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Home / World

Defence giants are the winners in Trump's new 'arms race'

By Sam Dean
Daily Telegraph UK·
22 Apr, 2017 10:57 PM7 mins to read

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The United States has attacked a Syrian air base with 50-60 cruise missiles in response to a chemical weapons attack it blames on President Bashar Assad.

It is, in a classic example of American hyperbole, called the "mother of all bombs".

Dropped by the US military on an Islamic State target in Afghanistan, the "MOAB" was the largest non-nuclear weapon the country has ever used in combat.

Its detonation marked the second time in barely a week that President Donald Trump had authorised an attack on foreign soil, following the launch of 59 Tomahawk missiles on an airfield in Syria earlier this month.

The Tomahawks, described as "the world's most advanced cruise missile" by its makers Raytheon, also had an impact back home, reports the Telegraph.

The defence giant's shares enjoyed a dramatic spike as trading floors reacted to news of the attack.

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Other missile and weapons manufacturing stocks also opened higher, with the leading companies gaining nearly £4bn in market value in early trading.

Much has been made of the Trump effect on the market.

His rare ability to send a company's share price tumbling with a crassly-worded tweet has garnered the most headlines, but his unexpected presence in the White House has provided a boost to entire industries, with defence emerging as one of the clear winners.

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Having pledged to significantly increase spending on the military, that is a pattern that looks set to continue.

This is in spite of Trump's notable lack of consistency in his approach to foreign policy, which has swung from condemning US intervention in the Middle East under Obama - "let the Arab League take care of Syria" - to vowing that the country would now hold to account "any and all who commit crimes against the innocents" across the world.

"We do not have what I would call a foreign policy under Trump," says Brad Blitz, a professor of international politics at Middlesex University.

"But we do have a number of pronouncements which include the threat of US military action. And as we have seen, that would be by means of bombing."

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Threatening military action has been one of the themes of the last week, with Trump boasting that the US was sending an "armada" to the Korean peninsula as tensions continued to increase with North Korea.

GBU-43B, or Massive Ordnance Air Blast weapon, the U.S. military's largest non-nuclear bomb. Photo / Getty
GBU-43B, or Massive Ordnance Air Blast weapon, the U.S. military's largest non-nuclear bomb. Photo / Getty

That move follows a further souring of US relations with Russia, which Trump recently described as at an "all-time" low.

"What we are witnessing is the potential for a new arms race," says Professor Blitz. "Which would be favourable for both US and overseas arms manufacturers."

Trump himself has used the same rhetoric. "Let it be an arms race," he told American television before his inauguration.

"We will outmatch them at every pass and outlast them all." That proclamation was followed a day later by a tweet.

"The United States must greatly strengthen and expand its nuclear capabilities," he wrote, "until such time as the world comes to its senses regarding nukes."

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The big players who stand to benefit from this are, by and large, headquartered in the US. According to a report from the Stockholm International Peace Research Institute (SIPRI) in December, four of the top five arms producers, based on sales, are American.

Lockheed Martin takes the top spot, and is joined by Boeing, Raytheon and Northrop Grumman, with UK giant BAE Systems in third place with arms sales of nearly £20bn.

While there is obvious competition between these corporate giants, there is also collaboration. The Tomahawk is made by Raytheon, for example, but the tactical weapons control system, which is one part of the process that fires the weapon, is the work of Lockheed Martin.

The same can be said for the controversial F-35 stealth fighter, which is being delivered by a team of Lockheed Martin, BAE and Northrop Grumman.

Whether Trump is able to bolster his defence budget quite as dramatically as he wants is open to debate. But if he does, the effect could be felt on this side of the Atlantic.

"If Trump gets his way, it will mean a 10pc uplift on what is already the largest defence spend on the planet," says Dr John Louth, the director for defence, industries and society at the Royal United Services Institute think-tank.

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"That is hugely substantial. If we see that spent predominantly with US businesses like Lockheed Martin and Boeing, even for us in Europe it will not be a bad thing.

"The supply chains are so interwoven that it will very much impact on UK and European businesses as component providers to those larger businesses. All that money isn't just going to be consumed within the US."

Also on the agenda for arms companies in Europe is Nato defence spending. Again, it is Trump at the centre of the issue.

Donald Trump has said: "Let it be an arms race". Photo / AP
Donald Trump has said: "Let it be an arms race". Photo / AP

His administration has been upping the pressure on Nato allies in Europe to increase their defence spend, with Secretary of State Rex Tillerson saying: "Allies must increase defence spending."

Nato members are required to spend 2pc of their GDP on defence.

According to Nato's own estimates, the US spent 3.61pc of its GDP on defence last year, while in the UK, where the MoD last week announced a £539m investment in new missiles systems, spending was at 2.17pc of GDP.

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Others, though, are trailing way beneath the 2pc marker, with Germany at 1.2pc, Italy at 1.1pc and Spain at 0.9pc.

If Trump does force countries to dig deeper, it would clearly have an impact on the industry. "Some of the European industrial base are very conscious that if Germany does approach 2pc, that is €70bn a year," says Dr Louth.

"That is twice the UK defence budget, and that would have a very significant impact on how a German government would consume defence industrial capability and capacity.

"You have other European Nato states who are in very similar situations, so how countries spend to meet the 2pc and what that means for the European defence industrial base is hugely significant."

However, if defence budgets are increased, it is not just the traditional companies who will reap the rewards.

The industry is somewhat fracturing, with a focus on innovative technology providing opportunities for smaller companies who exist outside of the traditional weapons bubble, but can provide a military edge to their governments.

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It is enough for Dr Louth to say we are in a "technology race" rather than an "arms race", and innovation is an area with which the Ministry of Defence (MoD) is increasingly preoccupied.

In February, the MoD announced the formation of a 'defence innovation advisory panel', which is backed by an £800m innovation fund.

"We want to transform defence and work with small firms, academics and others to find solutions to the threats to our security," said defence secretary Sir Michael Fallon.

This is not to say that the traditional big players will fall out of favour, though.

Those companies provide a valuable way into the industry for innovative defence businesses, with Dr Louth saying there is an "interdependency" between those bright young thinkers and the manufacturing behemoths.

"The smart defence SMEs really need a big brother to give them that route to market," he says.

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"So the success we are seeing is when there is a strong relationship between the bigger international business and the niche provider."

For both types of company the true impact of Trump's trigger-happy approach remains to be seen, but across Europe it is already sending ripples through an industry that appears ready to thrive.

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