How NATO Works

How Is NATO Funded?

NATO Summit NATO Summit
NATO funding has been a hot-button issue as of late. Here NATO Secretary General Jens Stoltenberg and U.S. President Donald Trump are seen meeting during a breakfast where they discussed funding during the July 2018 NATO Summit. NATO

NATO's funding has been a contentious topic in the news lately. U.S. President Donald Trump has consistently accused America's NATO allies of falling behind on their bills. Even as Trump was on his way to Brussels for the July 2018 NATO Summit, he tweeted, "Many countries in NATO, which we are expected to defend, are not only short of their current commitment of 2% (which is low), but are also delinquent for many years in payments that have not been made. Will they reimburse the U.S.?" But is he right? Well, not completely.

Here's how NATO funding works. According to NATO's official guidelines, member nations are expected to commit a minimum of 2 percent of their Gross Domestic Product (GDP) to spending on defense — meaning payments made by the government specifically to meet the needs of its armed forces. But only five countries currently do.

But during the 2014 summit in Wales, member nations pledged to increase their military spending to 2 percent of GDP by 2024. The United States far exceeds the 2 percent guideline, paying more than 3.5 percent of its GDP, the most of any member nation.

It's worth noting the 2 percent of GDP is still only a guideline and there is no penalty to countries that don't meet it. In 2017, 22 of 28 member nations followed through with the 2014 pledge and did increase their defense budgets [source: Kottasová]. But some smaller countries simply don't have the armies large enough to handle such huge increases, and the 2 percent GDP funding does not have to cover only defense to meet NATO requirements. Countries can choose to spend the money on NATO peace missions, or the fight against ISIS [source: Kottasová].

President Trump, however, doesn't believe 2 percent of GDP is sufficient, despite that most member nations can't meet that. As recent at July 11, 2018, while in Brussels at the NATO summit Trump suggested all NATO nations should commit 4 percent of GDP ... and immediately. "I think these countries have to step it up, not over a 10-year period, but they have to step it up immediately," Trump said during a bilateral breakfast with NATO Secretary General Jens Stoltenberg.

So what does all that money go to fund? More on that next.