Military expenditure and bilateral trade: evidence from China and the U.S. in the South China Sea (2000–2024)

This paper aims to analyze how military spending by China and the United States has affected bilateral trade between the two countries in the South China Sea over 2000–2024, focusing on how regional tensions caused by the maritime conflicts and military activities have affected bilateral trade. The study adopted a quantitative methodology, which used the World Bank annual report and other official records, measuring military spending in US dollars and the bilateral trade between the two countries. The study sample included the whole period between 2000 and 2024. Data analysis was done using Eviews and an OLS ordinary least squares model to test the hypothesis on the effect of military expenditure on bilateral trade. These results showed that the Chinese military spending had no significant effects on bilateral trade, but the US military spending had a negative and significant effect. The study found that tensions in the regions and the weaponry policies largely affect business, hence the suitability of political and safety factors in the dynamics of bilateral trade in the South China Sea. In theory, the work can be added to our knowledge regarding the economic, political, and security dynamics because it draws our attention to the correlation between the military expenditures and bilateral trade through the prism of hegemonic stability and interdependence.