Defense Spending Surges as Global Crises Persist
Author: Greg Valliere
October 13, 2022
IT’S IMPOSSIBLE TO GET AN EXACT HANDLE on how much the U.S. will spend on defense outlays because during this new fiscal year there will be “supplementals” that crop up, especially in the Overseas Contingency Operations account, which critics call a slush fund.
WE EXPECT TOTAL OUTLAYS will be around $800 billion in the fiscal year that began on Oct. 1 — an increase of about $50 billion over last year, give or take a few billion.
CRITICS ON THE PROGRESSIVE LEFT simply don’t have the votes to stop a huge spending spike; Congress may even exceed the $800 billion target in a defense bill that will pass by year-end. That would be more than 10% of all federal spending and nearly half of all discretionary spending.
U.S. OUTLAYS ARE FAR HIGHER than in any other country. China is expected to hit about $270 billion in the new year, the second largest spender in the world. India is third, the U.K. is fourth and Russia is fifth.
SINCE THE WAR BEGAN on Feb. 24, Washington has sent about $13 billion in arms to Ukraine, mostly sophisticated missiles. Additional outlays are virtually certain in the coming months.
THE ARGUMENT FOR MORE SPENDING has been bolstered by a wide range of provocations, not just from Russia. There’s North Korea’s missile testing, viewed as a prelude to a nuclear test, Iran’s naval threats in the Persian Gulf, and continued friction with China.
ANY HOPES FOR BETTER RELATIONS WITH BEIJING have been dashed by proposed new U.S. regulations designed to thwart China’s semiconductor chip industry. There’s an excellent column in this morning’s New York Times by Tom Friedman that details the looming chip war between the U.S. and China.
WITH REPUBLICANS LIKELY TO RE-CAPTURE THE HOUSE, this booming defense spending trend is likely to persist, as defense hawks point out that defense spending as a percentage of GDP is actually falling. So we think that by the middle of this decade, a $1 trillion annual outlay target will come into focus.
VOTES TO SPARE: We believe at least 75% of Republicans support a huge spending spike, along with perhaps 40% of Democrats — more than enough to dramatically increase outlays for shipbuilding (headed for a big hike), missiles, high-tech defensive systems and other weapons. Total global defense outlays should hit $2 trillion within the next three years.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2023 AGF Management Limited. All rights reserved.