New EU Initiative Seeks to Boost Domestic Arms Production, Possibly Cutting U.S. Out of Billions in Revenue

Driven largely by worries that the U.S. is moving closer to Russia and distancing itself from NATO, along with concerns about the stability of U.S. arms exports, the European Union has launched a new initiative aimed at increasing defense spending and significantly enhancing domestic arms production. This shift towards prioritizing local procurement could potentially exclude the U.S. from billions of dollars in arms sales opportunities.

In response to U.S. President Donald Trump’s imposition of tariffs and his suggestion that Canada should become the 51st state, Ottawa is actively engaged in discussions to join this initiative.

The objectives of the newly introduced “European Defense Readiness 2030” plan were detailed in a white paper released by the alliance on Wednesday. This initiative proposes an increase in defense spending, the simplification of regulations, and the streamlining of industrial programs. It aims to establish a fund of 800 billion Euros (approximately $872 billion) to enhance European arms production. This includes a proposed increase of 1.5% of GDP in defense budgets, which is expected to generate 650 billion Euros (around $709 billion), along with 150 billion Euros ($163 billion) allocated for the new Security Action for Europe (SAFE) loan program, designed to assist countries in investing in critical defense sectors such as missile defense, drones, and cybersecurity, as stated by the EU.

The white paper emphasizes that “traditional allies and partners, including the United States, are shifting their focus away from Europe to other global regions.” It adds, “This is a concern we have been warned about repeatedly, and it is now occurring more rapidly than many had expected.”

While the loans will be restricted to EU member states, Politico highlighted that “friendly nations outside the bloc may also participate in joint arms purchases.”

Joint procurement under the SAFE initiative is available to Ukraine, as well as EFTA members Norway, Switzerland, Iceland, and Liechtenstein, along with acceding countries, candidate nations, potential candidates, and third countries that have established a Security and Defence Partnership with the European Union, according to the publication.

Notably, the U.S. and the U.K. are excluded from these lists, indicating they cannot participate in arms sales under this new program.

The decision by Trump to halt the supply of arms and intelligence to Ukraine following a disagreement with Ukrainian President Volodymyr Zelensky raised significant concerns across Europe regarding the dependability of the U.S. as an ally.

These apprehensions intensified with reports suggesting that U.S. arms manufacturers could activate a “kill switch” on essential exported weapons, making them inoperable, particularly concerning the F-35. Lockheed Martin, the manufacturer of the F-35, publicly clarified that such a mechanism does not exist.

However, as highlighted in a recent report, without access to American-managed maintenance and logistics systems, as well as computer networks, any fleet of F-35s would rapidly become non-operational. Any aircraft that remain functional for a limited time would do so with significantly reduced capabilities. The absence of contractor support for any advanced U.S. weaponry would similarly face varying degrees of operational challenges.

Concerns regarding the future functionality of Denmark’s F-35s prompted a lawmaker to voice his regret over the purchase.

“As one of the individuals involved in the decision to acquire the F-35s, I have regrets,” Rasmus Jarlov stated on X. “The United States could easily render these aircraft inoperable by halting the supply of spare parts. Their actions suggest a desire to bolster Russia while undermining Europe, demonstrating a willingness to inflict significant harm on peaceful and loyal allies like Canada simply because they choose to maintain their sovereignty.”

In addition to the arms issue, Trump has indicated the possibility of withdrawing approximately 35,000 troops from Germany, which raises further apprehensions about American support.

The future of U.S. military aid and presence in Europe is just one of the many issues the EU is currently evaluating. The threats posed by Russia and the ongoing conflict in Ukraine are significant factors driving these considerations. The alliance is also increasingly concerned about challenges from China, among other issues.

“The time has come for Europe to enhance its military capabilities,” the white paper states. “To develop the necessary resources and readiness to effectively deter armed aggression and secure our future, a substantial increase in European defense spending is essential. This must be coordinated and directed more efficiently than ever among Member States, leveraging our collective strengths and addressing the weaknesses that arise from uncoordinated efforts.”

The plan highlights that “collaboration with Canada has increased and should be further strengthened,” a goal that the new government in Ottawa is also pursuing. In light of actions and statements from Trump, Canada is exploring alternatives to the F-35 fighter jet.

On Monday, Canadian Prime Minister Mark Carney announced a review of the country’s plan to acquire 88 F-35s, citing shifts in the geopolitical environment and the necessity for enhanced domestic defense production, as reported by The Wall Street Journal. The existing agreement, valued at approximately $13.3 billion, was finalized in 2023, with deliveries expected to follow.

If Canada decides to participate in the new EU initiative, it could integrate into the European military manufacturing sector, promoting its industrial capabilities to produce European systems such as the Saab Gripen jet, which competes with the American F-35 manufactured by Lockheed Martin, according to The New York Times, referencing officials from Canada and the EU.

In response to increasing apprehensions regarding its southern neighbor, Canada has agreed to acquire an over-the-horizon radar system from Australia to enhance Arctic defense. More details can be found in our recent article.

In a further indication of the U.S. distancing itself from its traditional NATO commitments, the Trump administration is contemplating relinquishing the position of NATO’s Supreme Allied Commander Europe (SACEUR), as reported by NBC News. The current SACEUR, Gen. Christopher G. Cavoli, also leads U.S. European Command and has been the main commander overseeing support for Ukraine in its conflict with Russia. This potential change is part of a broader Pentagon initiative aimed at reducing costs through a significant reorganization of combatant commands and other headquarters.

Financial markets are increasingly aware of a possible shift in Europe away from American arms manufacturers. According to MarketWatch, stocks of European defense companies have been rising for several months, driven by the anticipation that Europe will invest more in domestic military equipment as U.S. support for the North Atlantic Treaty Organization becomes uncertain.

However, it will take considerable time before this new EU initiative results in the production of any weapons. In the meantime, the U.S. will continue to capture the majority of European defense expenditures, facing increasing competition from South Korea and Turkey.