact defense spending levels in the future.
NATO’s Budgetary Response to the Ukraine War
European governments responded to Russia’s 2022 invasion of Ukraine by increasing their defense budgets, a clear indication that their perception of the threat environment has grown starker since Russia’s initial aggression in 2014. While the United States has appropriated additional resources to backfill equipment stocks sent as assistance to Ukraine, it has also imposed budgetary limits on its own defense funds, highlighting the impact of fiscal and political considerations on defense spending.
In response to Russia’s 2014 annexation of Crimea, NATO allies at the Wales Summit later that year agreed to a benchmark to increase their defense spending and military capabilities to counter the Russian threat. NATO allies agreed to aim to spend the equivalent of 2 percent of each state’s GDP on defense and 20 percent of defense budgets on equipment.2
However, total defense spending by the alliance increased only incrementally following the declaration of that agreement. Between 2014 and 2022, NATO’s total defense spending, as reported by the alliance, increased 12 percent in real terms at a compound annual growth rate of 1.3 percent.3Notably, as Figure 13.1 shows, spending by European allies and Canada (excluding the United States) grew by 34 percent, adjusted for inflation, over that nine-year period, a 3.3 percent growth rate each year. The number of allies meeting the 2 percent of GDP benchmark rose from 3 out of 27 NATO members in 2014 to 7 out of 29 in 2022 (members meeting the threshold peaked at 9 in 2020, but this was a product of declining GDP from the Covid-19 crisis).4
Russia’s official invasion of Ukraine in 2022 prompted a more immediate reaction from NATO members in terms of spending, as governments perceived a more tangible threat to their borders. Total defense spending is estimated to increase 22 percent in real terms between 2022 and 2025. That includes an estimated 50 percent increase in spending by European members and Canada.
In the wake of Russia’s invasion, several allies announced notable shifts in their defense policy or spending plans. Just days after the war began, then-Chancellor Olaf Scholz announced a Zeitenwende, or “historical turning point,” in German foreign and defense policy to rethink relations with Russia and called for a €100 billion fund to invest in the military.5 While implementation of the policy has been described as “lackluster” and others have questioned whether the fund was sufficient to transform the military, the focus on bolstering national security has continued in Germany.6 In March 2025, the Bundestag voted to exempt defense spending from its strict constitutional debt limit, and in May that year, then-Chancellor-elect Friedrich Merz promised to transform the German military into the “strongest conventional army in Europe.”7
Poland dramatically boosted its spending as it undertook a military modernization initiative to upgrade its capabilities.8 The increase was funded by growth within the budget as well as an extra-budgetary mechanism known as the Armed Forces Support Fund, established in 2022, with the main funding derived from issuing bonds.9 Prime Minister Keir Starmer also announced in February 2025 that the United Kingdom would spend 2.5 percent of GDP on defense by April 2027 in what he touted as the “biggest sustained increase in defence spending since the end of the Cold War.”10
The European Commission has additionally taken measures that will allow EU members to increase defense spending during what Commission President Ursula von der Leyen described as the “most momentous and dangerous of times.”11 Under the ReArm Europe Plan/Readiness 2030 announced in March 2025, EU member states have greater flexibility to increase their defense spending against the European Union’s strict debt limitations in light of Russia’s invasion of Ukraine. The European Commission also established a new financial mechanism called the Security Action for Europe (SAFE), which allows member states to access loans for defense spending from a €150 billion fund.12 Finally, the plan seeks to increase investments from the European Investment Bank for defense projects and mobilize private capital.13 Taken together, these different measures could provide up to an additional €800 billion in defense funding, according to the European Commission.
Figure 13.2 shows the estimated change in defense spending by European NATO members and Canada from 2022 to 2025 in constant 2021 dollars. NATO allies, with the exception of Greece, increased spending over that period. While the NATO data did not provide a 2025 estimate for German spending, Germany’s defense spending increased by over $23 billion between 2022 and 2024. Canada and Poland both increased their defense spending by Russia’s official invasion of Ukraine in 2022 prompted a more immediate reaction from NATO members in terms of spending, as governments perceived a more tangible threat to their borders. Total defense spending is estimated to increase 22 percent in real terms between 2022 and 2025. That includes an estimated 50 percent increase in spending by European members and Canada.
The boost in NATO defense spending following Russia’s 2022 invasion also led to a significant increase in the number of member states meeting the 2 percent of GDP benchmark, as shown in Figure 13.3. In 2023, 10 members met the threshold—up from 7 in 2022—while notably all 31 NATO allies are expected to reach the benchmark in 2025. According to the 2025 estimates, Poland is estimated to have spent the greatest percentage of its GDP on defense of all member states at 4.5 percent, followed by Lithuania (4.0 percent), Latvia (3.7 percent), and Estonia (3.4 percent). Luxembourg, Spain, North Macedonia, and Czechia are estimated to spend the smallest percentage of their GDP on defense.
Despite these increases, the United States under the second Trump administration has pushed for greater burden sharing among NATO allies and an increased spending threshold. President Trump first called for a 5 percent of GDP benchmark prior to taking office and has continued to make that demand in office. NATO Secretary General Mark Rutte proposed a plan for allies to eventually match that target, calling for an increase to 3.5 percent of GDP spending on classic defense activities with an additional 1.5 percent of spending on other security-related investments.14 NATO heads of state agreed to the new threshold at the Hague Summit in June 2025, with the goal of meeting the 5 percent level by 2035 and a requirement to submit annual plans of how each state would reach it (differentiating it from the Wales Summit’s 2 percent plan).15
While topline defense spending measured as a percentage of GDP represents one metric for assessing burden sharing in the alliance, the second benchmark agreed to at the Wales Summit—percentage of defense expenditure allocated toward equipment—provides a measure of the capabilities in which states are investing. The Wales Summit agreement called on NATO members to allocate 20 percent of their defense budgets toward procuring major equipment, as well as conducting research and development.16 It assessed spending in three additional categories, including personnel expenses, infrastructure, and other. However, spending on equipment provides added capabilities and warfighting potential for the alliance collectively as opposed to spending on the military personnel of individual states.
As Figure 13.4 shows, the average percentage of defense spending NATO members allocate to equipment has risen steadily since 2014 relative to other investment areas. States allocated on average 14 percent in 2014, rising to 26 percent in 2022.
While Russia’s invasion of Ukraine and the heightened threat environment have directly contributed to European NATO members increased defense budgets, trends in U.S. defense spending have also been shaped significantly by broader political and economic developments. Figure 13.5 shows U.S. national defense spending from FY 2014 through FY 2025. While funding did peak in FY 2024 based on the provision of military aid to Ukraine and the subsequent replacement of U.S. stocks, yearly fluctuations in spending levels are consistently shaped by fiscal limitations imposed by Congress. From FY 2012 to FY 2021, the Department of Defense (DOD) operated under budget caps imposed by the Budget Control Act of 2011 to limit federal deficits and the national debt. However, a series of budget deals passed over that time increased funding levels above the original mandated caps.17 Congress similarly imposed the Fiscal Responsibility Act of 2023 to cap spending levels in FY 2024 and FY 2025.18 Yet military aid to Ukraine and other supplemental funds did not apply to the spending under the cap level.
Fiscal concerns, however, may be overcome by political prerogatives. In July 2025, congressional Republicans passed reconciliation legislation to extend and expand tax cuts, increase defense and border security funding, slash non-defense spending priorities, and raise the debt ceiling. These measures, enacted reluctantly by budget hawks within the Republican party, is estimated to increase the federal deficit by $4.1 trillion between 2025 and 2034.19 The legislation included $156 billion to provide a one-time supplemental boost in funding intended by Congress to enhance U.S. military capabilities between FY 2025 and FY 2029.
Yet fiscal concerns persist which, coupled with political divisions, may limit further growth in U.S. defense spending. In its FY 2026 defense budget request, the Trump administration touted the first-ever trillion-dollar defense budget. However, the administration only requested $892.6 billion in discretionary funding from Congress, proposing to use $119 billion from the reconciliation funding in FY 2026.20 This could signal that the administration does not intend to pursue further increases in defense spending, to the dismay of congressional defense hawks who criticized the White House and DOD for its budget request and apparent misuse of the reconciliation funds.21 Moreover, cuts and rescissions to non-defense funding pursued by the White House and congressional Republicans could make Democrats reluctant to grow defense spending without guarantees over non-defense priorities.
Growth in Russian and Chinese Defense Spending
Russian and Chinese defense spending has also increased since the outbreak of the 2022 war. Russia’s spending, unsurprisingly, has been driven by the cost of conducting operations in Ukraine and reconstituting its military capabilities. China’s defense budget marks a continuation of its strategic priority to modernize its military forces.
Analysis of Russia’s and China’s defense spending, the United States’ principal competitors, is constrained by a lack of both available data and limited transparency in the data that is released by each government. Both states’ official defense budgets do not appear to be inclusive of all military-related funding. However, the limited data available clearly indicates that Russian and Chinese defense spending is increasing in parallel with NATO budgets: Russia as a direct result of its invasion and continued war in Ukraine, and China through its consistent and sustained approach to modernizing its military.
Russian defense spending has unsurprisingly increased dramatically year-on-year from its invasion of Ukraine. Figure 13.6 shows Russian spending from 2014 to 2024 as estimated by the Stockholm International Peace Research Institute (SIPRI).22 Defense funds fell significantly—by almost 19 percent in real terms—from 2016 to 2017 and largely stayed flat for the next several years. However, the war in Ukraine led Russia to increase its defense expenditures dramatically above inflation. Spending is estimated to have increased by 69 percent in real terms between 2021 and 2024, with annual increases of approximately 29 percent (2021–2022), 23 percent (2022–2023), and 38 percent (2023–2024). One alternative estimate of Russia’s defense spending calculated a 53 percent increase in total military-related expenditures from 2023 to 2024, adjusting for inflation.23 The Russian defense budget is expected to grow again in 2025, although at a more meager 3.4 percent, according to the latter estimate.24
Analyzing Russia’s defense spending is further challenged by the declining levels of transparency since its 2022 invasion of Ukraine, with 30 percent of the 2024 budget designated as classified in 2024 and budget changes that made it difficult to estimate actual spending over the year.25 Nevertheless, Russia spent a significant amount of its 2024 funding on procuring new weapons systems for the war in Ukraine, supporting its defense industry, and covering military personnel costs, according to the Stockholm International Peace Research Institute.26 Another source notes that Russia has doubled its armored vehicle output and dramatically increased munitions production since 2022.27
Analyses of China’s defense budget suffer from an even larger dearth of reliable source material regarding the makeup of spending, as official estimates are understood to routinely report lower levels of funding. Consequently, estimates of China’s topline spending vary considerably, ranging from the government-reported $245 billion level announced in March 2025 to an estimated $700 billion from some analysts.28 Figure 13.7 shows China’s reported defense budget in current RMB and the announced annual growth rate. While the announced growth rate fell dramatically from a 2014 peak to 2017, it has remained steadily consistent over the last several years, despite the Chinese economy facing significant fiscal headwinds.29
Remote Visualization
Estimates of actual Chinese defense spending also demonstrate sustained growth over time. Data from SIPRI, shown in Figure 13.8, depicts steady growth in military expenditures adjusted for inflation. According to SIPRI, Chinese defense spending grew over 70 percent in real terms between 2014 and 2024, or at a compound annual growth rate of 5 percent. That growth has funded an impressive military modernization campaign to produce advanced capabilities and platforms across a range of domains as well as various reform initiatives.
Conclusion: Prospects for Continued Defense Spending Growth
The deteriorating global security environment and ongoing war in Ukraine have contributed to significant increases in defense spending across the world. The growth in NATO members’ budgets demonstrates the clear impact of the threat landscape on defense spending decisions. The dramatic growth in Russian military expenditures shows the costs required to maintain complex military operations at scale. However, as the case of the United States demonstrates, fiscal and political factors also determine defense funding.
Changes in the threat environment will shape global defense spending levels in the near future as states weigh how to allocate resources between defense and other spending and political priorities. While a resolution to the war in Ukraine has the potential to slow spending growth from European states and Russia, the cessation of combat operations alone will not guarantee a moderation of defense spending levels. European states, particularly those in the Baltics and Eastern Europe, must also perceive that the threat on their borders has significantly lessened, which seems unlikely should Russia continue to reconstitute and rebuild its military after the war.
Yet, questions remain as to whether Russia can sustain its current defense spending levels. The lower growth rate in its 2025 budget and potential decreases in real terms for 2026 and 2027 suggest a decline could be on the horizon.30 At an economic forum in June 2025, the Russian economy minister suggested that the country was headed toward a recession, with some commentators suggesting defense cuts could be on the line.31 However, other analysts suggest that Putin’s will to modernize and empower the country’s military will take priority over preventing an economic downturn.32
While a change in the threat landscape could shift European defense spending trends, economic trends could have an impact as well. European states also face fiscal challenges which could hinder their ability to meet the new NATO spending threshold and their willingness to allocate more resources to defense at the expense of other priorities.33 An economic downturn could force states to limit defense spending growth and allocate a greater percentage of funding toward non-defense priorities.
Barring a major change in the security environment that directly affects the United States or its allies or partners, political and fiscal realities will continue to have a major impact on U.S. defense spending levels in the near future.
Barring a major change in the security environment that directly affects the United States or its allies or partners, political and fiscal realities will continue to have a major impact on U.S. defense spending levels in the near future. Historically, the federal deficit has been a driver in the most recent downturns in U.S. defense spending in the late 1980s and early 2010s.34 Moreover, slim Republican majorities in both chambers of Congress necessitate Democratic support for passing additional increases in regular defense appropriations, which may be unlikely given the current partisan divide on spending. However, as the United States’ reaction to Russia’s 2022 invasion demonstrated—in which it rapidly distributed aid to Ukraine, increased its military posture in Europe, and passed supplemental funding to backfill equipment stocks—a sudden threat to the homeland, U.S. allies and partners, or U.S. interests could push the government to take immediate action.
Fiscal headwinds are less likely to slow China’s consistent and sustained spending growth as it continues its ambitious military modernization program. However, as the PLA develops, procures, and fields more exquisite and advanced weapons systems in its force structure, it will be forced to spend additional funds to operate and sustain those platforms. Absent continued increases in defense spending over time, operation and sustainment as well as personnel costs may consume a larger portion of China’s defense budget.
International defense spending levels have grown dramatically in light of increasing conflicts and the deteriorating global security environment. While economic and fiscal realities may challenge additional growth, further escalation of conflicts globally could nevertheless lead to even greater spending levels.
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Seamus P. Daniels is a fellow for Defense Budget Analysis in the Defense and Security Department at the Center for Strategic and International Studies in Washington, D.C.