The Political Economy of U.S. Military Strategy Submitted by Kit David Waterman to the University of Exeter as a thesis for the degree of Doctor of Philosophy in Politics, September 2018. This thesis is available for Library use on the understanding that it is copyright material and that no quotation from the thesis may be published without proper acknowledgement. I certify that all material in this thesis which is not my own work has been identified and that no material has previously been submitted and approved for the award of a degree by this or any other University. Signature: …………………………………………………… Abstract Rapid economic growth in emerging economies since the end of the Cold War has driven debate on American ‘relative decline’; the relative diminution of US material capabilities with respect to other states. Such relative decline poses potential constraints on US power and has thus manifested itself in arguments over the economic merits of the United States’ expansive military commitments. Contributing to this literature, my thesis answers the following question: does American military strategy generate economic benefits? I argue that that there is significant evidence to suggest that US military strategy has influenced international economic relationships in ways beneficial to US national interests. Principally, my analysis shows American military strategy acts as a ‘underwriter’ for the extant international economic system. I explore two logics associated with this. Firstly, a general ‘status quo’ logic which sees military power as both a guarantor and promoter of specific structural configurations of the international political economy. And secondly, a more specific ‘utility’ logic operating on other states either bilaterally or multilaterally. This pathway assumes that US military strategy, particularly its security guarantees, may alter the utility of other states decisions in America’s favour. This thesis also shows that specific results often prove far more tentative and circumstantial than commonly articulated by scholars in the literature. Nearly all specific and ‘utility’ pathways through which the United States is hypothesized to derive economic benefit suffer from foundational generalisability issues, irrespective of methodology. This suggests that specific avenues and instances of US military strategy influencing international economic relationships are not likely to be a reliable or prudent source of future policy making. Rather, the principal political-economic influence to consider is the role US military power plays in underwriting the contemporary American centred international order, which is the prerequisite for other specific pathways to emerge. 1 This page is intentionally left blank. 2 Acknowledgements I would like to express my sincere appreciation for the hospitality shown to me by the staff and students at the University of Exeter’s Strategy and Security Institute. The Institutes’ kind offer to host and supervise me granted the opportunity to conduct my research in an engaged and friendly environment, without which my time at Exeter would not have been so rewarding. I would also like to take the opportunity to acknowledge the help and advice offered to me by Stephane Baele over the last four years. A special thank you is reserved for my supervisor, Doug Stokes, for his guidance and support throughout the course of my PhD. His cool-headed advice and mentorship has guided me in both my academic endeavors as well as my development as an individual. I would like to further express my gratitude to Adam Peddle, Jamie Penn, and Michael Jones for many a stimulating conversation and for sharing their individual and collective expertise and advice. Without their influence much of the knowledge, skills, and interests I now take for granted may never had materialised and would certainly be greatly impoverished. A special mention should be made for Michael’s constant reminders that working hard is not necessarily the same thing as ‘working smart’. I am also greatly indebted to my friends and training partners at the Russell Seal Gym. Their sincere encouragement, sense of humour, and their example has kept me grounded and focused throughout. Finally, I would like to express my greatest appreciation and thanks to Silvia for her unwavering support and her many sacrifices over the past four years. 3 This page is intentionally left blank. 4 Table of Contents Table of Contents ............................................................................................................................ 5 Figures ............................................................................................................................................. 5 Tables .............................................................................................................................................. 6 Introduction .................................................................................................................................... 7 Literature Review .......................................................................................................................... 20 Chapter 1 - American Economic Power ........................................................................................ 42 Chapter 2 - Dollar Hegemony ....................................................................................................... 86 Chapter 3 - Proposed Domestic Economic Costs of Military Strategy ....................................... 133 Chapter 4 - Proposed International Economic Benefits ............................................................. 188 Chapter 5 - Linkage and Positional Advantage ........................................................................... 236 Chapter 6 - Political Economy, Probability Theory, and Classical Realism ................................. 266 Conclusion ................................................................................................................................... 298 Appendix ..................................................................................................................................... 305 Bibliography ................................................................................................................................ 314 Figures Figure 1 - Strategy Flow Chart ...................................................................................................... 22 Figure 2 – Production Possibilities Frontier .................................................................................. 48 Figure 3 – Heckscher Ohlin PPF .................................................................................................... 50 Figure 4 – Section 301 Initations .................................................................................................. 72 Figure 5 – Section 301 Effectiveness ............................................................................................ 74 Figure 6 – US Share of Global Semiconductor Market ................................................................. 79 Figure 7 – US Antidumping Findings ............................................................................................. 84 Figure 8 – Kurtosis of USD Reserve Currency Share ................................................................... 101 Figure 9 – Foreign Reserves of East Asian States........................................................................ 106 Figure 10 – Dollar Index, 1990-2016 ........................................................................................... 107 Figure 11 – RMD/USD Exchange Rate/s ..................................................................................... 112 Figure 12 – China’s Reserves and CA Surpluses .......................................................................... 113 Figure 13 – US Treasury Yields, 1980-2015 ................................................................................ 121 Figure 14 – US Current Account Balance, 1970-2016 ................................................................. 124 Figure 15 – US International Investment Position, 1970-2016 .................................................. 127 Figure 16 – US Income balance, 1999-2015 ............................................................................... 128 Figure 17 – US Defense Spending, 1990-2015 ............................................................................ 138 Figure 18 – US Military Spending and Changes in GDP .............................................................. 149 Figure 19 – US Defense R&D Budget .......................................................................................... 155 5 Figure 20 - iPhone Technologies ................................................................................................ 157 Figure 21 – Dollar Index, Reagan Administration ....................................................................... 166 Figure 22 – Federal Budget Balance, Reagan Administration .................................................... 167 Figure 23 – Federal Funds Rate, Reagan Administration ............................................................ 170 Figure 24 – Impluse Response Function, Federal Funds into Federal Funds ............................. 177 Figure 25 –Impluse Response, Federal Funds into Dollar/Yen ................................................... 177 Figure 26 – Cumulative Impluse Response, Federal Funds into Dollar/Yen ..............................