I’m trying to understand whether the US dollars reserve currency role affects military supply chains through similar mechanisms as civilian ones. In civilian manufacturing, a structurally strong dollar can make imports cheaper and exports less competitive, incentivizing offshoring and globalized supply chains optimized for cost and financial efficiency rather than resilience. My question is whether military and defense supply chains are insulated from these forces, or whether they are ultimately shaped by the same macroeconomic incentives of exchange rates, capital flows, and financialization, just with added procurement rules and security constraints.
Put differently, does reserve currency status indirectly discourage domestic defense manufacturing capacity over time? Or are defense supply chains sufficiently policy driven that dollar strength and capital account dynamics are largely irrelevant?
I’m not asking whether the US can produce domestically in wartime, but whether the peacetime structure and incentives facing defense production differ meaningfully from civilian industry at the macro level.
The USA dollars "reserve currency status" isn't particularly important for the US economy. Basically it means that a bunch of US dollars are being used internationally in drug deals (and the like) and/or in poor countries where the domestic currency is (or recently was) highly unreliable. That means the US Federal Reserve makes some nearly free money because the face value of paper notes is way higher than the marginal unit cost of printing them.
For some reason something about the words "reserve currency" attracts cranks who attribute all sorts of magic powers to it.
I think the mechanism you describe is precisely the one I’m questioning. If I’m interpreting your comment correctly when you say, “Basically it means that a bunch of US dollars are being used internationally,” you’re describing persistent demand for dollar claims, which can contribute to a strong real exchange rate and cheaper imports. I’m not sure whether this is a consensus view or how strong the empirical support is, but I do think this mechanism is at least widely represented as shaping civilian supply chains by discouraging domestic tradable production over long timeframes.
My question is whether that same mechanism meaningfully stops operating when the end user is military procurement rather than civilian consumption, or whether it continues to affect the upstream industrial base materials, machine tools, subcontractors, and skilled labor that defense production ultimately depends on.
The Federal Reserve prints and/or removes dollars from circulation so that the functional demand for dollars is always what the Federal Reserve wants it to be.
The reserve currency status just means the Fed must print more money to get the supply/demand relationship it wants. But, it doesn't effect the economy because the Federal Reserve would keep supply/demand at the same place if it wasn't the reserve currency.
I understand the mechanical point you’re making about the Feds ability to manage nominal supply/demand. What I’m trying to understand is how that neutralizes the balance of payments side of the economy, given the claim that it “doesn’t affect the economy,” since persistent foreign demand for dollar assets leads trade surpluses to be structurally recycled back into dollar denominated markets, placing upward pressure on the real exchange rate.
Even if inflation is controlled by fed mechanisms, a stronger real exchange rate makes exporting harder and importing easier, disadvantaging manufacturing over time. My question is whether defense supply chains are insulated from that process, given that they still rely on the same upstream industrial base of raw material, and skilled labor that is shaped by those macro incentives.
The defense industrial base is primarily onshore so there is less trade flows there for the US.
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