On April 19, 2018 the Trump administration released an updated version of the U.S. Conventional Arms Transfer Policy, the primary document outlining the strategy and guidelines for American arms sales abroad. Compared to the Obama‐ and Bush‐era guidelines, the Trump administration’s policy emphasizes the economic benefits from arms sales. As a result, the new policy is focused on streamlining the arms sales process, loosening controls on what can be exported, and encouraging the U.S. government to be more active in brokering deals. At a news briefing announcing the new policy Peter Navarro, assistant to the president for trade and manufacturing policy, said that, “This will keep our defense industrial base in the vanguard of emerging defense technologies while creating thousands of additional jobs with good wages and generating substantial export revenues.”
Though the consequences of this policy change will take years to unfold, there are several things we can already predict about the limits and dangers of the new policy. Below we list the most important areas to watch and provide links to some of the best analysis available to date around the web.
It’s all about jobs, but it won’t create many.
If the administration’s primary goal is to enrich a few major defense contractors, it may succeed. If, on the other hand, the goal is to create American jobs and bolster the economy more generally, disappointment is inevitable.
Jonathan Caverley, writing at War on the Rocks, argues:
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.
Unleash the drones
Until now the United States has kept a close hold on armed drones like the Predator and Reaper, allowing China to meet most of the global demand. Under the new policy the United States will begin to sell some drones through the direct commercial sales process.
In an oped for the the Washington Post Michael C. Horowitz and Joshua A. Shwartz write:
The new policy goes further than the Obama administration’s 2015 guidance in a few ways. This means U.S. manufacturers can export more directly to other countries and bypass the foreign military sales process, which entails more time‐consuming involvement from the U.S. government. Second, the new rules reclassify drones with strike‐enabling technology, like laser target designators, as unarmed, which will make it easier to export them.
Counterterrorism baked right in
A much less visible policy change with important ramifications is the move by the House Foreign Affairs Committee to amend the Arms Export Control Act to include counterterrorism as an explicit strategic justification for weapon sales.
As Caroline wrote for Ink Stick, this seemingly subtle change in language expands the legal and institutional footprint of the war on terror and does so despite the fact that most of the major conventional weapons for sale by the U.S. aren’t much use for fighting terrorism or insurgencies.
Every fed is now a salesperson
With this increased sales push, the Trump administration has established a new “whole of government” approach. From the same Inkstick article, Caroline also notes,
The change will effectively turn civil servants who had been third‐party brokers between foreign governments and American defense contractors into de facto salespeople. Officials talking up American defense products isn’t new, but giving them the directive to increase “economic security” gives profit a greater emphasis — with the commander‐in‐chief and his 2017 sales pitches to the Saudis, for example, offering model behavior in this regard.
Arms sales will now (likely) cost U.S. taxpayers more money
It’s still unclear how this strategy will be implemented at the guidance and framework level, but there are several logical changes that could flow from a new emphasis on profit. This could include a transition from deals that use offsets as incentives to increased use of Foreign Military Financing and other incentives that would shift the burden of incentives from industry to the federal government. Caroline explained the implications of this change, writing,
Currently, the majority of incentives to foreign buyers of American weapons come in the form of offsets. These agreements are made once the US government has cleared a sale and the company can liaise with whichever foreign government is purchasing the product. Offsets are meant to make the deals more attractive, and can include anything from co‐production to technology transfer to Foreign Direct Investments. This takes a major cut out of any profit for the defense contractors, who shoulder most of the cost. In 2014 alone, contractors reported $20.5 billion in defense‐related merchandise exports, with $13 billion worth of those sales including some kind of offset. The total value of reported offset agreements for that year was $7.7 billion — over one‐third the value of total defense exports for that year.
Obviously, this makes offsets an unattractive option for increasing economic security. The defense industry would prefer not to bear that burden—so then how will diplomats sweeten the deal for interested buyers while still protecting profit margins? …
Foreign Military Financing…to the rescue?
This type of financing comes directly out of the US federal budget—specifically out of the State Department’s portion. The final budget omnibus that was signed into law in March settled on $6.1 billion to give freely to other countries to purchase American weapons. That’s right—$6 billion of American taxpayer dollars this year alone will go towards subsidizing the arsenals of other nations so that they too can “Buy American.” Foreign Military Financing had, until now, been on the decline. From 1985 to 2015 the program decreased 50 percent in real terms. With this new economic security component to stated guidance on arms sales, there is a very real possibility that Foreign Military Financing could continue to rise.
Arms sales will continue to be a risky business
As we wrote in a Cato Policy Analysis published in March, the United States has a poor track record when it comes to assessing the potential risks from selling weapons abroad. Since 2002 the United States has sold over $300 billion worth of major conventional weapons to 167 countries including places with repressive governments, histories of human rights abuses, and which are engaged in active conflicts.
Unfortunately, despite the many negative unintended consequences that arms sales can spawn, nothing in the Trump administration’s new policy suggests it will pay any more attention to these risks than previous administrations. Given the administration’s zeal to sell more weapons abroad, the most likely outcome is even less sensitivity to downstream risks. Stay tuned.