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IN DOLLAR TERMS, America spends more on its armed forces than the next ten countries combined. But when comparing military budgets, nominal values can only say so much. Defence spending is about bang for the buck—and a dollar (or a few hundred billion of them) goes further in some places than in others. To get around this, The Economist has adjusted estimates on military spending by the Stockholm International Peace Research Institute (SIPRI), a think-tank, for military purchasing-power parity (PPP), with help from Peter Robertson, a researcher. The results show that America’s dominance in defence spending has slipped over the past decade, and its share of the world total is now back to levels last seen in the early 2000s. Meanwhile, its adversaries are gaining in prominence (see chart).
“Military PPP” adjusts defence budgets based on how they are allocated among wages, operating costs and equipment in a given country, and how local prices vary in each of these areas, compared with those in America.
America’s defence budget has, on average, increased by 2% every year since 2012; when adjusted for inflation, it is down by 6%. But even measured against the former, America’s global share of spending is waning. In dollar terms, it has gone from 46% of the world total in 2012, to about 38% last year, a drop in share of around one-fifth. Adjusted for military PPP, its spending has gone from 30% to 21% over the same interval, a reduction of nearly one-third. In part, this reflects a draw-down in spending after the end of the Iraq war.
But the bigger factor is that other countries have turbo-charged their armed forces. Adjusted for PPP, America’s budget increase was smaller last year than those of many other large countries (see chart below). Unsurprisingly, Ukraine and Russia increased their budgets by the most, followed by China, Saudi Arabia and India. By PPP, China’s bump in military spending was almost four times higher than America’s in 2022.
Most of these increases would be expected as GDP grows. As a percentage of GDP, spending in both China and India is roughly the same now as it was in 2012, at 1.6% and 2.4%, respectively. Yet, even adjusting for inflation, their reported GDPs are 80% and 70% higher than they were in 2012.
Those figures may not tell the full story. Researchers have repeatedly found that dictatorships tend to exaggerate GDP growth. Should this hold true for China, it would mean the country’s defence budget, which is estimated independently by SIPRI, is actually increasing as a share of GDP.
Moreover, American officials say President Xi Jinping has ordered China’s armed forces to develop capabilities necessary to conquer Taiwan by 2027. Even if, as their CIA colleagues say, an attack by then is unlikely, such an order suggests a commitment to defence spending regardless of economic growth. It also implies more Chinese spending than before is going towards weapons meant for offence rather than deterrence and defence.■
