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I hear some talk of guns and butter…

March 18, 2010

Here’s a very interesting study, via Will Wilkinson, on the effects of military spending on trade. The study finds that countries are less open to trade if they have higher military spending, and that when countries increase military spending, trade shrinks as a proportion of GDP. It is nice to see some empirical proof against the all-too-common view that increasing trade will put an end to militarism. But the reality is that geopolitical and nationalist concerns will trump potential economic gains. Wilkinson asks if this research supports the idea that a military predominant 3rd party can facilitate bilateral trade. My guess is that this is probably the case.

Japan spends around 1% of its GDP on the military – by virtue of its size, however, this still amounts to a large defense budget. Though China’s is likely twice as large, the growing trilateral trade between Japan, South Korea, and China would not likely be so high without the US both restraining Japanese incentives to increase its military spending and deterring aggression by China and North Korea against Japan and South Korea.

US defense spending played a similar role in Europe, though I doubt the potential for increased militarization and conflict is obviously far less than in the case of East Asia. One can probably also find similar effects in the Persian Gulf, where US interventions to prevent a regional hegemon’s emergence has certainly decreased the need for European and Asian countries to pay for their own power projection capabilities there. The research cited depicts a general trend in increased military spending, beginning during the late 1990s, even as globalization increased. This should not be surprising, since the gains of increased wealth can translate into increased military spending (as China makes obvious), and globalization failed to preclude nationalism and militarism in the antebellum period of the 19th and 20th centuries. All that talk of blood and iron is something we can do without, but political forbearance, if not pessimism, would be a prudent complement to globalist triumphalism.

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