Expert opinions, INVESTMENT CLIMATE

Two Percent Donald as the mirror of the American evolution

By Dmitry Evstafiev, Professor of Communications, Media, and Design Department/School of Integrated Communications at National Research University Higher School of Economics

Donald Trump is certainly a hothead and not a fully sober-minded leader. His disregard for political traditions and institutions which have been deemed sacred, may only be envied though. His ability to question American politics’ secure foundations which have remained intact for decades and centuries, has granted – and for some time being will keep granting – the US leader a chance to win – performing countermovements – over the flabby and geopolitically exhausted European elites who live up to the T’was ever thus principle having completely lost an ability to feel the wind of change.

Whereas Donald Trump feels key globalized world trends perfectly well, whatever others say about his unpreparedness for being a politician. The global trend most apprehensible for Donald Trump is economization of political sphere, which can be summarized as money first. Putting it in academic terms, economic interests are always superior to political ones and are fundamental for forming any political coalitions. Political coalitions with no economic foundations are phantoms which can only exist in halcyon days. This maxim is not always true in a historic perspective, yet it is in line with the spirit of the contemporary times. Besides, it is most doubtful Donald Trump has had a deep knowledge of the world history.

Donald Trump has clearly perceived and is absolutely right in his assumption, that the global and regional institutions designed over the past seven decades, including such posh organizations as NATO, have lost their purposes and converted into some sort of bureaucratic get-togethers where the main goal is not even profit generation or capitalization growth, but maintaining their sparks of life.

Drawing by Yuri Aratovsky

So these are in fact the backgrounds for the foreign policies and international economic strategies of Donald Trump. Hence his steps should be viewed through the prism of such backgrounds. That’s all there is to it.

Trump might not be the first to realize that politically motivated relationships between the US and its allies significantly impair competitiveness of the US as a state and a national economy. Even during expert examination of the Trans-Pacific Partnership trade deal, such concerns were voiced. Yet the opponents of the deal were silenced right away. So there were substantially less objections to the idea, when Obama administration was at full steam advancing towards making a most strange – even in view of its loyal outside experts – deal on the Transatlantic Trade and Investment Partnership which reserved very few advantages for the US economy while envisaging plenty of bonuses for American bankers. The reason for that was the Transatlanticism which was the sacred cow – and its holiness could not be questioned by any mainstream US politician.

Yet Donald Trump was unaware of that.

No doubt, following his recent European voyage, he will be – and already is – facing obstructionism back home. Still, there are not many of those who are uncertain that at least some of his novelties will be implemented in line with the implacable logic of a New York developer who used to at times visit construction sites with a baseball bat at hand. Even the Europeans themselves who not long ago were casting haughty glances at the American whippersnapper, are now inclined to agree that something ought to be changed, and seriously discuss the ways of meeting new requirements. They agree, for instance, to discuss a possibility of increasing defense spending to the level of 2% of the GDP.

It is a landmark situation though, as Europeans were for the very first time adequately reminded that the Cold War is over even though they, jointly with Obama administration, have actively used its bogie for the past decade. So the time has come for the Old World to start bearing the costs of maintaining its security.

The issue of 2% is quite interesting though, and explains a lot in the US president’s political psychology. First of all, the request of the US president was by no means unexpected. The concept of defense spending of at least 2% of a national GDP was approved back in 2004 at the Riga Summit, when Donald Trump hardly knew he would ever want to become a president. Yet the fact was barely remembered by anyone until Obama administration started to actively flex muscles in an attempt to intimidate Russia. The idea was to reverse an unfavorable trend of NATO’s military power decline with only 6 of the 26 member-states meeting the above military budget requirement but nevertheless at the same time striving to reduce military spendings as much as possible. Trump therefore has made no inventions of his own and merely requested the agreements approved by the Transatlantic countries themselves to be honored. Especially since, according the their own claims, a military threat from whether revanchist and imperialist Russia or radical Islamism has been incessantly growing over all of the recent years.

The situation has shown no signs of improvement recently. The number of countries meeting the threshold of defense spending of at least 2% of their GPD is still six. Among those are the US which reduced its military spending from 4.1% in 2014 down to 3.58% in 2017, France with about 2.3% (yet there are differing assessments as well), the UK (2.14% in 2017), Greece (2.32% in 2017), Poland (2.01% in 2017), and Estonia (2.14% in 2017). It is noteworthy that three of the six nations which meet the jointly set percentage requirement, are recipients of funding from various EU sources whereas the locomotives of the European economy tend to be unpretentious in their military spendings. In other words, Europe is accustomed to finance its defense with somebody else’s money.

Germany spends $44.3 bln on its defense needs (as of 2017), having made successive cuts in its defense budget for many years. In real terms, its 2017 defense budget approximately equals that of 2007 with its share in the national GDP amounting to 1.2%. The cases of Luxemburg (0.44% of the national GDP), Belgium (0.91%), and Spain (0.92%) are even more illustrative. If Luxemburg may be ignored as a military power on a global scale, Belgium and Spain, like it or not, are reputed and influential participants of the Euroatlantic politics, including power politics. Defense spendings of Italy ($29 bln or 1.7% of its GDP) and Canada (1.3%) are slightly more impressive, yet they are also far from reaching the set threshold.

Hence only a most biased individual may claim that Trump’s resentment came out of nowhere. Still, Trump would not be himself if he only had in mind military spendings per se. The US leader certainly grasped that lack of efforts to implement NATO’s resolutions is a reflection of a perplexed economic situation in Europe. To put it otherwise, in order to maintain maximum competitiveness of the European economies in comparison to other nations including the USA, the European allies have no other option but minimize their military spendings especially since the defense industry in Europe lives through a severe crisis and it will therefore be problematic to fuel an economic growth through injecting funding thereto anywhere, even in France where the last decade has seen problems with new ‘innovative’ weaponry and materiel becoming chronic and systemic and ultimately condensing in the fate of Charles de Gaulle nuclear aircraft carrier. To the contrary, in the US, government investments in defense industry will become a major driving force behind an economic growth in the immediate future.

Trump’s decision-making is swift, not always elegant yet always generally logical. European economies’ competitiveness should be pushed down by making them spend more on defense in line with the resolutions passed by the Europeans themselves. If Estonia can meet the two percent requirement, why Germany (in the very first turn) can’t? That’s not right.

Some figures to illustrate the situation. To reach the two percent threshold, Germany has to additionally spend on defense purposes about $30 bln, Italy has to spend somewhat $10 bln more, while Spain has to raise its military spending by $12 bln. Even a neighbor of the US, Canada, where military challenges are merely elements of remembrances of its harsh and not always unambiguous history, will have to loosen purse-strings to be a member of the elite club of protected democracies. To put it simple, virtually all European nations will have to accept additional expenses. The question is though, where will the money come from, given the neverending mourning of the European capitals over the budget crisis.

No doubt, Germany will be the focus of Trump’s zealous attention since it’s the only economic competitor to the US and the only focal point of the organizational crystallization of the traditional, i.e. pre-Trump, Transatlanticism.

Meanwhile Trump can by no means be reproached for some voluntarism. Going back to figures, one can see that in case the share of defense spendings is raised to the intended two percent threshold, aggregate expenses of the European nations will amount to somewhat $340 bln per annum which is less than half of the US overall 2018 military budget. The figures will be comparable only in case European defense budgets reach 4% of the GDP. It should be noted though that the US also pursue its military goals outside the NATO’s area of responsibility, but still. All in all, formally the nominal GDP of the European NATO member-states (accuracy of the data to be left out of discussion) is at least 88% of the US’ GDP. Yet the burden of a common defense should be fairly shared. Especially since the reasonably grounded logic of the Americans suggests that it is the US who bears the main burden of protecting ‘European democracies’ from ‘expansionist Russia’ in the segment of strategic nuclear weapons which are barely available to the European NATO member-states. It is certainly regrettable that Europeans have once again become victims of propaganda phantoms of their own make. Yet, what’s done is done.

But that is not the major point, though. Under the NATO resolution of 2014 (that Wales summit of the alliance seems to be packed with disastrous decisions), its member-states are to direct at least 20% of their defense allotments to acquiring new weaponry and materiel. Yet they are hard to obtain in the European market, to say the least, due to the aforementioned hardships in the European defense industry. It should be noted the said requirement is also met by less than a half of the member-states. It cannot go unmentioned though that Luxemburg which is far behind of others by the share of its military spending, is leading in modern equipment procurements. Quite naturally, when looking for new arms and military hardware, Europeans will have no other option but turn to their American partners for assistance. At that moment, Donald Trump will no doubt be a focus of amenity.

European money must work for America’s reindustrialization, and it certainly will. If that requires some courtesies about the Atlantic solidarity, Trump will unquestionably demonstrate such courtesies. There is no point to be skeptical about relatively modest military procurements Europeans can potentially place in the US. True, with hundreds of billions of virtual dollars of the financial sector in the background, two-something dozen billion dollars a year may seem peanuts for the US defense industry. Yet that is real cash. And that cash, in line with the logic of the Atlantic solidarity, will keep flowing in regularly, year by year. Ultimately, the money will not come from the US taxpayers.

It’s of importance too, the USA will thus get a rather effective instrument for monitoring the commitment of the Europeans to improvement of their defense capacities within the Four Thirties initiative, whereby NATO member-states are to have 30 mechanized battalions, 30 air squadrons, and 30 combat vessels ready for deployment in the area of the alliance’s responsibility within 30 days or less by 2020. The initiative, even if a 2% threshold is reached, will require from the Europeans substantial efforts to be implemented. But most importantly, it will require an overhaul in the structure of defense spending by the NATO member-states with priority emphasis on new weaponry procurements. The need will apply to all member-states apart from the US, where such targets have been set within the military upgrade program announced by Trump at the start of his presidency and further developed in the latest US military and political doctrines.

Subsequently, that will result in not merely a poorer competitiveness of the European allies of the US through operation and adjustments of the instruments of their own design. In the longer term, there may emerge a mechanism of pumping European money to the US under a pretext (which only an absolutely outspoken Putin’s proponent may question) of military buildup in Europe.

It’s hardly imaginable what will be happening in the centers of politics in Berlin and Paris, if Trump starts pressing for his new idea of raising defense expenses to 4% of national GDP. Compared to that figure (please refer to the expenses listed in the Table below) the current 2% threshold may look like a charity in support of the world peace. Yet, if truth be told, Trump’s attitude towards the Euroatlantic community is in the first turn a reflection of his vision of an ideal world, specifically in terms of the relations with partners. In Trump’s view, only a competitor can be a partner, hence to be one, one is to comply with such a status. Therefore, Trump will strive to implement his vision irrespective of the opposition of the US traditional political elite which in fact has brought the USA to the verge of digital globalization when economic foundations of the US statehood could be fully eroded.

The Table shows NATO member-states’ 2017 GDP according to the World Bank data in billions of US dollars (with no account for the USA and Canada) in a descending order. Columns 3 and 4 display amounts of 2% and 4% of national GDP, respectively. The Table evidences that in case military budgets grow from 2% to 4% of their national GDPs, the Older Europe nations will have to accept a major share of the aggregate European defense spendings, or over 90%. That means, according to the Trump’s Plan, the Older Europe is the one to build up the defense capacities of the military alliance.

So all one needs to know about Trump is the fact he just talks about politics while he always thinks about economics. That also applies to his meeting with Vladimir Putin. It had been widely claimed that meeting would be a mere protocol encounter, whereas it turned out to be very substantial. The main aspect of the said substance is a rather promising economic subject matter. Well, economic grounds is an area where nearly any political compromise with Trump is possible.

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