America Must Spend More on Defense

The wars in Ukraine and Iran lay bare some inconvenient truths.

Our economic and capacity to project power and influence abroad increasing dependent on Artificial Intelligence and semiconductors, designed in America but fabricated in Taiwan and South Korea.

We can only prosper and defend our interests if those countries are squarely in America’s camp. The loss of either to China or North Korea would give the Axis leverage over Western economies similar those Iran enjoys through its ability to block the Strait of Hormuz.

The Ukrainian and Iranian conflicts demonstrate the limitations of expensive high-tech defense systems in an era of effective, cheaper-to-produce drones.

Interceptor missiles, like atriot, THAAD and AMRAAD, are expensive, and our manufacturing capacity is limited. Iran’s strategy has been to have cheaper, more abundant drones hit by American interceptors before striking with missiles. And to overwhelm the Navy’s capacity to fend off attacks in the Strait with a mosquito fleet of small boasts and mobile land-based launchers.

Taiwan’s population is only 23 million—as compared to Ukraine’s 40 million and Iran’s 92 million. It may not have the cultural sinew of the Ukrainians or manpower to repel a Chinese invasion without extraordinary stocks of drones and defensive missiles.

Its failure to prevail would put the Taiwan Semiconductor Manufacturing Company’s foundries in China’s hands and leave America’s economy and defense between a rock and a hard place.

North Korea has the capacity to strike Japan, South Korea and perhaps the U.S. West Coast with nuclear weapons and is developing theater tactical nuclear missiles.

The case for industrial policies—not simply tariffs and other import restrictions but rather rolled-up-the-sleeves Chinese and Japanese-style state direction—is compelling.

Both President Biden and Trump acted, but we aren’t moving as fast or powerfully as needed.

We must ask whether Congress has the political maturity—with its cultural obsessions on the left and limited government impulses on the right—to reorder national spending priorities such a herculean undertaking would require.

President Biden enjoyed Democratic control of both the House and Senate to push through his industrial policies, but those were made terribly more expensive with the cultural baggage the left imposed—childcare, hiring goals for unions and underrepresented groups and the like

Winning at semiconductors, rare earth minerals and other vital industries is expensive enough absent those. Can we afford to compete if every industrial policy is crafted like a New York City housing project with identity politics obsessions?

TSMC’s high end processors and memory chips made by Samsung Electronics, SK Hynix, and Micron Technology are virtually 100% dependent on machinery manufactured by ASML in the Netherlands.

The defense of Western Europe and NATO are vital to American prosperity and security.

Since the Obama presidency, U.S. foreign and defense policymakers have talked about refocusing U.S. military resources to the Pacific to address the growing Chinese challenge to American commitments and interests.

The faceoff with Iran has brought to the foreground the folly of that.

Friends in Asia rely too much on Persian Gulf nations for oil, LNG, aluminum, hydrogen for fertilizer, and helium and sulfur for chips production to be ignored.

Iran’s capacity to cut off access to Persian Gulf resources—long in the planning and potentially devastating if supplemented by a North Korean level nuclear weapons capabilities—made the Israel-U.S. strikes imperative.

The naïve and tepid response of the Europeans—including their reluctance to help convoy ships through the Strait—bear witness to their weakness. Similarly, their inability to produce weapons such as air defense systems speaks volumes about their value as allies.

But we are stuck with them.

The United States currently spends about 3.4% of GDP on defense—but to handle all we need in Europe, the Middle East and the Pacific we should spend at least 5%. With China’s and Russia’s resources increasing, likely more.

For one thing, we need a much larger Navy and for another, much larger procurement budgets to support adequate supply chains for weapons like interceptor missiles.

With federal spending at 23% of GDP, entitlements accounting for about 60% of that and the federal deficit in the neighborhood of 6% of GDP, Americans must learn to live less well.

The menu of social benefits and corruption financed by federal, state and local monies—consider Minnesota and Mississippi—indicate some tradeoffs and legitimate savings are possible but that will hardly be enough.

To be a free society with genuine agency in the world, Americans will have to pay more taxes, work more years—less time wasted in high school and college, raise the Social Security retirement age or both—and rely less on the government for personal economic security.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.