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The Global Arms Trade and the ‘Hyundaization’ Threat

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The Global Arms Trade and the ‘Hyundaization’ Threat

Rumors of the demise of U.S. arms trade dominance are exaggerated.

The Global Arms Trade and the ‘Hyundaization’ Threat
Credit: Weapons expo via ID1974 / Shutterstock.com

A recent article in the Wall Street Journal (“The ‘Hyundaization’ of the Global Arms Industry”) makes a provocative argument, namely that “new defense exporters are joining the global game with advanced and well-priced offerings, creating potential threat to the U.S. and its allies, and weakening Western influence.” In other words, the proliferation of “good enough” weapons by neophyte arms exporters such as Brazil, South Korea, and Turkey, offered at rock-bottom prices, will cut into the United States’ sizable predominance in the global arms trade. The emergence of such new supplier-states will have grave economic repercussions for U.S. arms producers, and negative ramifications for Washington’s global sway.

An interesting argument, if not a particularly novel one. For decades many in the West have been fearful of – and many arms producers in the newly industrialized world have been yearning for – the possibility that the global arms trade could be inundated by new, ambitious supplier-states who would aggressively flog their weaponry to all comers. This would not just cut into the profits of those U.S. and European defense mega-firms – the Lockheed Martins, Northrop Grummans, BAE Systems, and Airbus SAS’s – that have traditionally dominated the global arms business; it would also complicate efforts to control the proliferation of advanced conventional weapons and the enabling technologies behind them.

The implications of such proliferation are self-evident. Flooding the global arms market with relatively cheap but highly capable weapons systems would not only increase the probability of conflict – a country is more likely to attack a noxious neighbor if it feels that it possesses superior military capabilities – but that conflict would likely be more “high-tech” and therefore more devastating in its effect.

Hold the Hype

The fundamental problem with this contention – that the traditionally Western-dominated global arms trade is being challenged by new (and perhaps less scrupulous) supplier-states – is that it is only partly true. Certainly there has been a significant expansion over the past three or four decades in the number of countries around the world who are producing weapons systems, and, yes, some of these homegrown weapons are pretty impressive. South Korea manufactures a tank nearly on par with the U.S. M-1A2 or the German Leopard II, the “gold standard” in main battle tanks. Korea is also producing a lightweight jet trainer/fighter, the T-50, along with self-propelled artillery systems and several types of large warships. For its part, Brazil manufactures an excellent lightweight turboprop plane, the A-29 Super Tucano, intended for counter-insurgency operations and ground attack, and it developing a new medium-sized transport plane, the KC-390. South Africa produces air-to-air missiles and UAVs, and Turkey builds armored vehicles.

Moreover, many of these countries have already successfully penetrated the global arms market. South Korea has sold its T-50 fighter to Indonesia, Philippines, and Iraq. Brazil’s Super Tucano has been acquired by at least ten air forces, including the U.S. Air Force (which also wants to use it to equip Afghan forces for counter-insurgency operations). Turkey has exported armored vehicles to Malaysia, and South Africa has sold APCs throughout Africa and the Middle East.

The US: Still #1 in the Global Arms Market

That said, the amount of arms these countries have sold around the world, relative to the United States or Western Europe, is small potatoes. According to the Stockholm International Peace Research Institute, the combined value of arms deliveries by ten of the largest arms-exporting countries in the developing world – Brazil, Jordan, India, Iran, South Korea, Serbia, Singapore, South Africa, Turkey, and the United Arab Emirates – amounted to barely two percent of all the world’s arms trade for the period 2000-2014, or about $7.3 billion worth.

In contrast, the United States exported more than $110 billion in arms and captured nearly one-third (31 percent) of the global market; in 2014, it won 36 percent of the market. Moreover, this level has remained more or less consistent over the past 15 years. Meanwhile, Russia has consistently taken the number two slot for the past decade and a half, with around a quarter of the global arms export business, while the four largest West European arms exporters – France, Germany, Italy and the United Kingdom – together accounted for around 20-22 percent of the market. China, on average, has typically captured only around 4 percent to 5 percent of the global arms trade, although for the period 2010-2014, higher-than-average sales catapulted it into the number three position.

So far, then, real competition from nontraditional suppliers of cheap, “good enough” weapons has yet to materialize, and it may be a long time in coming. In fact, penetrating the global arms market has been a lot harder than most wannabe arms exporters though it would be. Many other factors besides price and capabilities go into a customer’s decision to buy: can the supplier be relied upon to provide spare parts (often over the course of decades), and will it remain in business long enough to honor maintenance contracts and the like? Has the weapon been proven (“bloodied”) in battle? Does the seller’s home country have enough faith in the system that its own military has also acquired it? Might the weapon in question include critical parts or subsystems that are supplied by a third party and which could possibly be restricted (for example, the Korean T-50 uses a U.S. jet engine, effectively giving Washington a veto over exports of this aircraft)? Finally, does the purchase of a particular weapon help to achieve other political-military goals, such as boosting alliances, promoting military interoperability, or forging closer diplomatic ties?

If there exists any serious competition to U.S. dominance of the global arms business, it comes from Russia, not the developing world. After the collapse of the Soviet Union, Russia’s share of all global arms transfers fell to around 12 percent; starting around 2000, however, Russian defense exports came roaring back, and today it gives the U.S. defense industry a real run for its money in the global arms market.

For its part, China does not seriously threaten U.S. arms exports. According to SIPRI, nearly 70 percent of China’s weapons shipments during 2010-2014 went to just three countries: Pakistan, Bangladesh, and Myanmar; the remainder went mainly to African states and Venezuela. With the exception of Pakistan, none of these countries are major customers for U.S. weapons systems.

In fact, about the only newly industrialized country to have scored a major success in penetrating the global arms market is Israel. The Israeli arms industry is overwhelmingly export-oriented, and, on average, approximately three-quarters of its defense output is sold abroad. Major exports include unmanned aerial vehicles, air-to-air, and surface-to-air missiles, anti-tank munitions, and radar and other sensors.

The Real Challenge from New Arms Producers: Loss of Domestic Markets

The Wall Street Journal article also darkly notes that some states like Iran and North Korea could become exploiters – and by extension, exporters – of “third wave” technologies like cyber, robotics, and 3D printing. This is certainly possible, but hardly probable in the short run. Most Western militaries have not yet mastered these technologies, and so while it is important to be vigilant, one should not (yet) panic.

Even if these new arms producers to do not offer much competition to the U.S. for third-party arms sales, they could, over time, present a challenge nonetheless to the U.S. defense industry: Namely, they can fill domestic orders for military equipment that might otherwise go to U.S. defense firms. South Korea manufactures its own armored vehicles, artillery systems, and light jet aircraft; therefore, it need not import such systems from the United States. Brazil’s KC-390 transport plane will negate the need to acquire C-130 cargo aircraft. Singapore produces the SAR-21 assault rifle; therefore, it doesn’t buy the US M4 carbine. All in all, producing arms as an import-substitution strategy may erode US arms sales more than any competition for third-party customers.

The “Hyundaization” of the global arms industry is certainly a possibly emerging phenomenon that bears watching. At the same time, it is not a foregone conclusion. Like a lot of things that are “new and amazing,” what’s new isn’t necessarily amazing, and what’s amazing isn’t necessarily new.

Richard A. Bitzinger is Senior Fellow and Coordinator of the Military Transformation Program at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. Formerly with the RAND Corp. and the Defense Budget Project, he has been writing on defense industries and the global arms trade for more than 20 years.

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