• The Trump administration is preparing targeted trade measures against Spanish companies across multiple sectors.
  • Spain has refused to meet Trump's newly demanded NATO defense spending target of 5% of GDP.
  • The European Union would likely respond with a formal WTO complaint if punitive measures are implemented.

Efforts to resolve the transatlantic dispute over defense spending have hit a significant snag, with the Trump administration now considering trade punishments against Spain over its refusal to meet the newly raised NATO spending target. According to people familiar with the matter, Washington is preparing retaliatory measures that could restrict Spanish companies' access to U.S. technology and public tenders, while creating new barriers for Spanish banks, agri-food products, and industrial goods.

The confrontation escalated after President Trump labeled Spain a "laggard" in recent Oval Office meetings and publicly suggested the possibility of expelling the country from NATO. The core dispute centers on Spain's rejection of Trump's demand that NATO members increase defense spending to 5% of GDP, up from the previous 2% target established after Russia's 2022 invasion of Ukraine.

Spanish officials, speaking on condition of anonymity due to the sensitivity of the negotiations, confirmed that Prime Minister Pedro Sanchez's government considers the new spending target incompatible with its social spending priorities. "We remain a committed NATO member meeting many capability targets, even if we fall short of this new threshold," one Spanish diplomat said, though they declined to comment specifically on the trade threat.

The potential U.S. actions represent an aggressive shift in Washington's approach to alliance management, prioritizing defense spending compliance over traditional diplomatic channels. Banking and export sector executives in Madrid have expressed growing concern about the economic implications, particularly for Spanish multinational firms with significant U.S. exposure.

European Union trade officials have begun preliminary discussions about a coordinated response, noting that any U.S. discrimination against Spain would violate the bloc's collective trade policy framework. "We cannot single out individual member states without triggering legal challenges," an EU trade official said, referencing previous WTO complaints filed against U.S. tariffs on Spanish olives.

Market analysts are watching the situation closely, as the threat of broader EU-US trade tensions comes at a time of already fragile global economic confidence. The dispute has intensified debates across European capitals about the balance between military commitments and domestic social spending, with several other NATO members also falling short of the new spending target.

Correction: An earlier version of this article misstated the previous NATO defense spending target. It was 2% of GDP, not 3%.