The U.S. defense trade system badly needs an overhaul — and soon.
Right now, equipment made by America’s defense industrial base is playing a key role in security efforts around the world — arming Ukraine against Russian invaders, defending Taiwan, and supporting Israel in its fight against Hamas. Providing U.S. equipment to partners and allies is a key element of our foreign policy, a strong tool for deterrence, and a conduit to strengthen international alliances and partnerships. But the system isn’t working as well as it should be.
Most practitioners know about the primary tool in providing U.S. equipment to our partners and allies: foreign military sales, or FMS. FMS, where the U.S. government buys defense equipment and materiel and sells it to our allies and partners, is just one piece of a larger system: the U.S. defense trade system. This system also includes direct commercial sales (DCS), where the federal government is not an intermediary but maintains an important role as regulator. Together, the Departments of State, Commerce, and Defense set policy priorities and regulate the export of American-made military and dual-use equipment to U.S. allies and partners. Each agency is one piece of the defense trade puzzle, providing inputs on export controls, technology security, and other complex issues.
Since the 1940s, U.S. foreign policy has been clear: support U.S. allies and partners with American-made equipment. We proved this approach by equipping the British to fight Nazi Germany through the Lend-Lease program, and later to combat the Soviet Union and contain Communism’s spread. The underlying premise is that selling U.S. military equipment to U.S. allies strengthens U.S. leadership abroad and deters would-be enemies from starting conflict in the first place. It also strengthens the U.S. defense industrial base, which helps the U.S. military and those very same allied militaries when they need spare parts, components, or systems.
As the U.S. transitioned to a Cold War footing, Congress built a regulatory system to protect U.S. technology from falling into the wrong hands. It is largely the system we still use today. It’s also terribly outdated.
In many instances, the defense trade regulatory system is inconsistent with the goals of National Security and National Defense Strategies, and is unable to keep pace with current and future threats. The system is designed for a peacetime environment, and now, the conflict in Ukraine, the fight in Israel, and potential challenges in the Indo-Pacific are revealing the limitation of the current defense trade system. It’s outdated, rigid, under-resourced, sluggish, and overly complex.
Our defense trade system is, by its nature, so complicated that policymakers, industry professionals, allies, and Congress alike have difficulties navigating it. Even the system’s own regulators and civil servants admit, in quiet corners, that the slow and complex nature of our defense trade system doesn’t allow them to meet national security objectives. Pull them aside and what they’ll tell you is they’re simply trying to survive in an under resourced system at a time when demand for U.S. equipment is accelerating exponentially. The task is impossible under the status quo.
The good news is, as we see the effects of Ukraine and the looming challenges in the Indo-Pacific, there’s recognition the defense trade system needs to reflect the global threat environment. The time is now to implement desperately needed legislative and regulatory reform to meet this moment.
The National Security and National Defense Strategies elevate allies and partners, placing them at the center of U.S. defense strategy. However, without a modern defense trade system, those objectives are unachievable. The AUKUS agreement between the U.S., United Kingdom, and Australia is a perfect example. The historic partnership, built on sharing technology with our closest allies and partners to deter aggression, requires us to modernize our trade system to fulfill its tenets.
Earlier this year, our industry prepared a comprehensive list of recommendations to make the system more flexible, nimble, and relevant. Those recommendations are informed by the daily industry users of the defense trade system, and they represent the most informed, practical, clear-eyed evaluation of what changes are needed. These should be the starting point for the Administration and Congress on what needs to happen.
To be clear, it will take the Administration and the Congress, working with industry and our partners and allies to implement change. There is no other way around it.
It won’t be easy. Unlike many regulatory processes, which only have one federal regulator, the defense trade system has five — State, Defense, Commerce, Treasury, and Justice — plus Congress that have a continuous role in evaluating the arms sales and defense trade processes. In the defense trade system, dozens of people can say no, but no one person can say yes. Today, everyone must say yes to modernizing this system.
Ultimately, it’s America’s adversaries and competitors who benefit from an outdated defense trade system that prioritizes control over cooperation. In an era where cooperation is central to addressing global threats, we cannot let a Cold War-era system or bureaucratic turf battles carry the day.
We must change, and time is of the essence.
