Having discussed why money is not enough to win an arms race, we should now revert to how much money would be enough for the USA to be able to stand a chance countering China’s challenge. To make this assessment, we should first point out that different currencies are not always equal and that the value of the challenger's currency may give it an advantage over that of the hegemonic power. This is but a reflection of the differences between the underlying economies of the two protagonists.
The official Chinese defence expenditure is around $215 billion compared to Trump's new budget of $603 billion, so why worry? Well, firstly, we should assume that the Chinese official number underestimates the real number. let's assume that it does so by a conservative 25%. This then takes the real Chinese number to $269 billion. Next, we need to apply purchasing power parities which allow for Chinese products to be cheaper by a considerable margin than comparable weapons made in America. If we set this ratio at two, even though it may possibly be three to one, then the Chinese number is somewhere around $538. Surprisingly, this places Chinese real spending on a rough parity with the USA. But to compound this narrowing of the defence spending gap, the Chinese have been able to spend more of their budget on weapons and less on R&D having stolen most of the critical defence IP from America.
Lastly, while America's defence budget has to cover power projection across the whole globe and allow for potential Russian and Middle Eastern adversaries, the Chinese only need to focus all their military resources on their local region. To compound this geographic advantage, China has shorter lines of communication and resupply which is a powerful force multiplier. The net conclusion is that to maintain the current, apparent spending advantage that America has with a $603 billion compared to $215 billion budget, America will have to almost double its spending to over a trillion Dollars or in excess of 5.5% of GDP to the levels last seen in the Regan build up to counter the USSR at the height of the Cold War.
Consequentially, there is plenty to worry about for the American military in terms of the gap narrowing rapidly with China. One last consideration is that if, in case of a potential war in the South China Sea between the two nations, the PLAN had the ability to destroy half of the USN and although the USN might be the ultimate victor, it would have suffered such grievous loss in the process as so as to have lost its superpower status. Such an outcome would be a major deterrent to American action and would raise significantly the threshold of engagement, giving China exactly what it wants, i.e the latitude to operate freely in its own backyard to bully its regional neighbours.
It is clear that America is facing the biggest challenge of its history in the form of China, and as that challenge is mature, the decisions that Trump will take in the next two years will be critical to the stability of the world.
The key principle that should be applied in this situation is that political and military weakness has never deterred a war. Rather, weakness gives an expansionist power a free option which it finds hard to resist and for peace to be maintained, strength is vital if mutual deterrence is to ever have a chance. To allow deterrence to be effective, a nation has to increase its defence expenditure and must always remember that the cost of any war far outweighs the cost of effective deterrence. President Regan was that last successful advocate of this policy and we have every reason to expect Trump to follow in his footsteps.