Trucks wait in line as shipping containers stand in a terminal at the Yangshan Deep Water Port in Shanghai, China, on Friday, March 23, 2018. The trade conflict between China and the U.S. escalated, with Beijing announcing its first retaliation against metals levies hours after President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged there’s more on the way. Photographer: Qilai Shen/Bloomberg

Trump Sets Stage for NATO Showdown as He Ties Defense to Trade

(Bloomberg) -- President Donald Trump said North Atlantic Treaty Organization allies haven’t boosted defense spending enough and linked that issue to a trade deficit with the European Union as he prepares to travel to Brussels this week for a summit with alliance members.

"By some accounts, the U.S. is paying for 90% of NATO with many countries nowhere close to their 2% commitment," Trump claimed Monday in a Twitter posting.

In 2014, NATO members pledged to spend at least two percent of economic output on defense by 2024. But Trump’s claim that the U.S. pays 90 percent of NATO’s total defense spending isn’t corroborated by available data. Based on NATO’s annual report for 2017, the U.S. share of defense spending by NATO members as a whole (in dollars at current prices and exchange rates) is 72 percent. According to an analysis last month, the U.S. share of NATO’s total civil and military budget is 22 percent, or about one-fifth of the total, compared with 10 percent for the U.K. and France and less than 15 percent for Germany and the rest from other alliance members.

In an earlier Twitter posting, the president singled out Germany for contributing just 1 percent, which he said is one-fourth of what the U.S. is spending. "This is not fair, nor is it acceptable," he said.

Trump also took aim at what he indicated were trade inequities with the EU on Monday in an indication he will attempt to link the U.S. commitment to European security with trade. "On top of this the European Union has a Trade Surplus of $151 Million with the U.S., with big Trade Barriers on U.S. goods. NO!"

The U.S. Commerce Department’s Bureau of Economic Analysis website says that the EU had a trade in goods surplus with the U.S. in 2017 of $151.4 billion -- not million.

According to an internal EU memo obtained by Bloomberg and using BEA figures, when including trade in goods, trade in services and primary income from investments, the U.S. has a 12 billion-euro surplus with the EU.

Trump’s comments come the day after U.S. NATO Ambassador Kay Bailey Hutchison said efforts to prod members into increasing their defense spending are finding success. Separately, the U.S. envoy said she’s concerned that Russia is trying to “flip” Turkey and other American allies to its column.

“NATO really is making progress, and they are doing it really at President Trump’s insistence,” Hutchinson said on “Fox News Sunday.” “It’s very clear, and he’s been very direct about the Europeans needing to do more for their own security.”

Hutchison, a former Republican senator from Texas, took up her NATO role in August. NATO leaders are scheduled to meet in Brussels July 11-12.

In the past few weeks, Trump has sent sharply worded letters to the leaders of several European countries, including Germany, Italy and Norway, as well as to Canada, urging increased defense spending and warning that the U.S. was losing patience.

“It will become increasingly difficult to justify to American citizens why some countries continue to fail to meet our shared collective security commitments,” Trump said in a letter addressed to Norwegian Prime Minister Erna Solberg seen by Bloomberg News.

Estimated 2017 defense spending as a percentage of GDP was 1.2 percent in Germany, Europe’s biggest economy. Only five NATO members -- the U.K., Estonia, Poland and Greece, as well as the U.S. -- were forecast to have met the two percent target in 2017.

Some diplomats fear the president will threaten to pull troops out of Europe without more spending on defense, despite U.S. denials. Separately, doubts about Trump’s commitment to European security have pushed EU leaders to boost defense cooperation.

Although Hutchison said threats by Trump to impose tariffs on European cars haven’t come up in the context of NATO, the president has accused European members of the military alliance of denying U.S. companies fair trade access.

‘Change is Coming!’

“We protect Europe (which is good) at great financial loss, and then get unfairly clobbered on Trade. Change is Coming!” Trump said on Twitter in June in posts that specifically called out Germany. “The U.S. pays close to the entire cost of NATO-protecting many of these same countries that rip us off on Trade (they pay only a fraction of the cost -- and laugh!)”

Germany’s defense minister last week rebuffed Trump’s twinning of trade and European defense spending ahead of the NATO summit. It was “immature” to link the two topics, Ursula von der Leyen said.

A country’s defense contribution shouldn’t be measured only as a percentage of GDP, but also in terms of troops and hardware, she said in an interview with Bloomberg Television in Berlin. Still, Chancellor Angela Merkel, in a weekly podcast on Saturday, said Germany would increase defense spending in its 2019 budget, suggesting Trump’s jawboning is paying off.

Trump heads from the NATO meeting to the U.K. and then to a one-on-one meeting with Russian President Vladimir Putin in Helsinki on July 16.

On Russia, Hutchison said there are signs Moscow is trying to court NATO member Turkey, where President Recep Tayyip Erdogan was re-elected in June and is moving to further consolidate power -- including an ongoing purge of thousands of people from government jobs.

“I do think Russia is trying to flip Turkey; they’re trying to flip many of our allies,” Hutchison said. “They want to destabilize the strongest defense alliance in the history of the world, and that’s NATO.”

©2018 Bloomberg L.P.