America’s treaty allies collectively spent more on defense inpurchasing power terms than the United States in 2025, according to a new analysis based on SIPRI data. The shift reflects a rapid rise in military budgets across Europe and parts of the Indo-Pacific, while US defense spending declined over the same period.
The findings mark the first time since 2001 that Washington’s allies have surpassed the US on this measure. The increase has been driven largely by European rearmament linked to Russia’s war in Ukraine, alongside growing defense investment in countries such as Japan.
According to an analysis published by The Economist using figures from the Stockholm International Peace Research Institute (SIPRI), the combined military budgets of the 31 non-US NATO members and Washington’s treaty allies in Asia reached 111% of American defense spending when adjusted for military purchasing power parity.
That measure takes account of differences in local wages and domestic costs, making foreign military spending more comparable with US expenditure. The Economist noted that equipment costs were not adjusted because much military hardware is imported and difficult to compare in quality across countries.
European Defense Spending Drives Global Increase
Global military expenditure reached $2.9 trillion in 2025, rising by 2.9% after inflation and marking the eleventh consecutive annual increase, according to SIPRI data cited by The Economist. Europe accounted for nearly half of the worldwide increase.
Military spending across Europe, excluding Russia and Ukraine, rose by 14.1% to $864 billion between 2024 and 2025. According to SIPRI’s figures, the increase continued even after excluding military aid connected directly to Ukraine, with broader European defense budgets still climbing by 13.4%.
The United States moved in the opposite direction. The Pentagon’s 2025 budget fell by 7.5% to$954 billion, returning roughly to its 2021 level. Despite the reduction, the US remained the world’s largest military spender in both nominal terms and purchasing power-adjusted calculations.
America still accounted for more than 20% of total global military expenditure in 2025. China remained second, with SIPRI estimating its defense budget at $336 billion. When adjusted for military purchasing power parity, China’s spending reached an estimated $599 billion, equivalent to 12.7% of the global total.
The figures also highlighted the scale of wartime spending in Ukraine. According to The Economist’s analysis of SIPRI data, Ukraine devoted 40% of its gross domestic product to defense in 2025, the highest proportion recorded among all countries included in the study.
Indo-Pacific Allies Expand Military Budgets
The rise in allied military spending was not limited to Europe. Several US treaty allies in the Indo-Pacific also increased defense budgets significantly during 2025. Japan’s military spending rose by 9.7% to $62 billion, according to SIPRI estimates reported by The Economist. Defense expenditure represented 1.4% of Japan’s GDP, its highest share since 1958.
The broader tally of US allies included Australia, Japan, South Korea, Thailand and the Philippines alongside NATO members. In absolute terms, allied Defense spending still remained around $200 billion below total US military expenditure, despite surpassing it on a purchasing power basis.
NATO allies in Europe and Canada alone reached the equivalent of 81% of American defense spending when measured through military purchasing power parity. The surge in allied budgets reflected years of relatively stagnant US military expenditure alongside rapid increases in Europe after Russia’s invasion of Ukraine.
Despite the increase in allied spending, the balance of military capability remains uneven. The Economist cited a recent report by the Kiel Institute stating that no major European combat operation would currently be possible without American authorisation, software and weapons systems. The report suggested that while allied military budgets are rising rapidly, higher expenditure alone has not yet translated into strategic autonomy from the United States.
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