(FORBES) In 2012, the Department of Defense received $118 billion for weapons procurement. Next year, it will receive less than $100 billion — a lot less if the deficit-cutting mechanism called sequestration again kicks in. Tony Capaccio of Bloomberg News revealed last week that sequestration could drag down budget authority for weapons procurement by another 16% from the administration’s already reduced 2014 request, to a figure somewhere in the mid-eighty billions.
With weapons spending falling like a rock, Pentagon policymakers are scrambling to find ways of protecting the defense industrial base. Technology and training are the twin pillars of American military power, and sequestration is undermining both. There are ways of working around the training problem by adopting measures like tiered readiness, but if the military stops buying tanks, the ability to build them will disappear fast. Ditto for submarines, fighters, and every other major combat system.
One solution to this dilemma that officials have hit on is to compensate for plummeting domestic demand by facilitating foreign arms sales. In a move that must have Vietnam-era liberals turning in their graves, the Obama Administration is doing more to promote overseas weapons sales than any other administration in modern times. As Colin Clark of Breakingdefense.com pointed out from the Paris air show in June, “arms export licenses are being cleared much more quickly than in past years,” because policymakers understand that “the American industrial base will depend increasingly and significantly on foreign sales to remain robust.”
The Abrams tank is a case in point. There is exactly one plant left in the United States capable of building the Abrams, and the Army says it has no immediate need to buy more tanks. So it is working closely with prime contractor General Dynamics GD -0.11% to facilitate foreign sales of tanks and tank components to countries like Egypt, Saudi Arabia and Morocco. The service argues that foreign military sales can help keep the tank plan running until it finds the money for upgrades later in the decade. (Disclosure: GD gives money to my think tank.)
However, Congress has been skeptical that foreign sales alone would be sufficient to preserve the skills necessary to build armored systems, and recent events in Egypt — a major customer of the tank plant — suggest that skepticism is well-founded. Despite its efforts to help sell U.S. weapons overseas, the White House is deferring exports of combat systems to Egypt on a case-by-case basis to send Cairo a message about its displeasure with the military’s heavy-handed crackdown on dissent.
The Egyptian situation illustrates why relying on overseas arms sales to sustain the defense industrial base is a policy doomed to failure. There are at least six major reasons why foreign sales in and of themselves are not an adequate substitute for steady domestic demand if the United States wants to preserve the technological foundations of its global military dominance.
First of all, the level of demand for U.S. weapons overseas is too low to keep U.S. defense plants humming. In a typical year, the total value of arms in international trade isn’t much more than the likely amount of decline in Pentagon procurement budgets between 2012 and 2014 – $30-40 billion — and much of that money will go to arms makers in other countries. Furthermore, demand varies wildly from year to year depending on economic and geopolitical conditions, making the market very unstable.
Second, the composition of demand doesn’t match up very well with the technology needs of the U.S. joint force. Although there is usually foreign demand for the latest American tank or fighter, overseas customers don’t buy U.S. submarines, aircraft carriers, bombers or ballistic missiles. Chances are we wouldn’t be willing to sell even if they were in the market, but no country has even proposed buying a Virginia-class attack submarine. So to the extent such high-end combat systems require special skills in their construction, America is on its own in sustaining them.
Third, even when it is willing to share military technology with friendly nations, the U.S. is often constrained in what it can sell overseas by regional political concerns. For instance, Washington has long been a leading supplier of weapons to the Kingdom of Saudi Arabia, but it draws the line at capabilities that might pose a threat to the survival of Israel. So the centerpiece of a record-breaking arms deal with the kingdom in 2011 was an improved version of Boeing BA +0.42%‘s F-15 fighter — a very lethal system, but not one that the U.S. military plans to buy in the future. (Disclosure: Boeing gives money to my think tank.)
Fourth, overseas buyers of major combat systems have become very demanding about what terms they will accept to sign a contract. It is not uncommon for countries to demand that half of the value or more in a transaction be covered by “offsets” to local industry. French aerospace firm Dassault has been wrangling with the government of India since January of 2012 over how to structure offsets for a major fighter sale designed to bolster India’s own aviation industry. Obviously, if much of the industrial work associated with an arms transaction must be done in the foreign customer’s factories, that undercuts the value of the deal in preserving America’s own industrial base.
Fifth, if you think the Pentagon’s acquisition processes are overly politicized and bureaucratized, you should see the way other countries buy weapons. Transparency and timeliness are not their strong suits. Overseas purchasers of U.S. arms are notoriously fickle, frequently changing their minds about what they want to buy and when they want to buy it. Multiyear delays are commonplace. U.S. defense companies can cope with this uncertainty if they enjoy steady demand from their primary U.S. customer, but without that foundation to rest on, it would be difficult to sustain production activities in a coherent, economical fashion.
Finally, the U.S. political system often creates complexities that diminish the potential for overseas arms sales. High overhead costs can make the price of U.S. weapons uncompetitive. Arbitrary restrictions on where weapons must be made, or where they can be sold, further limit export potential. Barriers to the export of sensitive technology typically are much higher here than in other nations. And sometimes legislators impose ideological constraints on sales, as in the prohibition on selling the Air Force’s prized F-22 fighter even to longtime allies like Japan.
When you consider all the limitations and constraints on foreign arms sales together, it becomes obvious why such sales are no panacea for preserving a robust defense industrial base. The transactions can make a big difference in keeping a particular tank plant in business or bolstering economies of scale on a specific aircraft line, but there is no substitute for steady demand from the Pentagon. The simple fact is that half of all the global demand for advanced military technology originates in Washington, so if Congress and the White House don’t pay attention to how their actions are impacting the nation’s capacity to build war-winning weapons, no combination of overseas customers is likely to keep the industrial base healthy.