Examining China’s Rise and its Implications for the U.S. Defense Budget

On February 6, the Center on 21st Century Security and Intelligence at Brookings held an event on China’s Rise and its implications for the U.S. defense budget. Joining me were Richard Bush of the Brookings Center on East Asia Policy Studies, David Dollar of the John L. Thornton China Center, and Bud Cole of the National War College. Bush’s particular expertise is on regional security and diplomacy, Dollar’s on the Chinese economy, Cole’s on the Chinese military, and mine on the U.S. armed forces.

There was no effort to forge consensus across all the panelists and no uniformity of views on all subjects. But some of the themes that were heard frequently included the following:

  • China’s rise is impressive but is also occurring within various military and economic constraints—indeed, it appears to be spending no more than about 1.5 percent of gross domestic product (GDP) on its armed forces, less than half the current percentage of the United States (respective annual military budgets are roughly $150 billion and $550 to $600 billion)
  • China’s regional role is ambitious and assertive but not necessarily revolutionary or highly aggressive, at least at present, and is focused mostly on western Pacific waters
  • Nonetheless, China’s rise poses enough of a challenge that American resoluteness and engagement are crucial
  • As such, sequestration of the defense budget, as might occur again this fall absent a budget deal between President Obama and the Congress, would be unfortunate in its implications for Asia. That would be true partly for its symbolic effects in the region, partly for the disruption it would produce in defense accounts that fund forward presence operations of the U.S. armed forces, and partly because if sustained over time it could lead to a U.S. military that was inadequate to help shape and balance China’s rise.

David Dollar added the further point that sequestration, or the equivalent, would be unfortunate because such austerity would weaken the kinds of investments in American infrastructure, science, and education that contribute to long-term economic growth and thus to long-term national power—the foundation from which military forces are built and sustained. He also argued that American trade and budget deficits are currently down to manageable size, even if there are risks that things could change in the future. Those facts make possible greater investments in the so-called discretionary accounts without causing damage to the economy. Dollar underscored that if U.S. real growth rates can be pushed closer to 3 percent a year than to just 2 percent, in future periods, that simple fact would do a great deal to ensure robust long-term American power and global influence.

In arguing against sequestration, I noted that the military underpinning of President Obama’s so-called Asia-Pacific rebalance is the plan to increase the percentage of Navy ships devoted to the Asia-Pacific region from the historical norm of 50 percent to 60 percent by 2020. But sequestration could effectively nullify the effects of this increase. If the fleet in 2020 were down to say 240 ships because of continued budgetary pressure, relative to today’s level of about 285 ships, the resulting fleet in the Pacific region could decline to less than 145 ships—meaning no net increase whatsoever in the region.

Dollar added several very useful ways to understand China’s economy and its military budget. He noted that while the IMF stated earlier this year that China’s GDP, expressed in so-called purchasing power parity terms, now slightly exceeded that of the United States, the more relevant measure of GDP for purposes of understanding China’s role in the international economy is traditional GDP as measured by official exchange rates. By that metric, the U.S. economy of $17 trillion a year is still about 70 percent larger than China’s $10 trillion. China may reach the U.S. level by about 2030, it is true—but it is also possible that the United States economy could subsequently again overtake China’s later in the century. As for China’s military budget, if it is roughly $150 billion according to traditional exchange-rate calculations today, a purchasing-power parity adjustment would increase it somewhat, but probably by less than 70 percent, since some of China’s costs for equipment are similar to those of the United States. 

Bud Cole noted that China’s aspirations appear to be to have major influence in the three seas—the Yellow Sea, East China Sea, and South China Sea—and also to be able to contest waters of the Western Pacific out to the so-called second island chain, about 1,800 nautical miles from China’s shores, by mid-century. Both he and Richard Bush saw this as in many ways a natural aspiration for a rising power, even if they both expressed concern about China’s ambitions within the South China Sea, and its assertive behavior there in recent years. They viewed the protection of open-ocean commerce as the core American interest that the United States must seek to preserve and uphold in the region, placing a premium on continued U.S. resoluteness, military presence, and cooperation with allies in the region. 

Both Cole and Bush believed China’s military capabilities vis-à-vis Taiwan, in domains such as missile attack and cyberwarfare to be much greater than in the past. This is potentially concerning should future China-Taiwan relations became more complex and dangerous, as they were in the period before the incumbent in Taipei, President Ma. Since Taiwan has a presidential election in about one year, this issue needs to be tracked carefully.

The overall tone of the conversation was serious but not somber. America’s strengths remain considerable and its potential to help shape a peaceful Asia-Pacific remains considerable as well.