Here's how NATO's budget actually works

Reinhard Krause/Reuters

President Donald Trump generated controversy at a NATO summit in Brussels when he criticized other member states over their defense spending.

• President Donald Trump's rhetoric on the NATO alliance has often been misleading, and he has distorted how the historic alliance is funded and operates.
• NATO is based on the notion of collective defense, which also requires collective spending.
• Trump's questionable remarks on NATO have led to criticism from leaders at home and abroad.

Since taking office, President Donald Trump has repeatedly criticized NATO over how the alliance is funded and pressured other member states to increase defense spending.

In the process, he has made a number of misleading claims about NATO, distorting how it works and why it exists in the first place.

On Thursday, Trump reiterated his criticism of NATO in a tweet, stating, "Presidents have been trying unsuccessfully for years to get Germany and other rich NATO Nations to pay more toward their protection from Russia. They pay only a fraction of their cost. The U.S. pays tens of Billions of Dollars too much to subsidize Europe, and loses Big on Trade!"

Trump added, "All NATO Nations must meet their 2% commitment, and that must ultimately go to 4%!"

The president is correct that his predecessors also pressured other NATO member states to increase defense spending, but his claim that member states must pay the US for "protection" misrepresents how NATO works.

NATO's roots

NATO is an alliance that was formed in the wake of World War II as the US and its allies sought to counter the Soviet Union's growing influence in Europe and beyond.

The alliance was founded upon the notion of collective defense, meaning an attack on one member state is considered an attack on all of them. This is precisely why NATO, for example, rallied behind the US in the aftermath of the September 11 terrorist attacks and has sent many troops to fight and die in places like Afghanistan over the years.

Collective defense requires collective spending

Accordingly, every NATO member state contributes to a relatively modest direct budget: a roughly $1.4 billion military budget and a $250 million civilian budget.

Overall, the US provides about 22% of this budget based off a formula that accounts for the national income of member states.

Beyond the direct budget, NATO came to an agreement in 2014 that each member state will increase their own defense spending to 2% of their respective gross domestic product by 2024.

At present, NATO has 29 members and few have reached this goal - only five NATO members are expected to meet the 2% target by the end of the year. Meanwhile, the US spends roughly 3.6% of its GDP on defense, as its military budget in 2017 was approximately $618 billion.

There is no penalty for not reaching the 2% goal; it's simply a guideline, and most member states have increased defense spending even if they haven't reached that goal quite yet.

Moreover, NATO estimates collective defense spending among all member states will total more that $936 billion in 2018. US defense spending accounts for roughly 67% of this, but it's also true the US has the highest defense budget in the world by far and this is linked to both its strong economy and internal politics.

Here's Trump's big issue with NATO

Trump wants other NATO member states to increase defense spending - and soon.

On Wednesday, he tweeted, "What good is NATO if Germany is paying Russia billions of dollars for gas and energy? Why are there only 5 out of 29 countries that have met their commitment? The U.S. is paying for Europe's protection, then loses billions on Trade. Must pay 2% of GDP IMMEDIATELY, not by 2025."

There is an underlying truth to Trump's criticism of NATO that the US spends a significant amount of money and provides an extraordinary amount of resources and manpower to the protection of Europe and Asia. But the US benefits a great deal from this, and US involvement in NATO has long helped it solidify its role as one of the globe's leading powers, if not the most powerful country in the world.

Moreover, Trump's remarks on NATO seem to suggest that Europe must pay the US for protection from Russia, when this is not how the alliance is meant to function. Not to mention, Trump already has a dubious relationship with Russia at a time when much of the world, especially Europe, is concerned about its aggressive military activities.

In this context, Trump's criticism of NATO has been condemned by politicians on both sides of the aisle in the US as well as by other world leaders and foreign policy experts.

Trump caused a crisis at the NATO summit over the issue of defense spending

Trump reportedly broke diplomatic protocol on Thursday by referring to German Chancellor Angela Merkel by her first name, and his intense demands regarding defense spending saw NATO leaders enter a special emergency session.

After the session, Trump said NATO member states had agreed to quickly increase spending.

"We're very happy and have a very, very powerful, very, very strong NATO. Much stronger than it was two days ago," Trump said in an unscheduled statement.