OPINION:
America and its allies will long regret failing to directly confront wanton aggression in Ukraine and the Middle East. The economic costs will be real and substantial.
Russia has survived sanctions. Its economy grew by 3.6% in 2023 and is projected to expand by 2.6% this year. President Vladimir Putin is devoting 6% of gross domestic product to the military.
Even if Congress approves President Biden’s requests for more aid to Ukraine, the U.S. and German policy of withholding long-range missiles and other armaments that are necessary to strike at Russian supply lines destines the Ukrainians to a war of attrition they cannot win.
By holding aid to Ukraine, Israel and Taiwan hostage to U.S. southern border policy, Republicans in the House send a clear message to the Europeans that they can no longer rely on the United States.
German Defense Minister Boris Pistorius estimates that his country will have to boost defense spending to 3.5% of GDP from the NATO target of 2%. A similar figure likely applies to most of Europe and the United Kingdom.
Europe is already challenged to recover from COVID-19, the loss of inexpensive natural gas from Russia and the transition to a more carbon-free economy. Germany, the engine of European growth, is particularly troubled by the competitive threats posed by China’s electric vehicle and battery industries.
Growth in the European Union has been near zero since the fourth quarter of 2022 and is not likely to exceed 1% this year. Devoting 1.5% more of GDP to discourage Mr. Putin’s revanchist agenda would shrink Europe’s civilian economies and make the investments necessary to compete with Chinese manufacturing and American technology exponentially more difficult.
The EU is the largest market for U.S. exports. Europe, caught in such a bind, will shrink U.S. overseas opportunities for civilian technology products.
However necessary, decoupling from China — other things remaining as they were before the crises in Ukraine and the Gaza Strip — should reduce U.S. GDP by at least 2% to 3%. But we are not facing the status quo.
Iran is financing Hamas in Gaza, Hezbollah in Lebanon and Syria, and Houthis in Yemen. The latter’s attacks on shipping are forcing a de facto partial closing of the Suez Canal and greatly increasing freight costs between Asia and Europe. Piracy is rising off the coast of Somalia, the Gulf of Aden and the Malacca Strait.
U.S. attacks on terrorist sites do not address the fundamental problem: Iran provides the arms to attack Israel and international shipping. Failing to confront Iran directly makes stable peace in the Middle East impossible.
More than half of all seaborne commerce passes through the above-mentioned chokepoints. Hence, endless war and skirmishes in the Middle East make threats to and elevated costs in global commerce more or less permanent.
The World Trade Organization and the International Monetary Fund estimate that the growing incidence of trade barriers and the division of the global economy into U.S.-European-Japanese-centered and Chinese-centered trade blocs will reduce global GDP by 5% to 7%.
Add the above-mentioned disruptions to seaborne trade, and the taxes on the U.S. and global GDP from Western decoupling from China have become much greater.
To protect Israel from a widening war, the United States is indefinitely stationing two aircraft carrier groups and other significant assets nearby. The U.S. Navy has about 300 ships, down from 500 in the early 1990s, and at any time, only about one-third are deployed.
Failing to enable the Ukrainians to defeat Russia ties down the Europeans. We can expect little help from them in Asia. Failing to deal decisively with Iran occupies a significant portion of the U.S. Navy.
Even before the war in Gaza, we needed a larger fleet to address the threat China posed in the South China Sea and to Taiwan.
Losing Taiwan and its semiconductor fabs to war could set back U.S. and global GDP by 5% and 10%, respectively. We cannot afford to let that happen.
If the United States does not deal directly with Iran — and remains committed to protecting Israel and combating the piracy Iran finances in the Middle East — we will need an even larger fleet, given the size and anticipated growth of the Chinese navy.
The U.S. economy is experiencing a revival. Growth over the two decades prior to COVID-19 averaged only about 2.1% per year.
We have dodged a recession in no small measure because of the big investments in artificial intelligence. The major technology companies are moving resources in this direction even as they announce layoffs in other activities.
Goldman Sachs estimates AI could lift annual economic growth by 1.5 percentage points over a 10-year period.
If we don’t see those gains in the GDP statistics or our living standards, in no small measure, it will be because of the necessity of decoupling from China compounded by our failure to deal decisively with Russia and Iran.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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