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Analysis
US may inspire new arms race

US may inspire new arms race

Better, not greater, defence spending needed

by Brian Reading in London

Fri 24 Mar 2017

Brianreading Banner

Economists worry that President Donald Trump is intent on starting a trade war. More attention should be given to the arms race that he may accelerate.

Global defence spending slowed towards the end of the last century and in the early 2000s. Geopolitical threats diminished and financial constraints intensified. Today, in an about-turn, major countries have started or plan to spend more.

Some legacy defence spending is incurred to meet imaginary threats – nobody is going to invade the US. Six battle fleets and 14 aircraft carriers are available to project offensive power, intervene in other people’s wars, depose dictators and fruitlessly seek regime change.

Other threats have increased. Revanchist Russia, belligerent Beijing in the South China Sea, North Korean and Iranian nuclear ambitions are conventional threats that require conventional responses. The greater need is for software, rather than hardware, to fight terrorism and improve cybersecurity. Disrupting power, communications and transport systems is more damaging than dropping non-nuclear bombs. Following the theory of the ‘crowding out’ effect, more defence spending may result in a decrease in private sector spending, as increased government expenditure raises the cost of capital and makes it more expensive for businesses to borrow and invest. This could lead to an increased demand of aging populations on public purses. Better defence spending, rather than more, is the answer.

Trump plans to increase American defence spending by 10% next year. Military spending accounts for 3.3% of US GDP, and veterans programmes and military aid add another 1% of GDP to the government’s defence budget.

The scale of US defence spending is already tremendous. It is 10 times greater than Russia’s, despite Russian spending amounting to 5.4% of its GDP. A 10% increase would thus correspond to additional spending equivalent to the entire level of Russia’s annual defence budget. US defence spending already exceeds the total budgets of China, Japan, Germany, the UK, France, Italy and Russia.

Further upward pressure on defence spending is coming from Trump’s demands that other North Atlantic Treaty Organisation members make a fairer contribution by increasing their spending to 2% of GDP. Germany, which spends 1.2%, is already planning an increase. France is close to the 2% target but intends to spend more, specifically to combat terrorism.

Under budgetary pressure, Britain, at 1.98% in 2016 according to the International Institute for Strategic Studies, continues to seek savings. The UK’s Trident nuclear programme seems a must but two new aircraft carriers, one to be made (allegedly) inoperative on completion and the other without aircraft, make little sense. China is increasing defence spending at a double-digit rate and buying fighter jets from Russia. Spending in Moscow has surged under President Vladimir Putin. An arms race has begun.

After the cold war and the collapse of the USSR, the US ruled the world. Today, Washington’s global hegemony is over. The US needs friends, not enemies. It cannot police the South China Sea or bomb North Korea. It has lost its superior status in the Middle East. Iran cannot be bullied into abandoning its nuclear pretensions. Equally, the US cannot effectively intervene in Europe, hence the call for Nato allies to do more. In his determination to project a ‘strong’ US, Trump is ignoring the value of diplomacy and the importance of the balance of power.

He is proposing a 30% cut in the State department’s budget: a more appropriate move would be a 10% increase in that department’s funding coupled with a 30% cut in defence spending. Nations newly rearming, as was the case with Nazi Germany in the 1930s, reflect the latest threats and capture modern technological advances.

The 1941 sinking of the HMS Hood, a British navy battlecruiser, by a single shell fired from the Bismarck, a Nazi battleship, reflected Germany’s technological prowess. The Hood was commissioned in 1920, the Bismarck in 1940.  Maintaining the existing arsenal of the US incurs legacy costs. Less old and more new, at lower cost, makes economic and military sense, but isn’t a vote winner.

Brian Reading was an Economic Adviser to Prime Minister Edward Heath and is a Member of the OMFIF Advisory Board.

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