war on the rocks

America’s Arms Sales Policy: Security Abroad, Not Jobs at Home

April 6, 2018

Announcing an impressive, if overstated, $110 billion worth of arms deals with Saudi Arabia last year, President Donald Trump made clear the primary motivation for the agreements: “job, jobs, jobs.” The administration is now poised to expand this effort in what officials have described as a “whole of government” push, easing export regulation and oversight to increase arms sales around the world. This “Arms Transfer Initiative” fits neatly into Trump’s broader efforts to create manufacturing jobs in the United States. In this spirit, the administration has already reversed Obama-era human rights-related restrictions on arms sales to Saudi, Bahrain, and Nigeria.

The initiative has yet to be released, but its parameters seem clear. Regulations of arms sales will be reduced. There will be “more public advocacy for foreign partners to buy American.” According to the Trump administration, military and diplomatic officials have been “underutilized by previous presidents;” as one senior administration official put it, “We want to see those guys, the commercial and military attachés, unfettered to be salesmen for this stuff, to be promoters.” This would, according to the official, represent a “180-degree shift” in America’s current “arms-length approach to foreign weapons sales.” Another unnamed administration official said the new approach will conform to the “America First” policy of “better aligning our national security and foreign policy objectives as well as economic imperatives for American jobs.”

As the world’s leading producer, consumer, and exporter of high-end weaponry, the United States has long used arms sales to influence smaller states, manage regional arms races, encourage allies’ inter-operability, and contain rivals’ capabilities, as well as to support its own defense industrial base and broader economy. It equips foreign militaries not only to defend themselves, but to use hardware in common with the United States, making joint operations easier. The governing document for U.S. arms transfers, Presidential Decision Directive 27 from 2014, lists ten “national security and foreign policy goals” that such transfers serve. These range from “Ensuring U.S. military forces, and those of allies and partners, continue to enjoy technological superiority over potential adversaries” to “Ensuring that arms transfers do not contribute to human rights violations or violations of international humanitarian law.”

However, the Trump administration’s new initiative threatens to disrupt this balance and undermine the often useful role that arms sales have played in U.S. foreign policy. Tina Kaidanow, head of the State Department’s Bureau of Political-Military Affairs, recently testified that the Arms Transfer Initiative not only “bolsters our ability to protect the United States by being a force multiplier for the U.S. warfighter” but “ultimately benefits U.S. industry by driving new innovation and creating high-quality American jobs.” But simultaneously linking U.S. security and American jobs through arms sales, while it may seem intuitive, rarely works. Indeed, such a policy will carry few economic benefits, and, if done indiscriminately, undermine what should be the central goal of the nation’s arms transfer policy: advancing the national security of the United States and its partners. Many deals that advance U.S. goals will create few jobs in the United States, while some of the most lucrative, job-creating arms deals can undermine U.S. interests.

Little Chance of Big Gains

The arms market is a surprisingly tiny portion of world trade. Annual estimates range from $86 to 105 billion dollars. Compare this to the global markets for cars ($1.35 trillion), pharmaceuticals ($613 billion), and even “human or animal blood” ($252 billion) and the international arms industry begins to look paltry.

By any estimate, the United States already dominates this industry. The State Department’s own estimates for 2015 credit the United States with a whopping 80 percent of the financial value of all global arms deliveries from 2013 to 2017. The most authoritative source of data, the Stockholm International Peace Research Institute, gives the United States a more conservative, but still commanding, lead of 34 percent of arms deliveries (measured according to an index of military, rather than financial, value) for the same time period. Russia comes in at second place with 22 percent, with the next four leading states scrapping for 5 to 7 percent each.

Easing regulations on sales to existing American customers is unlikely to have a huge effect on the size of these transactions, and even with relaxed rules, finding new state customers will be hard. Much of the remaining market is essentially closed to the United States. With the crucial exception of India, there is little opportunity to encroach upon the market share of the number two weapons exporter — Russia — since the United States restricts or bans sales of weapons to important Russian customers like China, Venezuela, Syria, and Vietnam.

Moreover, the primary client of American firms — the Pentagon — buys different weapons than does the rest of the world. The U.S. defense industry often does not bother to produce many of the weapons small states want to defend themselves from regional aggressors (such as China). Since the 1950s, the U.S. Navy has deliberately refused to buy diesel submarines — ideal for coastal and archipelagic defense — in favor of nuclear-powered, ocean-spanning undersea capital ships. Nor does the American defense industry currently sell ground-based anti-ship missiles, until now leaving this rapidly growing export market to smaller producers such as France, Russia, Sweden, Norway, and Italy.

 A Poor Job Creator

Even if the Trump administration boosts sales against such headwinds, this will not create many additional jobs. Arms exports are a surprisingly inefficient means of employing people at home.

Using census data, the Commerce Department estimates that a billion dollars of defense exports would “create or sustain” 3,918 jobs, considerably fewer than the 5,700 jobs per billion created by increased US exports more broadly. Doubling the United States’ annual arms exports to $40 billion, a highly unrealistic goal, would thus create fewer than 80,000 new jobs. There are other industries the United States can promote that will have larger effects on jobs.

One reason defense exports appear to be inefficient employment generators is that states that spend their own money on buying American weapons also care about “jobs, jobs, jobs” for their own people, as well as supporting their own aspirational defense industries. Most countries require “offsets,” mandating that a percentage of any arms deal (often 50 to 100 percent) must be re-invested in the importing state’s economy. Between 2013 and 2015, these offsets, had the work been performed in the United States, would have created or sustained over 46,000 jobs. In publicizing a recent Saudi deal for 150 S-70 Black Hawk utility helicopters at roughly $6 billion, Lockheed Martin predicted that it would “support” 900 jobs. But half those jobs would be in Saudi Arabia.

Yet another reason that arms exports are an inefficient employment mechanism: Any additional U.S. market share is likely to be heavily subsidized. In 2016, the United States spent $10 billion buying weapons for other countries, roughly 10 percent of the entire global arms export market, equivalent to Singapore’s or Algeria’s defense budget. Moreover, over the past six years, the Defense Department waived another $16 billion in normally mandatory fees for Foreign Military Sales — including $3.5 billion for a $15 billion Saudi agreement — largely to close deals that may have gone to other suppliers.

In short, when it comes to boosting the domestic economy, arms sales contain relatively little juice. And, as we shall see, it may not be worth the squeeze.

The United States Can Afford to Be Smart

What might the United States be giving up in exchange for relatively marginal increases in employment and economic growth? A myopic focus on the economic benefits of the deal will jeopardize one of the United States’ most important tools of international influence. American discretion in arms sales advances many important political goals (even if this administration appears relatively less interested in promoting human rights, a main historical focus of U.S. arms transfers) Indeed, because the economic stakes of any given arms deal are low, the United States has the luxury of using them, often ruthlessly, to advance the foreign policy interests of itself and its partners.

The United States has the most diverse export portfolio in the world. In the past five years, it has delivered weapons to nearly 100 countries. Its best customer over this period, Saudi Arabia, only bought 13 percent of all U.S. arms exports (all data from SIPRI). By contrast, 58 percent of Russia exports go to just three countries (India, China, and Vietnam). For China, it’s 64 percent (Pakistan, Bangladesh, and Algeria). Strong domestic demand also mitigates the pressure on a country to export. From 2010 to 2015 the United Kingdom, France, and Germany all exported about half of their defense production, while Russia exported 39 percent. The United States on average exports only a quarter of the arms produced by its firms. This combination of strong domestic demand and a diverse portfolio of client states makes America’s market power stronger than that of any other exporter.

The United States is so economically advantaged in making and selling weapons that it can limit conventional-weapons proliferation, technology diffusion, and corruption in contracting arrangements (and maintain a robust defense industrial base) while retaining its commanding market position. Less powerful exporting states are generally too constrained by the economics of production to pursue any goals besides increased sales. There are a number of ways in which America’s leverage in the area of arms sales — and, therefore, its ability to exercise restraint — can further its foreign policy goals.

Lower Levels of Corruption Lead to More Capability 

America’s ability to walk away from any given arms deal helps reduce several bad behaviors endemic to the global arms trade. Three-quarters of all international arms transfers go to countries that, according to Transparency International, score a “D” or worse in terms of anti-corruption measures in their defense sectors. Almost two-thirds of American exports go to such countries, but compare this to the other leading arms dealers. France is 76 percent and the United Kingdom is 85 percent. Russia and China do not export to any clients graded above a “D.” An identical story emerges when we look at exports to human rights abusers. The U.S. military-industrial complex may appear to be a collection of rent-seeking, war-profiteering, influence-peddling, threat-inflating sociopaths until you look at nearly every other country’s version.

The United States sells most of its weapons through its Foreign Military Sales program, which essentially adds foreign orders onto preexisting ones for U.S. forces. Foreign Military Sales plays an unheralded role in global anticorruption efforts, since clients pay the same price as the U.S. military, and most of the contracting is handled by the Department of Defense. Because the combined domestic and international orders tend to be large, economies of scale also drive down the cost for foreign clients, which makes for an attractive value proposition, even with many American strings attached. By contrast, when dealing with less stringent regulations in other countries, buyers are likely to encounter corruption — side payments to “agents” and bribes to officials — which ensures the purchasing state is not getting the best value for its money. This in turn undermines a fundamental goal of U.S. arms transfers: enabling partners to provide their own security and to potentially fight effectively alongside U.S. forces. Loosening American regulations to increase arms sales may not only increase corruption levels, but also reduce the value of the product bought by U.S. allies and partners, making their militaries less capable.

Controlling the Spread of Dangerous Technology

U.S. restraint also limits the spread of technology, which dampens global arms races and slows the spread of dangerous advanced weapons technology, which will eventually diffuse to American adversaries. And of course, it prevents the emergence of competitors, which makes good economic sense as well. Historically, the United States has practiced “unilateral restraint” by foregoing exporting its highest-capability weapons to a region until a viable competing product emerges; for example, refusing to deliver advanced medium-range air-to-air missiles to Asian states until China purchased the Russian equivalent R-77.

More broadly, the United States, more than any other exporter, jealously guards against the spread of weapons know-how even to its closest allies (often arms exporters themselves). A case in point is Turkey’s effort to acquire foreign long-range air and anti-missile defense systems, hoping to acquire the underlying technology and eventually become a major arms exporter itself. The U.S.-made Patriot system was eliminated from consideration because most of its technology would not be given to Turkey. Announcing the ultimate deal with Russia, Turkey’s presidential spokesman was frank: “The price difference could have been manageable. But the issue of technology transfer was more important. On this issue, our allies, including the United States, caused a big disappointment.” The United States, again because of its market power, can afford this restraint in order to maintain its global technological dominance.

U.S. Influence Through Regulations and Economic Concessions

Another reason the United States tends to be restrained in arms sales is the accompanying “red tape,” much of which the Trump initiative will seek to remove. U.S. regulations surpass those suggested in the toothless U.N. Conventional Arms Trade Treaty, which four of the most important market-makers — Russia, China, India, and Saudi Arabia — have not bothered to even sign. The United States makes onerous demands — including on-site inspections on sovereign territory — of importing states to ensure weapons do not get transferred to third parties, and require that these weapons only be employed for their intended use (i.e. self-defense). While not always consistently enforced, these requirements remain a powerful latent foreign policy tool.

Contrary to what industry lobbyists might say, this is not a source competitive disadvantage. It is a sign of American market power and a source of American influence. A Russian observer, writing in a U.N. report, notes rather drily that the U.S. export control system is both much more effective than any other country’s and “frequently used for influencing the end-user’s foreign policy.” The United States has used these rules to limit and shape proliferation, from banning the sale of Israeli airborne early warning systems to China to preventing the transfer of used light aircraft from Spain to Venezuela. It strictly regulates, when it wants to, how these weapons are used by the purchasing states themselves. Even France, a longtime ally in counter-terror and major power in its own right, needs to get U.S. approval before deploying its own Reapers. The capability and value of the American product (as well as the continued alignment of both countries’ interests) are enough for France to swallow its sovereign pride on this front.

U.S. arms exports rely on a simple bargain: Clients join an American-dominated global supply chain in return for better value weapons, larger orders of subcomponents from local firms, and access to leading-edge weapons technology. These smaller states, in turn, surrender to the United States large swathes of their foreign and defense policies, including foregoing sales to regimes that threaten U.S. interests. The process is characterized by hard bargaining and by a considerable degree of coercion by the United States, such as when it temporarily kicked Israel out of the Joint Strike Fighter program for selling unmanned aerial vehicle parts to China.

Sovereign states are of course reluctant to hand over their foreign policy, but the United States can use financial incentives (thereby reducing the economic benefit at home) to convince countries to buy American. Consider the formidable missile defense complex the United States is trying to create in South Asia among itself, Japan, and South Korea. Trump has suggested that, contrary to current agreements, South Korea pay for the THAAD missile defense system, at a billion dollars a battery, deployed in North Gyeongsang province: “We’re going to protect them. But they should pay for that, and they understand that.” But South Korea has already paid a heavy price for deploying THAAD due to Chinese economic retaliation. And there are massive security spillovers if South Korea continues to participate. Japan and South Korea’s participation in the Aegis system, for example, pulls two states loath to cooperate with each other bilaterally into something resembling a collective-security network. If economic concessions on THAAD or a possible $1.7 billion Aegis missile purchase are necessary to bring South Korea into this network, that may be a price worth paying.

Partner Capacity Building Should Build Capacity

Finally, overemphasis on weapons sales of threatens to undermine America’s most important security initiatives. Since the 9/11 attacks, the United States has continued to increase its “partner capacity building” efforts to improve the ability of other states, particularly less developed ones, to provide security for themselves and to contribute to joint operations. Newly arrived Defense Secretary Jim Mattis made this one of his top three priorities with his first policy statement, and he has since pushed the Pentagon towards “Threat-Based Security Cooperation.”

Asking embassies and even the military to play a role in selling weapons is not new, but pursuing this single-mindedly would undermine these Security Cooperation Offices’ central mission. Improving foreign security forces is a complicated task that includes, according to the Congressional Research Service, “training, mentoring, advising, equipping, exercising, educating and planning with foreign security forces, primarily in fragile and weak states.” Shifting focus from the countries facing the most important mutual threats to ones most likely to buy lots of weapons will worsen these effects.

One of the key lessons of security cooperation is that trying to build American-style militaries within developing states is often a terrible idea. The United States does not produce many weapons smaller states need. South Korea’s quite successful T-50 Golden Eagle multi-role jet — bought by Iraq, Thailand, and the Philippines — is a more appropriate counterinsurgency weapon than anything currently in the U.S. arsenal. A Brazilian Embraer Super Tucano — which an American firm builds under license for transfer to Afghanistan, Lebanon, and Nigeria — is better still. Any effort to increase U.S. arms sales should acknowledge this limitation.

Turning Security Cooperation Officers in U.S. embassies and on regional combatant command staffs into “salesmen” will undermine these professionals’ status as valuable advisors working towards mutual security interests. The result will be less capable allies and, if this causes growing mistrust in American intentions, long-term damage to America’s ability to supply weapons. 

A Smarter American Arms Export Policy

The U.S. arms transfer process does remain onerous, but we must also recognize that many regulations are a sign of U.S. strength rather than a source of competitive weakness. Any relaxation of these restrictions must be done for international political, rather than domestic economic, reasons. Most importantly, a smarter arms transfer policy must recognize the interests of U.S. partners (and competitors), something the United States has historically done poorly. Several reforms can move this along better than what the Trump administration is proposing.

Export Less Technology, But More Drones

First, and most importantly, the United States must remain stingy about transferring technology to potential competitors. The Trump administration should reiterate the longstanding policy of “unilateral restraint.” This is not only a strategic interest but an economic one as well, as it hinders proliferation of technology and the spread of competition for American products from emerging exporters. More broadly, the United States should consider economic incentives, such as producing jobs in client states rather than at home, in place of technology transfer to close arms deals.

The potential for unilateral restraint in drones is over. To date, the United States has been extremely discrete in exporting unmanned systems (particularly armed ones). But somewhat comparable products are now readily available from multiple sources in the global market. Over the past five years Israel has filled the gap, delivering 43 percent of all drone exports, with China a rising competitor at 32 percent (source SIPRI). If the United States begins exporting unmanned aerial vehicles more freely, American drones are likely to both dominate the market and be subject to more rigorous regulation. That said, the economic boom is likely to be modest; the entire annual military unmanned aerial vehicle market is projected to be under $10 billion as late as 2026. The security benefits for the United States of drone exports remain considerable however. Interoperability among networked drones from multiple countries will likely play an enormous role in future “informationalized” conflict. Strong security incentives exist for the United States to ensure that allies operate its unmanned systems.

Export Capability First               

The State and Defense Departments must maintain the professional identity of Security Cooperation Offices. Concentrate on improving allied military performance first, any modest economic benefits second. Sometimes American weapons are not the right answer. Potential customers and balancers against China such as Taiwan and Vietnam would be better off buying defensive weapons such as anti-ship missiles and diesel submarines (ideally produced by Germany or South Korea rather than Russia) than most American products.

Keep China Down, Russia Out, and Friendly States In

A smart arms transfer policy would strangle both Russia, the number two exporter, and China, which is trying to take its place. Russia in particular needs arms exports to fund its aggressive but underfunded military modernization plans (not to mention hard currency for its weak economy). It is in America’s interests to choke off as large a percentage of the Russian export market as possible in favor of the products of more closely aligned countries. In terms of both American influence and curbing proliferation, it is better for countries like Malaysia and Indonesia to buy German or South Korean submarines than Russian. This will have the added benefit of diminishing the quality and, eventually, raising the price of the products Russia will export to states, such as Syria, that cannot buy arms from anywhere else.

In the spirit of bolstering potential partners and limiting the reach of Russian weapons, the United States can directly compete against Russia in one important market. India accounts for a stunning 39 percent of Russia’s recent arms exports (SIPRI). Indian orders might be big enough to provide some meaningful economic benefits to the United States, but more importantly, U.S. sales would cut into Russia’s market share. Tying India and the United States closer, even if it means allowing most production, jobs, and even some technology transfer to go abroad, should be a central goal of U.S. arms transfer policy. Lockheed Martin’s offer to transfer the F-16 production line to India appears a step in this direction.

America should accept that Saudi Arabia is going to buy a lot of U.S. weapons, but avoid coddling the Kingdom. Saudi Arabia (and its Gulf State allies) will remain an important customer largely because the country is desperate to keep the United States involved in the region. The Saudi military is almost entirely American equipped and trained and most of its military capability requires continued American support to function for more than a couple of days. A few additional jobs may result from selling more arms to the Kingdom, but this may not justify giving up the leverage over Saudi and its allies’ policies towards Yemen, Syria, and Qatar that do not necessarily advance American interests.

The United States should encourage, but steer, Europe. Since the Cold War the United States has used its economic and political clout to systematically inhibit an independent European defense production capability. This has certainly increased U.S. market share, but continued efforts come at the expense of more important political goals. It would be much easier to ask NATO allies to spend 2 percent of their GDP on defense if more of this money would go into indigenous industries. The United States should recognize that European global competitiveness in the arms trade can serve American interests (and perhaps provide competition for its own sheltered defense industry).

This will relieve pressure on Europe to export to countries embargoed by the United States, which undermines the influence of U.S. arms transfer policy. When the United States placed real restrictions on arms transfers to Egypt’s al-Sisi regime, other states quickly attempted to fill this gap. As one French policymaker cynically noted, “Obama was the [French fighter jet] Rafale’s best salesperson.” Overall, from 2012-2015 the export agreements of major European sellers to Egypt have gone up forty-seven-fold over the previous four-year period.

That said, Europe has by and large cooperated with successful arms embargoes against Russia and China (although Europe does sell nearly $400 million of dual use equipment to China each year). Maintaining and even tightening these key sanctions must be the highest priority of any defense cooperation policy with Europe. More broadly, fixation on “buying American” misses tremendous opportunities for leading coordinated action with like-minded states in Europe and elsewhere. This is feasible given that the United States, NATO members, South Korea, Israel, and a few other allies account for a whopping 62 percent of total global arms exports (SIPRI).

To this end, the United States should liberalize its own market. Much as when “foreign” automotive firms build their cars in the United States, acquiring products from abroad may create more jobs than selling weapons internationally. The U.S. Air Force’s current $16 billion fighter-trainer contract has been largely narrowed down to three candidates with foreign connections: a Lockheed Martin-Korea Aerospace Industries version of Korea’s T-50; a new design from a Boeing-Saab team; and an entirely foreign offering from Leonardo. Winning such a contract will give one of three like-minded states (South Korea, Sweden, or Italy, respectively) a boost in other international competitions against less scrupulous dealers. And the United States can still shape these exports for its political interests, such as when it recently vetoed the T-50’s export to Uzbekistan.

America is Like No Other Arms Exporter and Should Act Like It

The United States — by dint of its huge military budget, massive defense R&D, and long dominance of the global arms market — can use arms transfers in ways beyond the dreams of its competitors. Indeed, many competitors recognize this, albeit grudgingly. I have interviewed officials in multiple countries (both clients and competitors of the United States) claiming they will defer to U.S. wishes on arms exports if they trust it is done for political rather than economic reasons. Many of America’s closest allies, who are also arms export competitors, look to the United States for leadership on controversial importers such as Saudi Arabia. And, the Trump administration should be given due credit for exercising discretion, given, for instance, its recent unilateral embargo on arms transfer to South Sudan. In fact, one administration official stated flatly that sales “will not come at the expense of human rights.” In no small part, U.S. domination of the global arms trade is based on the world’s belief that the United States uses its clout to advance its political ends, not economic gain. Destroying this reputation will do little to bring jobs to the United States, while doing much to damage American influence abroad.

 

Jonathan D. Caverley is Associate Professor of Strategy, United States Naval War College and Research Scientist, Massachusetts Institute of Technology. The views expressed are his own and do not reflect the official policy or position of the Naval War College, the Department of the Navy, the Department of Defense, or any other branch or agency of the U.S. Government.

Image: White House