June 7, 2017
What’s the real effect of America First on the arms trade?
Volvo’s sale of Renault Trucks Defense won’t be a test of anything.
By James Hasik
General Dynamics is unlikely to be on the short list as it is “impossible” France would accept a bid by a U.S. company, the first executive said. He pointed to the lack of reciprocity due to the Buy America Act and the America First campaign as the reason.
First, a clarification. The Buy American Act of 1933 and the Buy America Act of 1983 are two different laws. The latter applies only to federally-funded mass transit procurements. Presumably here Defense News actually means the former. Second, a question. Under this logic, would an American private equity firm be more or less acceptable than General Dynamics as an acquirer? That’s unclear. Regardless of the answer, let’s next test that logic.
Whether by the Buy American Act or chauvinistic proclivities within the procurement bureaucracy, the United States military has relatively little French equipment. The most notable example is the Coast Guard’s fleet of about a hundred HH-65 Dolphin (Dauphin) helicopters from Airbus. Of course, they’re not fully French, as they were built by what was then (the oddly-named) American Eurocopter in Grand Prairie, Texas. Of course, Airbus is a pan-European and even global company whose leadership might now bristle a bit at being labeled French. Headquarters may be in Toulouse, but the CEO is German, and the factories are in several countries. But if anything stings in France, it’s the memory of that debacle over the KC-X tanker program. There’s a genuine sense that Airbus was never more than a stalking horse. All the same, Americans should remember how that was very valuable for the US government, which saved billions as Boeing revised its bid sharply downward for the final round.
From the opposite view, one might say also that France clearly has had a Buy French policy, and certainly with respect to American equipment. The Armée de l’Air does have some American aircraft: 14 C-130 Hercules transports from Lockheed Martin, 14 KC-135 Stratotankers from Boeing, four E-3 Sentry AWACS planes from Boeing, and three MQ-9 Reaper drones from General Atomics. The French Air Force’s next tankers, however, will be predictably from Airbus. The Armée de Terre and the Marine Nationale have rather little American equipment.
In procurement, then, there’s actually plenty of reciprocity. At the obvious and macroscopic level, France doesn't buy much from the United States, and the United States doesn’t buy much from France. That said, there is considerable trade in war-making materiel between the two countries, just largely at the subcomponent level.
Then there’s the actual evidence for this case. General Dynamics might have had a prima facie interest in RTD, just because it has had prior success at buying and operating armored vehicle and land weapons companies in Europe. GD went on an apparently conscious campaign about fifteen years ago, buying four firms: Santa Bárbara Sistemas of Spain in 2001, Eisenwerke Kaiserslautern (EWK) of Germany in 2002, Steyr-Daimler-Puch Spezialfahrzeug of Austria in 2003, and MOWAG of Switzerland in 2004. Note that MOWAG is the original designer of the Piranha line of 8x8 vehicles, from which the US Army’s Stryker descends. These acquisitions occurred long after the Buy American Act was in place, though during a Bush Administration whose policy usefully circumscribed its previously expansive interpretation. Apparently, the Spanish, Germans, Austrians, and Swiss were not so discomfited by the history of the law’s application to disqualify this one American bidder.
The French may be another matter, though not so obviously over a matter of American law. A succession of French governments has long had a policy of French ownership of French armaments firms, and when that has proved financially burdensome, pan-European ownership. It’s hard to think of an American defense contractor with a significant investment in France. Then again, it’s hard to think of any non-French defense contractor with a significant investment there, at least one that’s not matched by a French investment. Ideally, even the French-owned ones should have a noyau dur of trusted shareholders. One might reasonably wonder whether American private equity people would qualify.
French armaments companies do have American subsidiaries. Thales, for example, has 3,600 people in 13 states, generating $2.2 billion in revenue annually. One notable product is the TopOwl helmet-mounted sight for Marine Corps attack and utility helicopter pilots. And there is that Airbus factory in Alabama: the next time anyone tries to claim that Airbus isn’t an American company, well… good luck with that.
What’s notable is that such investment has been a one-way street: French companies have been happy to invest in American military suppliers, but the French government has not ever been keen on American investment in French suppliers. That’s a sovereign decision, and it’s understandable, but it’s no position from which to complain.
What about America First? That campaign—not really a policy—has been in place for just the first few months of this year. Despite the administration’s effort at explanation in the Wall Street Journal last week, its strictures are so far defined only at the highest level. But for America First, whatever it really is, would anything have changed? Just a week ago, President Macron ordered a review of Fincantieri’s planned acquisition of a 48 percent stake in shipbuilder STX France. South Korean parent STX is in severe financial trouble. The French government owns 33 percent of the local subsidiary, and had considered buying the rest. Presumably General Dynamics was never in the running, but Macron is saying that even Italian domination may be too much.
In short, whatever the desirability of the Buy American Act or the America First rhetoric, if an American firm fails with an otherwise high bid for RTD, don’t try to pin the loss on the Trump Administration.
James Hasik is a senior fellow at the Brent Scowcroft Center on International Security.