U.S. President Donald Trump on Wednesday said Spain's refusal to meet the NATO defense spending target of 5% of gross domestic product will mean a tougher trade deal for the southern European country.

Speaking at a news conference at NATO's annual summit in the Netherlands, Trump said it was "terrible" that Spain wouldn't commit to meeting the target by 2035.

"You know they are doing very well. The economy is [doing] very well. And that economy could be blown right out of the water with something bad happening," Trump said.

"You know what we're going to do? We're negotiating with Spain on a trade deal and we're going to make them pay twice as much — and I'm actually serious about that. I like Spain … it's a great place and they are great people, but Spain is the only country out of all of the countries that refuses to pay," he continued.

"So, they want a little bit of a free ride, but they will have to pay it back to us on trade because I am not going to let that happen. It's unfair," Trump said.

His comments come shortly after NATO allies agreed to more than double their defense spending target from 2% of GDP to 5% by 2035.

In a joint declaration, the Western military bloc said it was "united in the face of profound security threats and challenges," in particular the long-term threat posed by Russia to Euro-Atlantic security and the "persistent threat" of terrorism.

Earlier in the day, Spanish Prime Minister Pedro Sanchez said the country would meet NATO's new capabilities targets, which refer to measures members should take to defend themselves and the broader military alliance.

However, Sanchez said Madrid considers current defense spending of 2% of GDP as "sufficient, realistic and compatible with the welfare state," Reuters reported. Sanchez also reportedly thanked NATO allies for "respecting Spain's sovereignty."

A Spanish government spokesperson was not immediately available when contacted by CNBC.

— CNBC's Holly Ellyatt contributed to this report.