Make Japan buy the whole plane

Congratulations to Japan’s Defense Ministry which has just announced that it has decided to go ahead with the Lockheed Martin F-35 fighter as the replacement for its aging F-4s.

This is very clearly the best choice. The alternatives were either the Boeing F-18 or the European Typhoon. While both are excellent fighters, the F-18 is itself getting long in the tooth, and the Typhoon is not only a bit dated but also expensive for a plane that lacks the 21st-century technology of the F-35. Aside from its advanced technology, the F-35 also offers the greatest degree of inter-operability with the U.S. forces that defend Japan and that will also be outfitted with the F-35.

But there was one troubling aspect of some of the commentary that accompanied the announcement. Apparently, there is discussion of having important parts of the plane made in Japan in order to keep some Japanese aircraft parts production lines running. This would be unnecessarily costly and represents the continuation of a corrupt practice that should be halted.

During the Cold War it became standard practice for the U.S. Defense establishment to agree to transfer and license production of aircraft and other weapons to allies as a way of inducing them to by U.S. systems that would be inter-operable with the systems being adopted by the U.S. forces that would also be defending the allies. This practice also tended to ease the financial burden on allies who might have limited dollar reserves and trade deficits.

Over time, however, the limited reserves and deficits disappeared. Japan, for example, has had a trade surplus with the United States for the past forty years and holds about $1 trillion of dollar reserves. Nevertheless, the so called "off-set" practice has continued because many countries use it as an integral part of their industrial development policy. Thus, Japan has long subsidized and fostered development of its aircraft industry. It, like many other countries such as Poland, South Korea, and Italy, has used its military procurement as a way of obtaining advanced technology and continuing investment in domestic production of new aircraft. Usually, this production is more expensive than simply buying the products off the shelf from the United States because the production runs are relatively short and there is usually some technical tweak that alters the product in some small way so that it is not a standard part or product.

So the situation often is such that, as in the present case of Japan, the United States is in the position of transferring technology and production that will be more expensive than U.S.-based production to a country for whose defense the U.S. is responsible and with whom the U.S. is running a large trade deficit. In short, it makes no sense for anyone except the aircraft companies and industrial policy bureaucrats of the subject country, in this case, Japan.

It’s high time to apply the KISS (keep it simple stupid) principle. Let Japan just buy the planes off the shelf at lower cost and greater defense effectiveness. Here’s a case where free trade could really be win-win.