Magazine article Insight on the News

Is the U.S. Aerospace Industry Exporting Its Way into a Crash? Yes: We Are Exporting to Asian Rivals the Rope They Will Use to Hang Us

Magazine article Insight on the News

Is the U.S. Aerospace Industry Exporting Its Way into a Crash? Yes: We Are Exporting to Asian Rivals the Rope They Will Use to Hang Us

Article excerpt

Yes: We are exporting to Asian rivals the rope they will use to hang us.

The aerospace industry is America's crown jewel. We have marveled not only at its strength in the skies over distant battle-fields but also at the $22 billion trade surplus the industry ran in 1994--at a time when overall the United States was smarting from a $176 billion trade deficit. Exports account for about one-third of the aerospace industry's total revenues, a share that has been rising in the 1990s due to cuts in U.S. military procurement and a slump in domestic orders for civilian air carriers. American aerospace employment has declined by one-third since 1990.

Yet the push for exports may lead to the long-term decline of American aerospace dominance thanks to the rise of foreign rivals who have targeted this strategic sector. They know America's once-vaunted leadership in other areas, from automobiles through electronics and computers to shipbuilding, has been overturned. And once again, the intended victim seems more than willing to cooperate.

In a shrinking global market with abundant manufacturing capacity, buyers have the negotiating leverage. This power is enhanced if the buyer has government support or is itself a government agency. A government with a national-development strategy will not base procurement decisions purely, or even primarily, on cost. Instead, the government will seek to acquire technology and production experience that will move its domestic industrial base forward. They will demand a piece of the action in the form of local-content requirements for components, joint ventures, technology transfers and even coproduction. These offsets once were justified on the grounds that they lessened the costs to the customer for large-ticket items such as combat aircraft, but now they are mainly a way for clients to acquire the means to become rivals.

American companies, which must meet current financial obligations and keep stockholders and capital markets happy, are in a weak position. Clients can play them off not only against each other but also against foreign rivals, mainly European aerospace manufacturers. As McDonnell Douglas-China President Peter Chapman told the New York Times in February: "We're in the business to make money for our shareholders. If we have to put jobs and technology in other countries, then we go ahead and do it."

The first- and third-largest export markets for American aerospace products in 1994 were Japan ($3.3 billion) and China ($1.8 billion). Both are longtime aspirants of great-power status and have active aerospace industrial policies. Both countries run large trade surpluses with the United States, making it easier for their companies to purchase American aircraft directly, but both insist on production offsets and the transfer of technology.

The Japanese already are the world's leaders in avionics components and are making advances on a number of other fronts. The U.S. government has played a major role in rebuilding the Japanese aircraft industry by allowing Japan to coproduce some 19 American aircraft designs, starting with the F-86 Sabre and including the F-104 Starfighter, the F-4 Phantom II and the F-15 Eagle fighters. The F-15 is the most advanced air-superiority plane in the world, and Japan builds 70 percent of the F- 15s that enter its self-defense force under license at Mitsubishi Heavy Industries' Nagoya plant--the same site that produced Zero fighters during World War II.

During the Cold War it was argued frequently that this transfer of technology and expertise maximized "free-world" military capabilities. American leaders in Washington and in the private sector reasoned that helping Japan modernize its industry was part of the price for cementing the U.S.-Japanese alliance. The issue of coproduction reached its apex in 1989 when Lockheed began joint production with Mitsubishi Heavy Industries of the FSX fighter-bomber. The FSX is chiefly a redesign of the F- 16C fighter-bomber using a composite wing and a phased-array radar system developed in Japan. …

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