Push extra defense spending into chips, not tanks, Dutch central bank urges

When increasing defense spending, the Netherlands should ot focus on tanks, but on areas in which the Netherlands excels, economists at De Nederlandsche Bank (DNB) argued on Friday after new research. Chips rather than tanks, they suggest.

The Netherlands has agreed to increase its defense spending to 3.5 percent of its gross domestic product (GDP) within ten years. “This means that we will spend increasingly more annually from now on, reaching an additional €19 billion by 2035,” the DNB experts said.

They suggest it would be wise to explore how to spend this money efficiently. “The Netherlands is not in a good position to produce defense goods without civilian applications, such as tanks and ammunition,” they point out.

The Netherlands does have an advantage when it comes to products like semiconductors and specific types of microscopes. The DNB said the country will be in a better position by focusing on items that have a function in civilian life, described as “military products that can also be used outside the military.” These include computer chips that can be placed in a drone, but also in a phone.

In the short term, economists expect that the increased spending will primarily lead to increased imports, rather than new domestic production. This is because the emphasis will be on rapidly expanding military capabilities, and there appears to be little room for economic considerations.

But for longer-term expenditures, it would be wise to spend the money investing within Dutch borders, which can stimulate economic growth. However, the effects of this should not be exaggerated, the DNB said.

Even if the Dutch government spends most of its money domestically, some expenditure will still indirectly go abroad. One reason is that many components will still need to be sourced elsewhere.