Cutting U.S. Overseas Security Commitments Could Cost U.S. World Trade Billions

For Release

Thursday
September 22, 2016

Reducing U.S. overseas security commitments, including U.S. troops stationed abroad as well as U.S. security treaties, could lead to greatly reduced U.S. trade with other countries, with the economic costs from lost trade estimated to be more than triple any associated savings in U.S. defense spending, according to a new RAND Corporation study.

Since the 1940s, U.S. leadership of the international security system has been justified, in part, by claims of a positive relationship between global stability and domestic prosperity. Advocates of this school of thought — the “engagement school” — have argued that the political and military stability provided by the United States also fosters international economic stability, benefiting the United States by fostering trade in goods and services and access to global capital, which lead to higher rates of economic growth at home.

Proponents of the “retrenchment school,” however, have called for steep reductions in U.S. overseas security commitments. Advocates of this school contend that the U.S. commitments are too costly to sustain, allow partner governments to free-ride off the U.S. defense budget and fail to deliver the promised security and stability.

“Given the challenges that the United States is facing in ensuring economic opportunity and prosperity to all Americans, it's not surprising that the extent of U.S. security commitments overseas is a topic of vigorous debate,” said Daniel Egel, lead author of the study and an economist at RAND, a nonprofit research organization.

“Estimating the economic returns the United States receives from these overseas commitments is a necessary precursor to an informed debate,” Egel said. “Until now, it has been extraordinarily difficult to measure these economic returns empirically.”

Egel and his RAND colleagues used advanced econometric techniques and new data on overseas security commitments to explore whether and to what extent the United States derives economic benefits from its overseas security commitments.

The full gamut of U.S. security commitments includes the total number of U.S. troops stationed overseas, along with security treaties.

The RAND analysis finds evidence that U.S. security commitments have significant positive effects on U.S. bilateral trade. The analysis also finds evidence that countries with U.S. security commitments trade more with one another than they would without those commitments. At the same time, the study finds no significant evidence that U.S. security commitments influence either the likelihood or intensity of civil conflict, either for better or for worse.

Proponents from the retrenchment school of thought, specifically those in academia, have suggested that the reduced defense spending that would result from an 80-percent retrenchment in U.S. overseas security commitments could boost U.S. gross domestic product by as much as $139 billion per year.

However, RAND researchers estimate that a 50 percent retrenchment in U.S. overseas security commitments could reduce U.S. bilateral trade in goods and services annually by as much as $577 billion, excluding trade with Canada and Mexico. This would amount to about 18 percent of the nation's total trade. Based on conservative assumptions, the resulting annual decline in the nation's GDP would be $490 billion (in 2015 U.S. dollars).

Thus, the losses are conservatively estimated to be three and a half times greater than the gains that result from a large drop in defense spending.

“This suggests that U.S. policymakers should carefully weigh the potential losses against the potential gains when considering the desirability of large-scale retrenchments of U.S. overseas security commitments,” Egel said.

The RAND analysts explored a range of plausible scenarios premised on a range of different assumptions. In the vast majority of scenarios, the losses outweighed the gains. An interactive tool highlighting the scenarios is available at www.rand.org/t/TL229.

The study is unique in that it provides a comprehensive analysis of a disparate range of outcomes, instead of a single economic outcome. New data also allowed the researchers to examine the economic effects of security-treaty relationships and explore whether troops from different military services influence trade differently.

The study, “Estimating the Value of Overseas Security Commitments,” was funded by the U.S Air Force can be found at www.rand.org. Other authors of the study include Adam R. Grissom, John P. Godges, Jennifer Kavanagh and Howard J. Shatz.

RAND Project AIR FORCE, a division of the RAND Corporation, is the U.S. Air Force's federally funded research and development center for studies and analyses. Project AIR FORCE provides the Air Force with independent analyses of policy alternatives affecting the development, employment, combat readiness and support of current and future air, space and cyber forces.

About the RAND Corporation

The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous.