By Guy Anderson, Special to CNN
Editor’s note: Guy Anderson is Chief Industry Analyst (A&D) for IHS Jane’s. This piece is based on data taken from IHS Jane’s latest study, ‘The Balance of Trade.’ The views expressed are the writer’s own.
Defense cuts expected to be announced by the British government on Wednesday will be only the latest example of how the West is sowing the seed of its own decline in global defense markets, as cuts force industry to export more of the blueprints of its expertise.
True, industry doesn’t really have any choice. But the explosion in exports is still leading Western countries to pile into export markets, devouring each other as they fuel the rise of Asia. Indeed, it’s increasingly clear that in the long term, ongoing defense cuts are putting at risk not just the future job prospects and global influence of the United Kingdom, but also those of European defense and the United States, too.
For a start, these cuts will erode the long term technological advantages that Western countries traditionally hold. Export today is about selling the blueprints of expertise rather than just finding buyers for the finished product – the days of simply selling equipment are gone. Traditionally, countries maintain an edge because government investments encourage research and development, something that has declined sharply in Western markets in recent years.
Second, the West will increasingly face competition of its own making. The fact is that the West is equipping emerging markets to sell equipment back to the rest of the world further down the line, meaning the West will become less competitive.
Third, all this will affect jobs. The old “sell defense to preserve jobs” argument is gradually being eroded, and it will be more and more difficult for the West to create jobs from defense exports as its dominance and power declines.
Indeed, the reality is that the West also risks long-term decline in the global military market; as in other commercial domains, emerging producers have the advantage of lower production costs while soaring investment suggests technology gaps will narrow over time.
The numbers speak for themselves. The Asia-Pacific is now forecast to outspend North America by 2021, and its exports are accelerating faster than in the West. Yes, the U.K. saw exports rise by almost half since the downturn of 2008, and order books through to 2015 suggest a rise of at least a quarter. But exports from China, Singapore, South Korea and elsewhere have doubled, tripled or quadrupled since the downturn. Globally, arms trade has exploded, up by almost 30 percent since 2008, rising from about $57 billion to $74 billion over this period. Indeed, our analysis suggests that it could be as much as a third higher than is generally reported by think tanks and in the press.
The rise of the Asia-Pacific is clear, and Western governments are already buying equipment from Asia, the Middle East, and elsewhere. Interestingly, Israel will be supplying the world with more drones than anyone else by the end of the year, and its order books for drone exports in 2014 are already double those of the United States.
As cash-strapped Western governments are forced to make cuts, Asia and the Middle East will become increasingly sophisticated as they adapt and improve on the expertise they imported from the West. The West is not so much building kit for export as selling expertise and know-how.
The long term geopolitical implications are profound, something Western governments are no doubt fully aware of. They have a delicate balance to strike. But however they deal with the trade-offs of security, budget matters and jobs, one thing should be abundantly clear – the balance of trade has a significant impact on the balance of power.