●East Asia’s unstoppable spending on defense.
South Korea showcased Lockheed Martin F-35As, one of the most advanced American stealth jet aircraft, at its National Armed Forces Day ceremony on Oct. 1. Concurrently, China celebrated its Communist Party’s 70 years of rule and showcased DF-41, a Chinese intercontinental ballistic missile known to be able to hit anywhere in the US. At the same time, Japan is ramping up its expenditure on defense and trying to revise its constitution to give more leeway to its de facto army, the Japan Ground Self-Defense Force. North Korea is being North Korea with its missile tests as usual. As East Asia’s infatuation with military spending increases, American defense companies and their investors are rubbing their hands with wicked glee.
American President Donald Trump stated early this year he would consider pulling the US out of NATO, a military alliance among the US, Canada, and Europe. It is estimated that 22 out of 29 members spend less than 2% of their GDP on defense, a target number agreed in 2014. And Mr. Trump does not seem to be fond of America paying 70% of NATO’s defense budget. While most of Europe’s spending on defense may be considered stagnant (with the alliance’s median defense expenditure being 1.39%), East Asian countries have been spending more and more. According to the SIPRI Military Expenditure Database in 2018, South Korea, China, and Japan spent 2.6%, 1.9%, and 1.0% of their national budget on defense respectively and ranked 10th, 2nd, and 9th in the world.
South Korea and Japan, the allies of the US in Far East Asia, are the main importers of American products. (South Korea and Japan are the 4th and 7th biggest importers respectively). South Korea, precarious North Korea’s neighboring country, imported US$90 billion worth of US weapons from 2008 to 2017. The country is also projected to become the world’s 6th highest defense spending country by 2022, according to GlobalSecurity.org. Japan is upping its game as well. According to The Nikkei, a Japanese financial newspaper, Japan’s Ministry of Defense expects to shell out at least US$246 billion over the next five years. In addition, Japanese Prime Minister Shinzo Abe has been putting his weight behind the attempt to revise Article 9, a constitution that prohibits Japan from invading other countries and having its own armed forces. His full-throated voice might prop up Japan’s further expenditure on defense and sales of American weapons.
Arguably, the biggest winner of this game could be Lockheed Martin Corporation, a worldwide American aerospace and defense company, that sells the F-35 and many other jets. Leveraging the unrest in East Asia, Lockheed struck a deal with South Korea in 2014 to sell 40 F-35As for about US$6.8 billion by the end of 2021. Japan is also planning to procure 147 F-35s, spending around US$10 billion. When the forecast calls for overcast conditions in East Asia, the outlook of the company brightens.
There are many historical precedents. In the 15th century, no sooner did the blood dry after the Fall of Constantinople, which killed many people from Genoa and Venetia as well, merchants from those areas started sailing back to Ottoman Istanbul to do business with the Sultan. In the early 20th century, after Japan’s annexation of Korea, some Koreans took advantage of their own people to do business with violent Japanese officials. Now, as then, even when the risk of war threatens to annihilate everything, business continues. And East Asia will remain the core customer of the defense business.
(Picture credit: Lockheed Martin Corporation)