Question: Who spends more on their military?

1. China
2. The United States

Given our focus on the possible dangers of China's rapid military buildup, you may, be tempted to answer “China” to this question. Please resist any such temptation. While China is swiftly expanding its military capabilities, the United States still far outspends China when it comes to two important metrics: total spending and spending as a percent of gross domestic product or GDP.

On the total spending front, while China's reported annual military expenditures are rapidly heading beyond $200 billion, the United States still spends more than three times that amount.1 At the same time, over the last ten years, China's military spending has consumed only about 2 percent of its GDP annually while the US number is closer to 4 percent.²

Wow! Who is the warmonger here?

In fact, the argument that “America vastly outspends China” is frequently used to discount any possibility of an emerging China threat. It is an argument, however, that must be tempered by more than a few critical considerations.

First and foremost, any direct comparison of total military expenditures is, in and of itself, likely to be highly misleading. While the US military must project its force globally, China focuses primarily on regional force projection in Asia. To put this in a weapons context, American taxpayers may foot the bill for ten active aircraft carriers. However, only several of these flattops are ever on patrol in the Asian theater at any one time.

As a second consideration, one dollar of defense spending in China goes much farther than one dollar of defense in the United States. Just why is this so?

For starters, Chinese military personnel earn wages and benefits far less than their American counterparts. In addition, it is demonstrably cheaper for China's factories to churn out weapons systems—and it is not just cheap labor driving this production cost advantage. It's also the lack of any meaningful environmental controls or worker protections—yes, the air and water in China are filthy and the factories are very dangerous, but it is a lot cheaper to manufacture everything from autos and home appliances to missiles and submarines.3

As an added boost to China's cost advantage, there is also this uncomfortable truth: China does not have to spend anywhere near as much on military research and development for new weapons systems. One key reason is the vaunted ability of Chinese hackers to steal the latest weapons designs from both the Pentagon and private-sector defense contractors. Another reason is that China quite illegally reverse engineers much of the foreign technology it buys.

On this reverse-engineering front, Russia, not America, has been China's biggest victim. After Russia sold China its advanced Sukhoi Su-27 fighter, China proceeded to clone it—and then immediately began selling discounted versions of the jet on the world market, squeezing Russian sales.⁴ In a laugh-out-loud moment, when they was accused of also replicating the Sukhoi Su-33 aircraft-carrier-based fighter, China's unintentionally comical defense was that its J-15 clone of the Sukhoi was actually better than the original. That's indeed true—and that's one of the problems facing opponents. China not only can steal foreign technology, it can improve upon it as well.

For all these reasons, it would be wrong to derive much comfort from the fact that Chinese military expenditures appear to fall far below that of America. This is particularly true since the spending trend lines are likely to cross in the not-too-distant future as China's GDP growth continues to significantly outpace that of the United States and as America's economy continues to perform below historical levels.

In fact, once one looks more deeply at the defense-expenditures puzzle, it should not be reassuring at all that China is using much less of its GDP each year to successfully grow its military. Indeed, the economic ease with which China's military is rapidly expanding raises this next—and quite sobering—question: Will China eventually be able to do to America what America did to Kaiser Germany in World War I, Nazi Germany and Imperial Japan in World War II, and the Soviet Union during the Cold War? That is, will China be able to use its superior manufacturing might to defeat America on the battlefield?

In thinking historically about the strategic implications of China's rise and growing size, consider this: At the start of World War II, the combined economies of Nazi Germany and Imperial Japan were only half the size of the United States.5 If for no other reason than the sheer weight of its factories and work force, America thereby held the strategic high ground.

In fact, the statistical correspondence between economic power and military might in World War II is startling. While the United States could field over three hundred thousand military aircraft, a combined Germany and Japan had less than two hundred thousand. On the naval front, the United States had about three hundred fifty destroyers compared to Japan's sixty-three, while on the land-war front, the United States had over seventy thousand tanks compared to less than forty-five thousand for Germany.⁶

So yes, while it is true that it was brave American soldiers and sailors and flyers at the frontlines who ultimately won World War II, they were backed by heartland factories that could churn out tanks and planes and ships at rates far greater than the enemy could destroy them—definitive proof of the winning ways of what the great Prussian strategist Carl von Clausewitz once aptly referred to as “war by algebra.” Today, however, many of those factories that won World War II for America have been shuttered and moved to cities with names like Chengdu, Chongqing, and Shenzhen.

As for the case of the Soviet Union, its fate as a fallen empire may be particularly apropos to the current trajectory of US-China military relations. Just consider this: Back in the Cold War days of the 1980s, President Ronald Reagan adopted a highly aggressive “star wars” strategy to vanquish the Soviet Union based on his Strategic Defense Initiative. What “the Gipper” had in mind, however, was not decisively defeating the Soviet Union on the battlefield. Rather, Reagan wanted to lure the Soviets into an expensive arms race in the hopes of breaking the “evil empire's” economic bank in the process.

As US defense expenditures (and budget deficits!) dramatically rose during the 1980s, Reagan was repeatedly criticized for his hawkish gambit. However, “the Gipper's” strategy wound up succeeding beyond even the Reaganites’ wildish dreams; looking back at the statistics on GDP growth and military expenditures during the period, we now know why.

To wit, in order to play such military spending poker with Reagan, the Soviets had to devote a far larger share of their GDP to defense—some analysts cite a figure as high as 40 percent! It was this crushing defense burden along with the collateral neglect of the other sectors of its economy that ultimately bankrupted the Soviet Union and led to its economic surrender and breakup. In comparing this Soviet fall to China's rise, Princeton professor Aaron Friedberg notes:

China is a very different kind of military competitor than the Soviet Union was. The Soviet Union for ideological reasons cut itself off from the international trading system, cut itself off to a considerable degree from the global technological system, and tried to do everything on its own…. The Chinese are pursuing the inverse strategy. They are plugging themselves into the world economy and into the world technological and scientific systems as deeply as they possibly can. And that's a far smarter strategy and it's enabling them to move forward much more rapidly.7

Echoing this “China is not the Soviet Union” theme, Brookings scholar Michael O'Hanlon adds:

While China's growth may slow down to a seven- or six-percent rate, it's still the fastest growing economy in the world and the number one world manufacturing economy. And that trend is not slowing in the slightest. So the idea that we could somehow just ramp up our efforts and beat the Chinese at producing war ships and fighter jets, I think, is at best a short-term partial fix. ⁸

Within the context of our detective story, this sobering assessment brings to mind the advice of hockey great Wayne Gretzky to always skate to where the puck is going to be, not to where it is. To mix metaphors here, China appears to be moving on the global supremacy chessboard to a place where, if left unchecked, the United States may eventually be forced to turn over its king, at least in the Asian theater. Our next question therefore must be: Just what might China's strategy look like over the next several decades to achieve its goals?