An analysis of the impact of military export offsets on the United States industrial base

Abstract

The purpose of this thesis is to determine what effect the growth of offsets, as a condition of sale of military articles, has had on the U.S. defense industrial base. These effects are measured by assessing how this trade practice has impacted the employment, trade, and competitiveness of the U.S. defense industry. Additionally, the present U.S. Government policy towards offsets is explained. Analytical data taken from both Office of Management and Budget and Department of Commerce reports are presented and analyzed. Interviews with large and small- to medium-sized business spokesmen, in addition to Department of Commerce experts, are presented to augment the quantitative results. Different levels of U.S. Government oversight are explained as well as their advantages and disadvantages. The macroeconomic effects of offsets on the U.S. defense industry are inconclusive. However, offsets do seem to impact the U.S. defense industry adversely at the subcontractor level when specific industrial sectors are analyzed. Large defense contractors view offsets as a necessary marketing tool in order to maintain global competition. Most small to medium-sized contractors do not support the use of offsets, claiming that they export jobs and work orders overseas, eroding the defense industrial base at the subcontractor level.