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China Threat Inflation and America’s Nonsensical Plans [1]

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Date: 2024-01

In a further effort to stem the tide, Chinese leaders relaxed the rules again in 2021 to allow families to have three children. But after decades of official birth control, small families have become the social norm in China. Chinese citizens are mostly scoffing at the new rules, worried about the high cost of living, long working hours, and the expenses of putting children into the right activities like sports and music lessons to increase their chances of getting into a university. Demographers expect the overall Chinese population to decline in absolute terms as early as 2023.

The consequences to the Chinese economy could be profound. The relatively smaller number of young workers will have to shoulder an increasing burden to care for a rapidly expanding elderly population. An aging and shrinking population will naturally result in a shrinking economy as well. As the Chinese economy shrinks, leaders will almost certainly have to adjust their current ambitious goals to have any hope of balancing their ledgers.

Economic considerations today, even before the impending population bomb, doubtlessly factor into foreign policy decisions. Were the Chinese to launch an invasion of Taiwan or provoke a military confrontation through some other means, global trade would undoubtedly be disrupted, which would severely impact the Chinese economy. China relies on imports to power and supply their factories, provide advanced machinery, and feed the population. The Chinese imported at least $1.55 trillion worth of goods in 2022, with petroleum products, iron ore, and soybeans topping the list. In August 2022, the top Chinese exports included telephones, integrated circuits, semiconductor devices, and electric batteries. China’s leaders understand they have much to lose should they be cut off from global markets. According to an article in Nikkei, the Chinese Ministry of State Security wrote a report in April 2022 warning that if Western sanctions were imposed in response to a Taiwan emergency, there could be a food crisis and a need to reverse the market economy reforms back to the state-controlled planned economy of the early years of the People’s Republic.

The ripple effects of such an economic disruption would be felt around the rest of the world as well. U.S. tech firms rely heavily on goods manufactured in Taiwan: More than 90% of the advanced chips used in mobile phones and other similar technology are made there. The waters adjacent to China serve as a major artery for global shipping. Nearly 90% of the world’s largest ships pass through the Taiwan Strait. If they were forced to find a new route, the price of everyday goods would rise due to the extra transport costs caused by the longer passages.

It is not clear who could possibly benefit from a military confrontation between China and the United States. Any such war may very well topple the teetering Chinese society and plunge the entire globe into an economic depression. So, who stands to benefit from the constant discussions about a looming China menace?

China Threat Inflation

Threat inflation has been the go-to tool for defense spending hawks for decades. Veteran Pentagon watchers Chuck Spinney and Pierre Sprey analyzed the budget data since the end of the Korean War and found that spending levels reliably grew year to year above the level they would have if the Pentagon’s budget had grown at a steady 5% annual growth rate. When budget levels did fall below that 5% line, some imminent foreign threat emerged to propel spending back above the spending growth line. The missile gap hysterics in the 1960s came on the immediate heels of President Dwight D. Eisenhower’s efforts to place restrictions on the military industrial complex. The post-Vietnam budget dip prompted a new round of reports about resurgent Soviet military power, including a detailed white paper from President Ronald Reagan’s secretary of defense, Caspar Weinberger. After the Cold War, President Bill Clinton’s NATO expansion satiated the defense industry until 9/11 sent defense spending to new records.

Following the end of more than 15 years of war in central Asia and the Middle East, it would be reasonable to expect defense spending to decrease. Post-9/11 Pentagon budgets did contract somewhat after peaking in 2011, but after falling a bit each year until 2015, defense spending in the United States has now skyrocketed to new heights. The budget increases coincide with a dramatic increase in press mentions about China’s rise. In 2021, the Project On Government Oversight found that press report mentions of “Chinese military” in 2020 increased by 57% over the year before.

Based on the overall economic impact alone of a military confrontation with China, it is difficult to imagine any American political leader being eager for a shooting war. But it is quite easy to imagine why some people would want to gear up for such a war. Many people working either for or on behalf of the defense industry stand to make a great deal of money from the kind of military buildup they propose. In 2021, revenue for the top 100 defense contractors rose nearly 8% from the year before, even as active military operations wound down and the rest of the economy struggled during the pandemic. The military’s top officers are another beneficiary, as they can cash in on their status in retirement by appearing on television and securing sinecures with defense firms. And the people appearing on cable news talking about the threat posed by China and advocating for more Pentagon dollars often work for DC think tanks, but rarely do they disclose that their employers receive a sizable portion of their funding from the defense contractors who stand to financially benefit from their public advocacy. A 2020 report by the Center for International Policy found that the top 50 think tanks received more than $1 billion from the U.S. government and the defense industry in the previous six years.

It’s also easy to imagine why Chinese leaders may want to foster profligate military spending in the United States.

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[1] Url: https://www.pogo.org/reports/china-threat-inflation-and-americas-nonsensical-plans

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