Macroscope | How will nations pay for a Trump-induced rush to arms?

From Japan to Germany and many places in between, there is a rush to rearm as US President Donald Trump is perceived to be turning away from the country’s long-held commitment to policing the world. But who is going to pay for this sudden and panicked rush to arms?

That is the question, as Shakespeare’s Hamlet said, and it is one that few people are asking and even fewer people have answers to. Will taxpayers have to foot the bill, will governments follow the United Kingdom in switching spending from foreign aid to defence, or will financial markets have to stump up?

This could yet prove to be a salutary debate in which countries and markets – those in the West especially – are forced to confront the issue of what might be termed illogical and unsustainable cash-flow patterns within their societies.

Taxpayers pay – or sometimes evade – taxes and investors make investments of a business or portfolio nature. But these are not calculated or coordinated with the national interest in mind – the need, that is, for spending on arms, infrastructure, health, education and so on.

There are no holistic revenue and expenditure accounts or national balance sheet calculations, at least in market economies, to indicate whether the state needs more funds to meet its commitments. Neither are there any showing whether financial markets are shouldering their fair share of the burden.

This could change now as Trump threatens to dump more of the financial burden of bearing arms onto Europe, Japan and Taiwan, among others. They are reacting with promises of increased military spending and bolstered defensive alliances, but what they are not providing is credible plans for how to finance these.