How large is the free-rider problem?
The problem is measured in billions and in deployments. The United States spends roughly 3.5 percent of gross domestic product on defense, while Germany, the largest economy in Europe, has struggled to reach 2 percent despite repeated NATO pledges to its members. In 2024, only 23 of 32 NATO members met the 2 percent target, according to the alliance's own annual report. The United States accounts for about two-thirds of total NATO defense spending, a share that has barely moved in two decades. Meanwhile, America stations roughly 100,000 troops across Europe and maintains extensive bases in Japan, South Korea, and the Middle East. The bill falls on American taxpayers and American industry. That arrangement made sense during the Cold War, when Europe was rebuilding and the Soviet threat was existential. It makes far less sense in 2026, when the European Union's economy rivals America's and China, not Russia, is the pacing threat.
The fiscal cost is larger than the topline budget suggests. The Defense Department requested about $909 billion for fiscal 2026, a record nominal figure, yet much of that money pays for global posture rather than modernization. The Congressional Budget Office projects that carrying out the current National Defense Strategy will require an average of $1 trillion per year through 2034. Debt service on existing obligations is already crowding out procurement. The Navy wants 355 ships; it has fewer than 300. The Air Force is retiring older fighters faster than it can buy F-35s. Every dollar spent reassuring a wealthy ally is a dollar not spent preparing for the Indo-Pacific. That is not alliance management. It is strategic misallocation dressed in transatlantic piety.
Why does this matter for the American economy?
Defense economics is not a separate sphere from national competitiveness, and treating it as one has weakened both the military and the civilian industrial base. The same shipyards, foundries, and semiconductor fabs that produce weapons also support commercial industry and generate the high-wage jobs that regional economies need. When the Pentagon orders long production runs, unit costs fall and skilled work returns. When orders are sporadic, factories close and engineers leave. The Jones Act fleet has shrunk. The number of major U.S. shipbuilders can be counted on one hand. China now builds more naval tonnage in a single year than the United States manages in a decade. The Pentagon's own industrial base report warns that consolidation has left critical supply chains brittle. America is asking a thinning industrial base to carry a global strategy.
The debt burden compounds the danger. The federal government spent roughly $882 billion on net interest in fiscal 2024, according to Treasury Department figures. That total exceeds the entire defense budget. Servicing debt at that scale leaves less room for procurement, research, or surge capacity in a crisis. Allies who underspend are not just failing their own citizens. They are increasing America's borrowing needs because Washington refuses to adjust commitments. A serious country aligns ends and means. Right now, the ends remain global and the means are borrowed. That is a formula for decline, not deterrence.
What should Washington do differently?
Washington should treat alliance commitments as conditional rather than automatic, because a guarantee without reciprocity becomes a subsidy that weakens the very security it is meant to protect. Any ally capable of meeting 2 percent of GDP on defense should be required to do so as a floor, not an aspiration. Those who fall short should lose preferred access to American intelligence, logistics, and procurement programs. The message must be economic and operational. Germany, Italy, and Spain can afford modern brigades, air-defense networks, and replenishment ships. They have chosen not to because American power has always been available on demand. That subsidy should end.
The United States should also redirect procurement toward the Indo-Pacific and toward technologies that matter in a high-end fight. The Army's Future Vertical Lift, the Navy's Constellation-class frigate, and the Air Force's collaborative combat aircraft all need steady multi-year funding. The Defense Department should buy fewer legacy systems and more unmanned platforms, long-range missiles, and undersea sensors. The fiscal 2027 budget should expand the Pacific Deterrence Initiative beyond the roughly $10 billion provided in recent years. That money should go to Guam, the Marianas, and allied bases in Japan and Australia, not to permanent garrisons in Europe that Europeans themselves could man.
Finally, Washington should rebuild the defense trade relationship with Britain, Japan, Australia, and India around production, not just bases. AUKUS already promises shared submarine technology. That model should expand to munitions, drones, and hypersonic defense. Domestic procurement rules should be relaxed enough to allow allied firms to compete, while protecting genuine national-security technology. The goal is a larger democratic industrial base, not a larger American budget. Alliances work best when every partner contributes capability, not just cheerleading. In 2026, the United States can still lead the free world. It cannot afford to finance it alone.
