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FSX Could Start Shifting Aircraft Industry to Japan

<i> Robert Kuttner is economics correspondent of the New Republic. </i>

The controversy over Japan’s proposed FSX jet fighter speaks volumes about the difficulty the U.S. government has sorting out economic and military national interests. The FSX would be built jointly by U.S. and Japanese manufacturers, using F-16 technology developed by General Dynamics and paid for by American taxpayers.

The Pentagon likes the idea because it ensures what the generals call “security interdependence” between the United States and Japanese military forces.

It has become increasingly clear, however, that Tokyo’s main interest in building the FSX with U.S. technology has less to do with defense and more to do with the long-deferred Japanese goal of developing a commercial aviation industry.

Aircraft is the last major industry where the United States enjoys an overwhelming trade surplus. In 1987 we exported $19.47 billion worth of aircraft and parts, and imported just $5.14 billion worth.

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To a great extent, the American dominance in aircraft is the result of America’s huge, unacknowledged industrial-planning agency--the Pentagon. Since World War II, the Air Force has spent hundreds of billions of dollars on contracts and research-and-development support. It made Boeing, Lockheed, McDonnell Douglas and General Dynamics not just makers of sophisticated military fighters and bombers, but world leaders in the production of civilian jetliners as well.

Our official ideology, however, insists that the flow of commerce is none of the government’s business. The free market takes care of it. If Japan makes better cars, televisions, etc., that must be the result of Japan’s natural superiority in design, or marketing, or perhaps its higher rate of savings and capital investment. We also insist that national security equals military strength, and that economic strength is the job of the free market.

Now comes the FSX project, whose implications are so clear that even the most reverent disciple of Adam Smith has a hard time denying that government hands, rather than invisible ones, are at work. One can hardly pretend that governments are uninvolved in the production of military aircraft. And with a U.S.-Japan trade deficit at $50 billion a year, it is also hard to pretend that the loss of a commercial aircraft industry would have no serious consequences for the United States.

It is beginning to dawn on orthodox opinion leaders that our economic self-interest is as important as our military strength. But the Bush Administration is still locked into formulas more appropriate to the world of the mid-1950s in which America’s overwhelming economic might took care of itself and the serious foreign-policy issues were all geopolitical.

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Since the FSX deal was approved by the Pentagon last November, the several power centers of the Bush Administration have been jousting over whether the agreement should be renegotiated to the greater advantage of American industry. The Pentagon, State Department and National Security Council all argued that the deal be left intact, lest we create a rift with our most loyal strategic ally.

Carla Hills, the new chief trade negotiator, and John Sununu, the White House Chief of Staff, argued that the deal should be scrapped as bad for American industry. They said Japan should be asked to buy existing U.S. military planes for its air force, which technically doesn’t exist since Japan supposedly renounced military force at the end of World War II.

In the end, President Bush sided with Commerce Secretary Robert A. Mosbacher, who took what was described as a middle position that technology-sharing details should be tightened up, but that the plan go forward. This leaves the broad outlines of the deal intact and continues the misguided policy of placing military goals ahead of commercial ones.

U.S. Administrations seem unable to bargain hard with the Japanese. Recently, the influential Japan Economic Journal warned, “The Japanese will lose faith in the United States if it objects to Japan developing its own fighter and scraps the co-production agreement.” This familiar threat, implying an independent Japanese foreign policy, invariably makes normally resolute American military planners as supple as sushi.

While there is still time, the Bush Administration needs to comprehend that military allies can be commercial rivals, and that there is indeed such a thing as a nation’s commercial interests.


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