Contractors Poised To Cash In On China Threat Inflation

While the crisis over Russia and Ukraine has dominated recent discussions of U.S. foreign and military policies, it’s important to remember that the driving force behind the push for ever more Pentagon spending lies with concerns over the challenge posed by China. But to a significant degree, these concerns are both misguided and counterproductive.

On the military front, the threat posed by China has been greatly exaggerated. The U.S. outspends China on its military by a three to one ratio, has more than 10 times as many nuclear weapons in its active stockpile, and has capable allies in China’s neighborhood. The real problem is that force or the threat of force will do little to shift China’s policies on economics, human rights, or regional deployments, even as it threatens to spur an accelerated arms race or a conflict between nuclear-armed powers that could be an unprecedented catastrophe. Even so, threat inflation with respect to China will have one clear set of winners: the U.S. arms industry.

As my colleague Eli Clifton has written, key players in the arms industry are already looking forward to reaping the benefits of tensions between the U.S. and China, as well as in other global hot spots. In a recent earnings call, Raytheon Technologies CEO Gregory Hayes said the following:

“[W]e are seeing, I would say, opportunities for international sales. We just have to look to last week where we saw the drone attack in the UAE, which have attacked some of their other facilities. And of course, the tensions in Eastern Europe, the tensions in the South China Sea, all of those things are putting pressure on some of the defense spending over there. So I fully expect we’re going to see some benefit from it.”

The benefits are already flowing. The Pentagon is beginning to focus on next generation weapons like hypersonic missiles, even as it cites China as one of the reasons to go full speed ahead on its plan to build a new generation of nuclear weapons, which could cost up to $2 trillion over the next three decades. This is not to mention the Australia/United Kingdom/U.S. military alliance, AUKUS, which for starters will entail selling costly U.S. attack submarines to Australia, or the Pacific Deterrence Initiative, which is authorized at $7 billion in the Fiscal Year 2022 budget alone, and has largely absorbed any savings that could have accrued from the end of the U.S. train and equip program for the Afghan military.

The key beneficiaries of all of these efforts will be major contractors like Lockheed Martin, Northrop Grumman, Raytheon Technologies, and General Dynamics. And they are more than just passive recipients of the potential China-related surge in Pentagon spending. As the statement by Raytheon Technologies CEO Gregory Hayes cited above suggests, these contractors are no doubt citing the China threat as part of their lobbying efforts, which are considerable. In an average year the defense sector employs 700 lobbyists, more than one for every member of Congress. Many of these lobbyists have passed through the revolving door from government to industry, as documented by the Government Accountability Office (GAO) and in a database maintained by the Project on Government Oversight (POGO). Their connections with former colleagues give them an inside track in currying favor for their corporate employers, even as they press for higher budgets for the Department of Defense.

Contractors and their allies have also insinuated themselves into key bodies that have helped shape the debate over how much to spend on the Pentagon. For example, a POGO analysis found that the majority of the members of the National Defense Strategy Commission, a congressionally mandated body that is frequently cited by defense hawks like Sen. James Inhofe (R-OK) in their pleas for more resources for the Department of Defense, were arms industry board members, lobbyists, consultants, or members of think tanks funded by weapons contractors. The commission called for 3 to 5% real growth Pentagon spending for the foreseeable future, a path that would push the department’s budget to $1 trillion or more by the end of this decade. Not surprisingly, China was cited as a prominent reason for this proposed increase.

U.S. policy towards China will do much to shape U.S. foreign and military policies for the next generation. It’s important that the debate over the U.S. approach to China be centered on what will make the United States and its allies safer, and not be distracted or distorted by the interests of the arms industry.