The greatest threat to the defense sector and the broader U.S. economy now is an unlikely body: Congress.
A number of lawmakers — from both parties — are leading an effort to reduce spending and support to allies engaged in wars against our common enemies, instead of focusing on the long-term economic implications of losing those wars. By focusing on near-term dollars and cents, they are essentially ignoring the trillion-dollar impact their actions might have on the economy, which could reverberate over the next 20 years and beyond.
This is not an attempt to be dramatic; there are clear examples in history. What if the United States didn’t enter World War II and the conflict with the Nazis because politicians decided we are in the middle of an economic depression and perhaps this isn’t how we should spend our money.
But in the 1940s, spending on defense sector activities pulled the United States out of the Great Depression and funded new technologies and innovations that led to the economic expansion of the 1950s and 1960s.
A more isolationist U.S. would have resulted in a more limited economy without access to many overseas markets — including those that provided the cheap goods we imported to raise our standard of living. Likewise, the fall of the Soviet Union in the late 1980s and early 1990s opened international markets from behind the Iron Curtain, an era that saw rapid technological growth and earnings for U.S. companies.
We are now faced with a similar moment. A failure to continue to support Ukraine and their fight to survive the Russian invasion could threaten the U.S. economy. Already, two additional conflicts in the region have emerged; Serbia and Kosovo are on the verge of war, and Armenia has accused Azerbaijan of ethnic cleansing in the Nagorno-Karabakh region.
A destabilized Europe, from an economic standpoint, is not good for the American economy. U.S. trade represents roughly 25% of gross domestic product, and total trade with the European Union totaled $1.3 trillion in 2022.
Likewise, would a U.S. that ceased supporting Ukraine help Taiwan defend itself? Probably not. This could embolden China to take action on Taiwan and destabilize Asia.
A U.S. trade war with China, for example, could knock one-third off of Apple’s market cap — a $1 trillion hit by itself. And the impact of losing access to the advanced semiconductors produced in Taiwan would damage a number of other high-tech firms — as well as the U.S. military-industrial complex, which still procures a number of specialized chips from suppliers there.
Public opinion in favor of Ukraine aid still remains at greater than 60%. Yet some members on Capitol Hill are committed to reducing or eliminating the support the U.S. provides to Ukraine. This makes little sense. Most of the funds they allocate actually goes to American industry — and into the pockets of American workers building the equipment and weaponry the U.S. is providing.
Additionally, it is Ukrainian citizens doing the fighting and putting their lives at risk. Would Congress prefer for the U.S. to potentially have a direct conflict, and the associated causalities, if NATO Article 5 is triggered in a decade or two? That is where inaction now could lead.
Ultimately, eliminating support and staying on the sidelines could have significant ramifications to the U.S. economy. Having to operate in a destabilized world would cut access to many markets U.S. companies rely on and curtail future economic growth. Global stability keeps international markets open; the total value of international exports of goods and services in 2022 totaled $3.01 trillion.
It’s time for Congress to focus on the future and stop playing politics with the American economy.
Scott Sacknoff manages the SPADE Defense Index, a modified capitalization-weighted index made up of companies operating in the defense, homeland security and government space sectors.
