While the United States is the largest exporter of aerospace and defense (A&D) products, trends in the global marketplace are seen as limiting the dominance of the U.S. Industrial Base. A 2016 Industry Report indicates that foreign governments are closing in on the vast U.S. market share of A&D products and services, a development that could have long-term effects.
The global A&D market is shifting in size and scale. The more traditional western supplier-purchaser relationship is being augmented by purchaser countries that are investing in and heavily subsidizing their domestic industries to supplement current needs. Allied countries are taking more ownership in the U.S. acquisition process through the government-to-government Foreign Military Sales (FMS) program and through the government-to-industry Direct Commercial Sales (DCS) process. As allied partners advocate for more local input in the manufacturing / assembly process and for a more hands-on approach in the sustainment of defense systems, they will be able to mirror the U.S. capacity for research and development to manufacture similar products. Several countries working with the U.S. on global security cooperation, such as Israel and South Korea, are expected to increase exports of domestic aerospace and electronic products.
Competition for regional influence is also unfolding as traditional defense suppliers are offering more avenues and better financing options to emerging countries. Russia and China are competing in the same markets as the United States, while allied countries are increasing their defense budgets and shopping for products from various sources. A recent Congressional Research Service report highlights that while the United States ranked first in arms transfer agreements to developing countries in 2014 totaling $30 billion in value, Russia was second with $10 billion. The same report detailed that in 2014, Russia was first in the value of arms deliveries to developing countries at $8.4 billion. While many regard Russia as a country lacking in innovative R&D investments and selling to second-tier markets, it is able to sell a wide array of weapons at lower prices with less stringent regulatory burdens.
On the surface, the reported 3.2 percent increase in U.S. A&D exports in 2016 shows signs of traction from its defense sector, but foreign competition is incrementally narrowing the gap. Russia and China, accounting respectively for 25 and 5.9 percent of global defense exports in 2015, are both looking beyond their own markets. As low oil prices, regional conflicts, and disparate needs affect the spending of foreign customers, emerging actors will compete with the United States with a race-to-the-bottom mentality. While such global trends are constricting the U.S.'s competitive edge in the A&D market, budget sequestration and an overburdened acquisition and export-control regime in Washington D.C. are creating slower performance metrics for the delivery of products at all stages of the process. Not only will these trends create commercial burdens for U.S. companies, they will have long-term implications on U.S. foreign policy and national security strategies around the world.