Globalization and the U.S.Defense Industrial Base: the Competition for a New Aerial Refueling Tanker

What Are The Real Issues?

By Nayantara Hensel

Nayantara Hensel is currently the Pentagon scholar-in-residence and is attached to the Office of the Assistant Secretary of the Navy for Financial Management. She is also an assistant professor of economics and finance at the Graduate School of Business and Public Policy at the U.S. Naval Postgraduate School. Earlier, she served as a senior manager at Ernst & Young, LLP and the chief economist for one of its units, was a post-doctoral research fellow at the National Bureau of Economic Research, taught at Harvard University and the Stern School of Business at New York University, and was an economist at NERA (part of Marsh & McLennan). Her recent research has focused on finance and industrial organization, and she has published in a variety of journals. She received her B.A (magna cum laude) from Harvard University where she was a member of Phi Beta Kappa. She received her M. A. and Ph.D. in business economics (applied economics) from Harvard University.

The growth in the global economy and the trend toward outsourcing have given rise to concerns over the composition and strength of the U.S. industrial base and the degree of U.S. dependence on other countries for certain goods. The purpose of this article is to examine the concerns surrounding the alleged inroads of foreign manufacturers into the U.S. defense industrial base, as well as the background behind the concerns, with a specific focus on the recent competition over what may be one of the largest defense contracts in U.S. history to supply the United States Air Force with a new fleet of aerial refueling tankers. The article discusses the importance of imports and national defense spending in the U.S. economy, explores the dependence (or lack thereof) of the United States on foreign imports in the defense sector, explores strategies that have previously been deployed to reduce the role of foreign manufacturers in the U.S. defense industrial base, and examines in detail the recent tanker competition. The article argues that this competition required the deployment of innovative strategies on the part of the incumbent in the industry (Boeing) and the potential entrant (Northrop/EADS) in order to balance conflicting economic, political, and military procurement objectives.

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