The Military and the Balance of Payments

Abstract

U.S. military cooperation with Western Europe and Japan is intermittently threatened by controversy over who should assume responsibility for the foreign exchange costs of stationing forces abroad. This question has been the cause of a long-standing dispute between the United States and its allies. At home, the need "to strengthen the dollar" by eliminating the foreign exchange drain on military account is frequently cited as a major reason for withdrawing U.S. forces from Western Europe, Korea, and Japan. There may well be compelling political, military, or budgetary reasons to revise U.S. mutual defense arrangements and reduce forces stationed abroad, but to make the decision on balance of payments grounds is to confuse means and ends. Our allies might appropriately be asked to mitigate the effect of this problem by cost-sharing arrangements and by military procurement in the United States, but the case for their doing so should meet the test of efficiency as well as equity. In the last analysis, however, the military balance of payments deficit should be viewed not as a military or security issue, but as part of the general process through which nations correct payment imbalances—surpluses as well as deficits. For this reason the stability of U.S. mutual defense arrangements over the future will depend in part on the success achieved in current negotiations to reform the international monetary system.