Along with canceled political rallies and missed teetimes, the coronavirus crisis is threatening another favorite activity of President Trump — the touting of U.S. military hardware and the hard sell for global leaders who visit the Oval Office.
As the self-described dealmaker-in-chief, Mr. Trump routinely touts the lethality and overall excellence of U.S. military hardware — along with thousands of U.S. jobs and hundreds of billions of dollars their exports can generate. In February, on his last overseas trip before the COVID-19 pandemic shut down economies and threatened defense budgets around the world, the president was hailing a $3 billion arms deal with India.
“We make the greatest weapons ever — airplanes, missiles, rockets, ships. We make the best and we’re dealing,” President Trump told a cheering New Delhi crowd standing alongside Indian Prime Minister Narendra Modi.
But in the past few weeks, it has become abundantly clear that governments and the defense industry are by no means immune to the effects of the global pandemic, said Rachel Stohl, an expert in the international arms trade at the Washington-based Stimson Center.
A number of defense manufacturers and vendors have been forced to significantly curtail if not altogether suspend their operations. In the U.S. alone, that figure included more than 100 businesses, although some have already resumed operations, Ms. Stohl said.
Other countries, including allies such as Indonesia, South Korea and Thailand, are already talking about significantly reduced military budgets in the coming year as their revenue base crumbles. In Europe, NATO allies battered by the virus face new pressures not to meet Mr. Trump’s oft-stated demand for more military spending as they try to rescue their economies.
Oil-dependent states such as Saudi Arabia, long one of the biggest buyers in the global arms bazaar, could face a double whammy on military spending, as record low oil prices on top of the coronavirus panic play havoc with their original spending projections.
“There are really challenges that will impact military expenditures and arms transfers for many years to come,” Ms. Stohl said.
Before the novel coronavirus pandemic made its appearance on the world stage, global defense spending had been on a steady rise. Now analysts forecast governments will almost certainly be forced to cut back on buying military hardware over COVID-19 concerns, cuts which would hit the U.S. industry hard as the largest arms exporter.
From 2015-2019, the U.S. constituted 35% of all the world’s arms exports, according to the Stockholm International Peace Register Institute (SIPRI). Last year, global defense spending reached $1.9 trillion.
“Not many of us really know how much $1.9 trillion really is. We’re talking about a substantial amount of money,” said Nan Tian, an analyst with SIPRI.
Market peak?
The coronavirus shock, analysts note, comes as a time when global defense spending may already have peaked and were on a downward track.
“It was unlikely this year was ever going to look like last year anyway, which was a recent high of foreign military sales,” said Mackenzie Eaglen, a defense specialist with the American Enterprise Institute. “Yes, there’s going to be the COVID effect but it was already going to be” lower.
According to SIPRI, worldwide military spending in 2019 represented 2.2% of global gross domestic product, which amounts to about $249 per person. Global military expenditures were 7.2% higher last year than it was in 2010, indicating that military spending had accelerated in recent years.
“What we can expect is that spending [is] really going to decrease,” Nan Tian, a defense spending expert with the institute, said Tuesday during a Stimson Center webcast. “We’ve seen this historically following the [2008 and 2009 financial] crisis, where many countries in Europe really started to cut back on military spending.”
There is no avoiding the fact that the supply chain disruption in the U.S. defense industry is massive and will have effects downstream, Ms. Eaglen said.
“Even with some companies that have been determined to be ‘essential’ or ‘critical,’ 30% to 50% of the employees are not showing up,” she said. “This alone is going to cause issues with foreign partners or allies that are struggling to keep up their own national industrial capacity.”
Maiya Clark, a researcher at the Heritage Foundation’s Center for National Defense, said the federal government is trying to ease some of the coronavirus-related disruptions for the defense industry, including easing regulations and time lines on licensing for foreign deals.
“It’s just being extended a short amount of time to tide them over,” she said.
Governments recognize the national security imperative of keeping their defense firms solvent.
“It’s much harder to have it die off and bring it back than it is to maintain it as much as they can during this rocky time,” Ms. Clark said.
Just holding the line of defense spending and foreign sales would be preferable to a decrease, retired Air Force Gen. Hawk Carlisle, president of the National Defense Industrial Association, told the Defense One website.
“This is going to be years to climb out of,” Gen. Carlisle said.
The disruption in the industrial base and the economic slowdown brought on by the coronavirus may even cause some governments to rethink their national security strategy.
“You’re going to see that trend from other governments,” said Ms. Eaglen. “‘Why do we need these fighters? What is national security?’” she said. “I think we’re even going to see that here to some extent.”
Even with the coronavirus pandemic, there have been some bright spots in the arms industry, analysts point out. This week, General Electric won a $707 million contract to supply F-16 engines to Slovakia, Bulgaria, Taiwan and Qatar.
“Countries, including the United States, recognize the importance of national defense. So governments that still have the ability to be shopping right now are still shopping for their defense needs,” Ms. Clark said. “These countries are still trying to hold to their acquisition schedules.”
The Pentagon has done what it can to assist the defense industry during the coronavirus pandemic by modifying thousands of contracts with vendors and not penalizing them for delays. Even so, Ms. Eaglen with AEI said the foreign military sales issue isn’t currently”bubbling up” with U.S. defense officials at this point.
“This just isn’t on their radar yet,” she said. “But it will be once they get their heads above water.”
