"I have been very, very direct with [NATO Secretary General Jens] Stoltenberg and members of the alliance in saying that NATO members must finally contribute their fair share and meet their financial obligations. But 23 of the 28 member nations are still not paying what they should be paying and what they're supposed to be paying for their defense," said Trump.
"This is not fair to the people and taxpayers of the United States, and many of these nations owe massive amounts of money from past years and not paying in those past years," he said.
He pressed members of NATO to increase their defense spending to at least 2 percent of GDP to fulfill what is called the Wales pledge.
"Over the last eight years, the United States spent more on defense than all other NATO countries combined," said Trump. "Two percent is the bare minimum for confronting today's very real and very vicious threats. If NATO countries made their full and complete contributions, then NATO would be even stronger than it is today, especially from the threat of terrorism."
Brussels is Trump's fourth stop on his first overseas trip as president. Monday night's deadly terrorist attack in Manchester brings new urgency to the summit, where the fight against terrorism was already a key item on the agenda.
During the presidential campaign, he cited unequal spending and what he believed was NATO's lack of focus on terrorism as reasons for calling it "obsolete."
"What I'm saying is NATO is obsolete," Trump told ABC in an interview in March 2016, "and it's extremely expensive for the United States, disproportionately so. And we should readjust NATO. And it's going to have to be either readjusted to take care of terrorism or we're going to have to set up ... a new coalition."
"I said it was obsolete," Trump said. "It's no longer obsolete."
"Our NATO allies responded swiftly and decisively," said Trump. "The recent attack on Manchester in the United Kingdom demonstrates the depths of the evil we face with terrorism."
At the beginning of his speech, Trump asked attendees to join him in a moment of silence for the victims in Manchester. "All nations here grieve with you and stand with you," he said.
Merkel, in remarks before his speech, seemed to indirectly criticize his proposed wall on the U.S.-Mexico border.
"Our alliance is united in the awareness of the importance to cooperate, to insist on freedom, and we all are united in the trust that it is not isolation and the building of walls that make us successful but open societies that share the same values," said Merkel.
ABC News' Jordyn Phelps contributed to this report.