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22 July 2018

Trump’s ‘America First’ Policy Could Leave U.S. Defense Industry Behind

BY LARA SELIGMAN

Signs that President Donald Trump’s “America First” policy could harm U.S. businesses and curb the United States’ clout around the world surfaced this week in an unexpected place—a small town outside London, during the world’s largest civil and military air event. The biennial gathering at the Farnborough International Airshow in the United Kingdom brings together military officials, diplomats, and arms dealers from around the world for plane-watching and deal-making. In other years, the United States has sent the Defense Department’s top weapons buyers, and top-end American products, such as the F-35 stealth fighter jet, have taken center stage.

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But this year’s event is being held in the shadow of Trump’s most controversial policies: his erratic approach to foreign affairs and his economic protectionism, including steep tariffs he has imposed on steel and aluminum.

Those measures and the resulting uncertainty are prompting some European countries to go their own way on major industry projects, including the development of a next-generation fighter jet, potentially leaving U.S. firms behind.

“I think it is forcing Europe together in ways that have unanticipated consequences for the U.S. defense industry,” said Byron Callan, an analyst with Capital Alpha Partners.

The aerospace and defense industry is a huge driver of U.S. jobs and economic growth. In 2017 alone, it generated $865 billion, supporting 2.4 million high-paying American jobs. The industry produced a positive trade balance of $86 billion in 2017, the largest of any U.S. industry, which reduced the country’s trade deficit by 10 percent.

It is also an important component of U.S. foreign policy. Arms sales are key to strengthening security partnerships and improving military cooperation with allies.

“Partners who procure American weaponry are more capable of fighting alongside us and ultimately more capable of protecting themselves with fewer American boots on the ground,” Peter Navarro, the White House director of trade policy, said during an April press conference.

So it came as no surprise when the Trump administration announced the decision to send a large delegation to help sell U.S. products at Farnborough, including top officials such as Navarro. The administration also used the opportunity to roll out the Conventional Arms Transfer (CAT) Policy, also known as the “Buy America” plan, an initiative to improve U.S. arms transfer processes and increase the competitiveness of U.S.-made products.

But the U.S. government showing at Farnborough was disappointing from the start of the weeklong exhibition Monday. Navarro pulled out at the last minute, as did Ellen Lord, the Pentagon’s top weapons buyer; Heidi Grant, the U.S. Air Force’s head of international affairs; and other U.S. government officials. At the show itself, only five U.S. military aircraft appeared on static display in the Defense Department corral that normally showcases products built for the armed services by Lockheed Martin, Boeing, and other U.S. defense giants.

And though the administration has touted new efforts to loosen restrictions on exports of armed unmanned aerial vehicles built by U.S. manufacturers, the signature MQ-9 Reaper drone made by the San Diego-based General Atomics was nowhere to be found.

“It’s the lowest number of aircraft in the U.S. corral I’ve ever seen,” said Joel Johnson, an analyst with the Teal Group. “There’s this huge push in theory to go sell American … but the U.S. government [showing] in all its majesty is the smallest I’ve seen in all my years at trade shows.”

Navarro and the rest of the missing officials cited other commitments, but the timing is suspect. Farnborough came on the heels of an extraordinary NATO summit, where Trump rebuked U.S. allies for inadequate defense spending. During a subsequent visit to England, Trump criticized British Prime Minister Theresa May’s Brexit strategy.

The first day of the air show was overshadowed by Trump’s first official meeting with Russian President Vladimir Putin in Helsinki, where the U.S. president publicly challenged the conclusion of his own intelligence agencies that Moscow interfered in the 2016 presidential election. He backtracked a day later, saying he misspoke.

The U.S. government officials who did show up, including Andrea Thompson, the undersecretary of state for arms control and international security, touted a larger-than-usual delegation and positive feedback from both allies and industry partners. But even as they sought to highlight American achievements, the potential long-term harm to U.S. businesses was emerging in more subtle ways—for instance in Europe’s fighter jet market.

The British Defense Ministry made a splash the first day of Farnborough, unveiling a prototype of a next-generation fighter jet that will be built as a partnership between Britain’s BAE Systems, Rolls-Royce, and MBDA and Italy’s Leonardo. The “Tempest” is planned to replace the British Royal Air Force’s Eurofighter Typhoon starting in 2035.

The Tempest will compete directly with later versions of Lockheed Martin’s F-35 for the European and potentially the Middle East markets, as will the next-generation Franco-German fighter jet, the Future Combat Air System (FCAS), announced in 2017.

Lockheed stands to lose billions of dollars in F-35 sales over the next few decades if the stealth fighter has to share the market with Tempest and FCAS. The U.K. is planning to buy 138 F-35s for its Royal Air Force, but Callan expects that the Brits will not procure the full complement of jets—especially if it comes down to a choice between the F-35 and Tempest. Meanwhile, rumors abound that Italy is also considering scaling back its planned purchase of 90 F-35 aircraft.

Lockheed is also pitching the F-35 in competitions to replace aging fighter fleets in Germany, Canada, Belgium, Finland, and Switzerland.

Some experts are doubtful that the Tempest will be fielded on time given Europe’s poor track record on collaborating on combat aircraft. But regardless, it’s clear that Trump’s foreign and trade policies are driving European nations to work together to protect their defense capability and industrial base.

“European politics are playing a major role in getting a next-gen fighter,” said Richard Aboulafia, an analyst with the Teal Group. “Any hope for internationalization of a future fighter has been Trumped.”

Meanwhile, traditional U.S. allies are increasingly wary of American military components. Several non-U.S. suppliers interviewed at Farnborough and at the Royal International Air Tattoo in Fairford noted that customers are increasingly ruling out components controlled by U.S. International Traffic in Arms Regulations (ITAR), which covers virtually all U.S. military subsystems. The problem is that a product with any ITAR-controlled components—for instance a missile’s GPS system—can be sold only to countries approved by the U.S. government.

This policy effectively gives the United States a veto over many potential arms sales, said Douglas Barrie, a senior fellow for military aerospace at the International Institute for Strategic Studies.

That’s not all down to Trump. ITAR restrictions have been a problem for contractors for years. But the volatility and unpredictability of the Trump presidency are not helping, said Gene Colabatistto, the president of defense and security at Canada’s CAE. U.S. allies are increasingly pushing to become self-sufficient, he noted.

“We are not going to stop buying U.S. products, but we are going to protect ourselves,” one non-U.S. contractor told Foreign Policy.

“I think the question is: Is this a short blip in trans-Atlantic relations, or is it something more of a fundamental shift?” Barrie said. “My view is that we just don’t know yet.”

Thompson, the undersecretary of state for arms control and international security, said in an interview with FP that she encourages allies to express their concerns directly. But she did not offer much reassurance.

“We are always going to stand up for what’s best for the American people. We are always going to defend what’s best for American industry,” she said.

To be sure, the administration can point to recent successes in arms sales and global defense spending. Thompson noted that U.S. foreign military sales for fiscal year 2018, pegged at almost $47 billion, have already surpassed last year’s total of $42 billion. Meanwhile, the United States has so far this year nabbed $112 billion in direct commercial sales of arms. Those numbers are trending up, she stressed. And U.S. allies are getting products faster than in previous administrations. For example, on the second day of the show, the Netherlands signed a long-awaited deal to purchase four Reaper drones. The $339 million sale had been in the works since 2003.

“We can shave weeks, months, and sometimes years off that timeline without compromising oversight, without compromising human rights, without compromising all those important vetting safety nets,” she said.

Thompson also defended the president’s comments at the recent NATO summit, noting that she had received positive feedback from many of her counterparts, who wanted help getting their governments to agree to increase defense spending.

“I wouldn’t call it ‘anti-NATO,’” she said of the president’s harsh rhetoric. “Candidly, the president has put some pressure on our partners to step up their spending, and we’ve seen it in the last year and a half—the numbers are there.”

Eric Fanning, the president of the Aerospace Industries Association and former U.S. Army Secretary, believes the U.S. aerospace industry is robust enough to withstand the current geopolitical environment. But he stressed in an interview that the industry can’t take its dominance for granted.

“Even though we are proud of where we are today and where the trajectory seems to be taking us, we can’t be complacent,” Fanning said.

Lara Seligman is Foreign Policy's Pentagon correspondent. 

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