U.S. vs China Military Budget

When trans-Pacific communication—along with migration, trade and war—began in earnest in the nineteenth century, Japan was still sealed off by the Tokugawa shogunate, and China's Qing dynasty was losing its monopoly on regional power through a string of wars and exploitative trade arrangements. European nations, particularly Britain, were the powers to beat in the Pacific during this period.

In the 1930s, Japan attempted to wrest the Pacific away from Europe and briefly took control of much of the region. The nation emerged from World War II an economic powerhouse, but its American-written constitution prevented it from rebuilding its military. Europe's influence in the region faded, and the U.S. stepped into the vacuum.

Now Chinese leaders feel it's their turn at the helm. After all, in the country's 4,000 year history, two centuries of playing second fiddle to outsiders is an anomalous blip. In 2013, Xi Jinping coined the phrase "the Chinese Dream" to capture China's domestic, regional and global ambitions. The next century may well be defined in part by the tension between the American dream – of continuing to enjoy sole, unchallenged global superpower status – and the Chinese dream of increased economic, political and military clout.

According to SIPRI, the U.S. was the world's biggest military spender in 2014, accounting for 34% of the global total, followed by China, at 12%. The U.S. spent $578 billion in constant 2011 USD (3.5% of gross domestic product (GDP)), a 6.5% decrease from 2013. China spent $191 billion (2.06% of GDP), a 9.7% increase. The figures for China are SIPRI estimates, since the government does not release reliable data.

Chinese military spending has risen consistently since at least since 1989. The figure for that year is $18 billion, a tenth of the current level. As a share of GDP, Chinese military spending dipped from around 2.5% in 1989 to 1.6-1.7% in the mid- to late-1990s. Since 2001 it has risen to the 2.0-2.2% range. It should be noted that the Chinese economy boomed during this period: GDP grew 2,589% between 1990 and 2013.

U.S. military spending declined following the end of the Cold War, from $552 billion (5.5% of GDP) in 1989 to a low of $378 billion (3.0% of GDP) in 1998. War in Afghanistan and Iraq contributed to a peak of $720 billion (4.7% of GDP) in 2010. Since then U.S. military expenditure has fallen nearly 19%. GDP grew 280% between 1990 and 2013.

According to SIPRI, global military spending in 2014 totaled $1,719 billion (constant 2011 USD), 2.3% of global GDP. This figure is 1.7% off the peak in 2011, but it is up significantly compared to 20 years ago. Between 2013 and 2014, military spending decreased in Western Europe; most NATO countries now spend less than 2% of GDP on defense. In Eastern Europe, Russian aggression in Ukraine (Russia ranked third in 2014) has goaded nervous former Soviet bloc countries to increase military spending. Africa and the Middle East also saw significant upticks.

According to a 2014 Department of Defense report on China's People's Liberation Army (PLA), a potential engagement with Taiwan remains the focus of Chinese strategy. Since China is pursuing strategic interests farther afield, however, it is investing in military capabilities to increase its reach: "advanced intermediate- and medium-range conventional ballistic missiles, long-range land-attack and anti-ship cruise missiles, counter-space weapons, and offensive cyber capabilities," in addition to fifth-generation fighter aircraft and the country's first aircraft carrier.

Of these items, cyber warfare has become a highly visible security concern for American military, political and business leaders. In 2010 Google (NASDAQ: GOOG) disclosed that a group of Chinese hackers known as the Elderwood Gang had infiltrated its networks, possibly stealing from the firm's source code. The group may also be responsible for attacks on Lockheed Martin (LMT) and operators of natural gas pipelines. In 2014, the Justice Department indicted five members of the Shanghai-based PLA Unit 61398 for hacking into the networks of Westinghouse Electric, the United States Steel Corporation (X) and other companies.

China has a nuclear arsenal of perhaps 250 warheads, which pales in comparison to America's 4,764 and Russia's 4,300. The country is developing second-strike capability, meaning that it could launch a viable counter-attack if it were hit first. Second-strike capability can be a valuable deterrent, since it reduces an aggressor's incentive to attack first. China has recently begun omitting its long-standing pledge not to strike first from official communications. For comparison, the U.S. possesses second-strike capabilities and refuses to rule out a first strike. (For more, see: How China and Taiwan Run Their Economies Amidst Historic Tensions.)

The sheer scale at which Pacific nations trade dwarfs commerce in the Atlantic world. As a rough indication, the graph below compares the imports and exports of the 21-member Pacific Rim economic forum APEC (excluding the U.S.), with those of Europe and the U.S.

Given the economic interests at stake, it is no wonder that the Obama administration has made its "pivot" towards Asia a strategic priority. Then Secretary of State Clinton described the shift in a 2011 Foreign Policy article (pay wall): "strengthening bilateral security alliances; deepening our working relationships with emerging powers, including with China; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing democracy and human rights."

Tensions with China arise on more than one of these points. For China, existing multilateral institutions such as the IMF, the World Bank and the Asian Development Bank are insufficient at best and crass agents of American foreign policy at worst. Beijing hopes to even the score with the Asian Infrastructure Investment Bank, which a number of U.S. allies have joined despite American objections. The situation has embarrassed the White House and showcased China's newfound international clout. Meanwhile the U.S. and Japan have spearheaded the Trans-Pacific Partnership, a proposed trade deal that has been called (pay wall), correctly or not, an attempt to curb China through Cold War-era containment policies.

China's economic reach is not limited to the Pacific region. China-Africa trade reached $210 billion in 2013. In Peru, Brazil, Venezuela and Argentina, trade with China has surpassed trade with the U.S.

China's arms exports have increased dramatically in the past decade, rising 143% between the five-year period ending 2009 and the one ending 2014. It is now the world's third-largest weapons exporter, but its global market share is only 5%. America's is 31%; Russia's is 27%. Pakistan, Bangladesh and Myanmar account for two thirds of Chinese arms exports, while other customers have included Nigeria and South Sudan. The main Chinese weapons manufacturer, Norinco, is state-owned.

The International Institute for Strategic Studies reported in 2011 that a "global redistribution of military power" is possible within the next 20 years. China's military spending is increasing steadily, while America's has been in flux and is now declining. China is forging international economic and military partnerships, a trend which also points to the country's growing strategic clout. Still, it has a long way to go by most measures. Military prowess and economic prosperity are not zero-sum games, but time will tell whether the Pacific region and the world are big enough for two great-power dreamers.