Robert Lighthizer: “We’re In A Cold War, A Second Cold War Now”

“A lot of us who were sort of united in this Cold War, particularly in the early years, it kind of brought the country together. We realized we were in a Cold War. Indeed, I think we’re in a Cold War, a second Cold War now,” former US Trade Representative Robert Lighthizer told Tucker Carlson on a podcast last week while discussing topics ranging from the current failing trade system to trade deficits and more.

Continuing the second Cold War theme, we told readers in 2022 that “The New Cold War Has Begun.”

Over the last decade, the US spent $8.4 trillion on defense, while the rest of NATO spent a fraction of that, around $3.8 trillion.

The ‘Trump Effect‘ has created an urgent need for EU countries to boost defense spending in a world where rising geopolitical tensions in Eastern Europe, the Middle East, and Asia drive global superpowers to modernize their armed forces.

In the Americas, Trump has been bolstering efforts to increase hemispheric defense, whether stronger economic integration between the US and Canada or a hardened defense perimeter stretching from the Arctic to the Panama Canal.

Let’s visualize Trump’s hemispheric defense that ultimately will deter China … 

Lighthizer’s view of a second Cold War taking shape is correct. 

Proxy conflicts between global superpowers, an accelerating arms and AI race, economic sanctions, trade wars, and cyber warfare are some of the classic hallmarks of a new Cold War unfolding for the last decade. 

Regarding global military expenditures, Goldman analyst Germaine Khong told clients that the figure topped $2.6 trillion in 2024, accounting for 2.4% of GDP – up from 2.2% in 2021-22, with much of the increase coming from European and Asian countries. 

Khong cited the Geopolitical Risk (GPR) index, a measure of adverse geopolitical events and associated risks based on a count of newspaper headlines covering geopolitical tensions, which finds heightened perceived risk and tension amid conflicts in Eastern Europe and the Middle East, as well as a worsening Sino-U.S. trade war. 

Since the Russian invasion of Ukraine in early 2022, Aerospace & Defense-focused funds have been ripping higher and have received inflows totaling $12 billion, with AUM quadrupling to $24 billion, according to Khong, citing fund flow data from EPFR. 

In a separate note, Goldman analyst Sven Jari Stehn and others expect EU defense spending to jump from 1.9% of GDP in 2024 to 2.8% in 2027.

We expect defence spending to increase significantly across the currency union, from 1.9% of GDP in 2024 to 2.8% by 2027 (Exhibit 1, left). We then look for defence spending to eventually reach 3% according to our analysis of Europe’s military needs. In Germany, defence spending already increased from 1.5% before 2022 to 2.1% in 2024 and will from now on be largely exempted from the constitutional debt brake (Exhibit 1, right). In France, a multi-annual budget law already enshrines defence spending of 2% until 2030, and political leaders broadly concur on further increases. In Italy and Spain, the increase in defence will start from a lower level—at 1.4% and 1.2%, respectively—and will likely proceed somewhat slower than we had previously anticipated, given recent communication by leading party leaders and the Italian and Spanish Prime Ministers.

Surging global defense spending is one of the hallmarks of the second Cold War. The ongoing arms race, strategic deterrence and posturing by superpowers, proxy wars, and shifting industrial and trade policies are all signs of a world fracturing into what appears to be a bipolar era. To combat this in the Americas, Trump will bolster hemispheric defense.