How to Spend a Trillion: Global Defense Spending in 2004

6/12/05

Spurred in large part by ongoing U.S. operations in Afghanistan and Iraq and a steady arms build-up in China, global military expenditures in 2004 set a post-Cold War record and crossed the noteworthy threshold of one trillion dollars. That is the principal conclusion of a recent study by the Stockholm International Peace Research Institute (SIPRI), which monitors defense spending trends on an annual basis. The $1.035 trillion figure is an all-time record in nominal (i.e., non-inflation-adjusted) terms. It is quite close to an all-time high in real terms, being just 6% less than the peak set in 1987-88, in the waning days of the Cold War as the United States and Soviet Union reached the pinnacle of the arms race.

The U.S., not surprisingly, remains – by a massive margin – the highest-spending country when it comes to defense. In 2004, U.S. spending represented just under $500 billion, or 47% of the total. Of course, a significant component of this was above and beyond the Pentagon's standard operating budget. Special supplementary appropriations for Afghanistan and Iraq exceeded $50 billion during the year, and over the three-year period 2003-05, they total $238 billion.

Along with unparalleled U.S. dominance in these rankings comes the still-more dominant position of the country when its spending is considered in conjunction with its major allies. (A recently released NATO report also confirms this.) Even when adjustments are made for purchasing power parity (PPP), fully half of the top ten spenders in 2004 were U.S. allies: four members of NATO (France, Britain, Germany and Italy) and Japan. The significance of PPP is the fact that prices for everything from soldiers' salaries to conventional weapons in China and India (and, to a lesser extent, in Russia) are vastly lower than in the West. Accordingly, Chinese defense spending in 2004 was $161 billion under PPP – putting it firmly in second place worldwide – but only $35 billion under the official exchange rate. Similarly, India and Russia occupy third and fourth place, respectively, in the PPP rankings, but only eighth and eleventh place otherwise.

Interesting conclusions can also be drawn from the SIPRI study with respect to regional trends in defense spending. In terms of sheer dollar power, the industrialized Northern Hemisphere is obviously the largest component of global spending. But the highest growth rates are actually being observed in Africa, the continent that accounts for just over 1% of spending. Between 1995 and 2004, spending in Africa soared 43% in real terms. By comparison, the analogous growth rates for North America and western Europe were 34% and 5%, respectively. The relatively modest 17% figure for East Asia may, however, be somewhat misleading. Because Japanese military budgets have traditionally been limited to 1% of gross domestic product, and economic expansion in Japan has been sluggish recently, it is the ramp-up in Chinese spending that accounts for the bulk of the region's spending growth. Given China's breakneck economic development, Beijing has been able to boost military budgets by an average of 12% annually over the past decade. In fact, U.S. Defense Secretary Donald Rumsfeld recently chided China for tripling its defense spending in ten years, saying that this is not contributing to a climate of stability in Asia. Still, even adjusted for PPP, China currently spends less than one-third of the combined total of the U.S. and its Pacific allies. How this numerical relationship will change by 2015 remains to be seen, but the two figures are likely to converge further.

SIPRI Yearbook 2005 (SIPRI)

SIPRI military expenditure database (SIPRI)

NATO-Russia defense spending, 1980-2004 (NATO)