Capturing Asia-Pacific Defense Growth: A Thematic ETF Proposal

Geopolitical tensions in the Indo-Pacific – especially U.S.–China rivalry and North Korea’s provocations – have prompted a wave of defense rearmament among Asia-Pacific democracies. U.S. officials now openly push regional allies to boost military spending in order to deter China. At the Shangri-La defense forum in May 2025, U.S. Secretary of Defense Pete Hegseth warned that “the threat China poses is real, and it could be imminent,” and he urged Asian partners to “step up” their own defense budgets. Similarly, Washington’s review of the AUKUS security pact explicitly cites the need for allies to “step up fully to do their part for collective defense”.

These signals echo the post‑Ukraine pattern in Europe, where U.S. pressure and a clear threat perception drove NATO members to sharply raise defense budgets (EU military spending rose to ~1.3% of GDP in 2023 and hit NATO’s 2% guideline in 2024). By analogy, U.S. strategy seems aimed at encouraging Japan, South Korea and Australia to likewise expand their defense outlays as a deterrent and burden‑sharing measure. U.S. policymakers have begun explicitly lobbying key Asia‑Pacific allies on spending. In May 2025, Hegseth personally asked Australia to raise its defense spending, reportedly to around 3–3.5% of GDP.

Prime Minister Albanese responded that Australia will increase spending to about 2.4% by the end of his term (up from about 2.2% in 2025) and that $50 billion has already been pledged over a decade. Japan and South Korea have likewise signaled major defense expansions. In late 2024 Japan announced its largest-ever budget (roughly $59 billion for FY2025) and reaffirmed a plan to double spending to 2% of GDP by 2027. North Korea’s missile tests and China’s military buildup have driven Seoul to propose its own record budget (about 61.6 trillion won, ~$46 billion, for 2025 – a 3.5% increase) aimed at beefing up air defenses and long-range strike systems.

In short, a strategic “arms race” of democratic allies appears to be emerging – with Washington’s encouragement – paralleling Europe’s post‑Ukraine build-up.