Recently, we have been witnessing significant paradigm shifts in the global economy. With Donald Trump's coming to office, the rules of the game in global trade have begun to change. The free trade promoted since the early 1980s is giving way to relatively protectionist trade. The US is signing new agreements with its trading partners regulating tariffs. Within this framework, Japan and EU countries have agreed to an additional 15% tariff increase. The US is not content with this; it is also making agreements with these countries regarding direct investment in the US.
While these developments are taking place on the trade front, the cards are also being reshuffled in foreign relations. The US has been a key player in ensuring Europe's security against Russia since World War II. The US no longer wants to assume this role. It argues that the costs in this area should be borne by European economies. Indeed, EU countries have been using the savings they have made on defense spending since World War II for their own domestic welfare. The US is now objecting to this situation.
European countries are also agreeing to increase their defense spending in the coming period. At the recent NATO summit, countries except Spain agreed to increase the ratio of defense spending to national income to 5%. So, what does the increase in defense spending mean economically? There are various studies in the literature on this subject. The findings indicate that defense spending generally increases national income. Two factors contribute to the increase in production. The first is an increase in national income due to an increase in aggregate demand. The increase in the production of land, sea, and air vehicles will directly positively impact sectors such as metal, vehicles, software, and chemicals. Goldman Sachs' analysis shows that defense industry spending contributes between 0.9% and 1.5% of national income. In other words, the multiplier effect of defense spending is high.
Increased defense industry spending and the resulting R&D spending also lead to medium- and long-term productivity increases. The gradual adoption of developed technologies into daily life positively impacts productivity and production. It's important to remember that the early work that led to the emergence of computers was conducted during World War II. Studies show that defense spending increases total factor productivity by 0.25% in the long run. As a result of what I've mentioned, don't assume I'm advocating for increased defense industry spending. On the contrary, it's possible to further enhance human well-being through alternative investments. However, the current global climate makes this a necessity. At this stage, the fundamental question is whether the EU can act as a unified entity to form a defense union, and how much public support will support this process. Achieving the desired results in an economy devoid of common policies seems difficult.
