Statements and executive orders issued by U.S. President Donald Trump since the start of his term are having a direct negative impact on major U.S. defense companies, while, by comparison, European firms appear relatively better positioned.
According to WisdomTree, the measures promoted by the White House directly affect capital allocation and margins at leading U.S. military contractors, weighing on their share prices relative to their European peers. In Europe’s case, however, the effect is not so much an immediate boost as a relative advantage. Investors are increasingly valuing European companies more positively due to their lower governance risk and greater flexibility in returning capital to shareholders.
What Trump Has Done:
Trump has announced a temporary ban on dividend payments and share buybacks for U.S. defense companies until weapons production accelerates. He has also publicly criticized what he considers excessive executive compensation and has demanded new investments in industrial facilities. The president justifies these decisions by pointing to delays in the manufacturing, deployment, and maintenance of military equipment, and has warned that he is prepared to reshape how the military-industrial complex operates.
This new policy direction prioritizes increased production capacity, speed, and manufacturing volume over shareholder remuneration. As a result, cash flow visibility could decline and valuations of major U.S. defense companies could come under pressure.
Although demand for military equipment remains strong, the government’s confrontational tone toward management teams increases regulatory and governance risk in the United States, an element that, by comparison, enhances the appeal of European defense companies.
Trump Proposes a Record $1.5 Trillion Military Budget in 2027 and Reinforces the Position of European Defense
President Donald Trump has called for a U.S. military budget of $1.5 trillion in 2027, significantly higher than the $901 billion approved by Congress for 2026. While this has supported defense sector stocks, it has also generated skepticism among budget experts. Trump’s request for a record budget reinforces the view that the world is moving toward a more militarized, hard-power equilibrium, indirectly strengthening the bullish case for European defense, even as his capital allocation controls specifically target large U.S. contractors. At a macro level, it is further confirmation that the notion of a “peace dividend” has come to an end.
The proposal follows immediately after the operation in Venezuela and comes alongside threats to redirect procurement away from contractors that continue share buybacks instead of investing in factories, equipment, and capacity.
On one hand, a much larger U.S. budget is clearly positive for global defense demand, supply chain volumes, and the perceived durability of the cycle. On the other, Trump is explicitly tying this funding to conditions: restrictions on buybacks and dividends, and pressure on what he calls “exorbitant” executive pay. This creates a more restrictive governance and capital return environment for large U.S. firms than for most of their European counterparts.
Several major European defense companies could benefit from increased U.S. spending without facing the same constraints. These include BAE Systems, with exposure to naval systems, electronics, and munitions; Fincantieri, through its U.S. shipbuilding subsidiaries; Leonardo, in helicopters and electronic systems; Rheinmetall, expanding munitions and vehicles in the United States; and Safran, with aerospace and electronic defense exposure. This positioning allows them to tap into strong U.S. demand while maintaining the capital return flexibility typical of the European market.
This announcement comes amid a tense geopolitical backdrop, with several factors reinforcing the case for higher defense budgets in Europe. Peace negotiations between Russia and Ukraine have stalled again, and recent Ukrainian advances around Kupiansk underscore that the conflict remains unresolved, with no clear dominance by either side. The persistence of these tensions supports expectations of sustained elevated budgets and order flows in the European defense sector for years to come, rather than as a temporary phenomenon.
Greenland/Arctic Flashpoint
Trump’s renewed threats and rhetoric regarding “options” around Greenland, including not ruling out the use of military force against the territory of a NATO ally, are being described as a potentially unprecedented challenge to NATO, raising the risk of confrontation within the alliance itself.
This Arctic dimension reinforces growing investment needs in surveillance, air and missile defense, naval assets, and Arctic-capable capabilities for Europe and the Nordic countries, adding yet another theater to Europe’s already crowded threat landscape.
How These Catalysts Reinforce Europe’s Defense Advantage Over the U.S.
Taken together, stalled peace efforts in Ukraine, tensions over Greenland, and the intervention in Venezuela validate Europe’s decision to secure significantly higher spending and localize critical capabilities, reinforcing the multi-trillion-dollar rearmament trajectory.
Combined with Trump’s restrictions on U.S. defense buybacks and dividends, these new catalysts further tilt the balance in favor of European contractors. They benefit from clearer capital return narratives, direct budgetary tailwinds from multiple theaters, and a growing premium on European strategic autonomy in the face of a more politically volatile U.S. security umbrella.
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