Daniel W. Drezner

A word about the alleged economic benefits of the American military

A word about the alleged economic benefits of the American military

This week, there’s been a rash of articles on the state of GOP foreign policy thinking, as well as some interesting and constructive responses to my Foreign Affairs essay on the same subject.  I will try to respond to some of these over the weekend — but first I think it would be useful to talk more precisely about the claimed benefits of military power. 

One of the points I made in my essay was that Republicans need to take economic statecraft more seriously, but to be fair, this holds for the foreign policy community more generally.  The relationship between military power and economic influence is often talked about in general terms, with a lot of casual assertions getting tossed around.  But I think a lot of these assertions are wrong. 

For example, prominent American foreign policy commentators often trump the benefits of America’s overseas military presence.  Danielle Pletka gets at this in her Foreign Policy essay when she says, "Americans have benefited tremendously from their involvement abroad," though she stays in generalities.  To talk specifically, how exactly does the U.S. gain economically from its outsized military footprint? 

Fortunately, we do have an attempt at an answer.  In the latest Foreign Affairs, Stephen Brooks, John Ikenberry, and William Wohlforth argue strongly in favor of "deep engagement."  They proffer a number of reasons why the U.S. benefits from current grand strategy — but one of the more intriguing ones is that the U.S. receives direct economic benefits from its security arrangements: 

A global role also lets the United States structure the world economy in ways that serve its particular economic interests. During the Cold War, Washington used its overseas security commitments to get allies to embrace the economic policies it preferred — convincing West Germany in the 1960s, for example, to take costly steps to support the U.S. dollar as a reserve currency. U.S. defense agreements work the same way today. For example, when negotiating the 2011 free-trade agreement with South Korea [KORUS], U.S. officials took advantage of Seoul’s desire to use the agreement as a means of tightening its security relations with Washington. As one diplomat explained to us privately, "We asked for changes in labor and environment clauses, in auto clauses, and the Koreans took it all." Why? Because they feared a failed agreement would be "a setback to the political and security relationship."

Now, this gets specific!!  According to this paragraph, reliance on U.S. security means that Washington can obtain better economic terms.  Sounds great!! 

Except that I don’t think it’s true. 

With respect to West Germany, it’s certainly true that Washington was able to get Berlin to accommodate to U.S. preferences — but only for a few years.  The Bretton Woods system ended in 1971 because the Germans finally said "Nein!!" to U.S. inflation.  So the economic benefit wasn’t that great. 

The South Korea case is more intriguing, because it’s present-day and there’s a real, live policymaker quote there.  If a U.S. administration official asserts that the security relationship mattered, then it mattered, right? 

Well…. no.  We need to compare KORUS with something equivalent to provide a frame of reference.  If security really mattered that much, then the Korea-United States free trade agreement should contain terms that are appreciably more favorable to the United States than those contained in, say, the Korea-European Union free trade agreement, which was negotiated at the same time.  This is a great test.  After all, the U.S. is the most important security partner for South Korea, whereas the only thing the European Union could offer to Seoul was its large market.  So if Brooks, Ikenberry and Wohlforth are correct, the U.S. should have bargained for much better terms than the E.U.  Right?

A Korean analysis of the two agreements, however, do not reveal that result: 

[T]he United States has more favorable treatment in meat and vegetable products and transportation, while the EU has better treatment in processed foods, chemicals, and machinery. The large difference in outcomes in animal and animal products between the KORUS FTA and the Korea-EU FTA can be ascribed to the the reflection of greater sensitivity of the Korean market in this sector in the Korea-EU FTA compared with the KORUS FTA. Therefore the EU received a less favorable tariff reduction schedule than the United States in this area. This is true in the areas of raw hides, skins, leather, and furs, and transportation.

We have the opposite case, however, in the foodstuff sector: the many differences in Korean tariff liberalization schedules in the U.S. and European FTAs could be a result of the reflection of the EU positions, which preferred earlier tariff eliminations on many items in the Korea-EU FTA. This is also true in the manufacturing sectors such as hemicals and allied industries, plastics and rubber, textiles, and machinery and electrical products.

In (slightly) plainer English, the U.S. got better terms on the export sectors it cared about more, and the E.U. got better terms on the export sectors it cared about more.  Both agreements are comprehensive in scope and contain roughly similar terms across most other sectors.  Indeed, both the Congressional Research Service and U.S. Trade Representative’s office acknowledge the basic similaritry between the deals, as well as the areas where the Europeans did better.  So, in other words, America’s ongoing security relationship with South Korea did not lead to any asymmetric economic gains. 

Now, this is not to say that there are no economic benefits to America’s forward military presence.  There are other arguments out there, and they should also be evaluated.  My point here is simply to cast a skeptical eye on claims that America’s overseas military presence pays for itself in the form of geopolitical favoritism.  Because I don’t think that’s true.