Shooting Ourselves in the Foot
In a stunning decision, the U.S. Air Force awarded its biggest-ever military order to a foreign supplier at the end of February. The $40 billion deal, conferred to a partnership including the European Aeronautic Defense and Space Co. (eads), was a blow to U.S.-based rival Boeing, which was the odds-on favorite to win. More importantly, this contract to supply the military with new airborne refueling tankers confirms what analysts have called a “major shift” in U.S. procurement policy.
The contract, currently one of the largest at the Pentagon, has the potential to ratchet up to a massive $100 billion. It breaks a multi-decade relationship with Boeing, the company that built the bulk of America’s existing fleet. The 179 planes on order will be based on the European Airbus 330 design, and although the final assembly of the craft will take place in Alabama, components will be engineered and manufactured around the globe.
“This isn’t an upset,” Loren Thompson, a military analyst at Washington’s Lexington Institute, said. “It’s an earthquake” (International Herald Tribune, March 1).
In fact, the earthquake victory for eads caught just about everybody by surprise. Since Boeing is an American company, many erroneously assumed that Boeing would be awarded the contract. In a sense, Boeing itself could be forgiven for thinking it was the shoo-in recipient of the contract. Until the past few years, U.S. national policy has been to promote and foster development of domestic industries supporting a self-sustaining military complex. Awarding military contracts to domestic producers not only facilitates development of U.S.-based manufacturing and technology, but also keeps the money, the jobs and the future parts supply chain in the United States as well. Now, although eads is partnering with Los Angeles-based Northrop Grumman and jobs will be created in the U.S., approximately 40 percent of the new tankers will be manufactured overseas, supporting foreign competitors to U.S. industry.
But perhaps Boeing shouldn’t have been all that surprised. In an effort to reduce costs, Boeing itself has become much less “American” in recent years. Boeing, along with a whole host of other “American manufacturers,” now relies on international sources for a large proportion of the components used in military product lines.
National policy, it seems, is changing. Now “free market” economics—awarding contracts based primarily on who offers the product at the cheapest price—overrides ensuring the viability of domestic industry.
According to the Financial Times, “Such a landmark victory for eads would have been almost inconceivable three years ago, but U.S. relations with Paris and Berlin have sharply improved since the election of the more pro-U.S. Nicolas Sarkozy as president of France and Angela Merkel as German chancellor” (March 2). The fact remains, however, that relying on other nations for military needs is dangerous, even if those nations are currently friends of the U.S.
As the Financial Times pointed out, just three years ago there would have been no way the U.S. would have bought the planes from Europe. Yet free-market proponents argue that by opening up military contracts to foreign suppliers, the military can take advantage of greater foreign efficiencies and avoid wasting resources supporting domestic industries that otherwise might not be profitable. By purchasing certain slightly cheaper and/or arguably sometimes superior foreign-made military equipment—the theory goes—the Air Force gets more bang for its buck; thus, it can spend more on other military needs, actually making the military stronger.
This short-term thinking is a dangerous trap. Paying less now could mean paying with our lives later.
Promoting military equipment purchases based on free-market cost analysis alone, or on political convenience (another factor likely in this case), while sacrificing national self-sufficiency in matters of defense, neglects far greater long-term dangers associated with relying on off-shore producers to supply the essential needs of the nation in times of crisis. It could easily open up the nation to geopolitical blackmail.
For example, there is now only one company left in the U.S. that manufactures roller cutters for heavy steel or armored plate. Because of this limited domestic manufacturing capability, when the urgent call came in for more armor for American humvees in Iraq at the end of 2004, it took almost a year to produce that armor plate (American Chronicle, Feb. 9, 2006).
Has America forgotten the War of Independence? In that war, the United States learned the costly lesson of depending on foreign nations. Then, because of a lack of manufacturing power, the U.S. had to rely on other nations to supply all sorts of military equipment, and Britain routinely cut America’s supply lines. To correct this weakness, America’s founders implemented a national strategy promoting industrial and military self-sufficiency in order to enhance the nation’s security.
This latest military contract with eads and the humvee armor debacle are part of a broad trend: the return of U.S. dependence on foreign nations.
Even the president’s helicopter is foreign-made.
America’s leaders have allowed the nation’s manufacturing base to erode. Many manufacturers—including several that are strategically important for the military—have gone bankrupt or been bought out; others have moved overseas where manufacturing costs are cheaper.
The full consequences of this short-term, free-market-inspired thinking may not be felt in times of peace and prosperity, but inevitably, when crises arise—and they always do—such neglect may prove fatal. The failure to learn from history is sapping America’s self-sufficiency and draining the country’s industrial lifeblood. Eventually, it will threaten America itself.
