Over the last two decades, the United States has enjoyed an unrivaled competitive advantage in the production and export of advanced conventional weaponry. The collapse of the Soviet Union and the breakup of the Warsaw Pact led to sharp reductions in Russian defense spending and a drop in Moscow's arms transfers to regional allies. Simultaneously, globalization rewarded firms with economies of scale, allowing U.S. defense contractors to capitalize on their size and on large orders from armed forces around the globe. The formula for success was simple: by producing a range of affordable yet sophisticated weapons, the Pentagon and its contractors would crush any rivals. Domination of the global arms trade, and the economic and geopolitical benefits that came with it, was the United States' to lose.
But that advantage is fading. In the 1990s, the United States controlled 60 percent of the global weapons market. Today, it is responsible for only about 30 percent. By focusing on cutting-edge technology and developing excessively expensive defense systems, Washington has left the door open for foreign competitors to market practical weapons at an affordable cost. Consequently, Russia has resurged as an arms merchant, and a host of other countries, such as China, Israel, and South Korea, are becoming important suppliers.
No program embodies the missteps threatening the U.S. defense industry better than the F-35 Joint Strike Fighter, which even its most optimistic proponents now admit is a procurement disaster. At the end of the Cold War, defense planners conceived of the F-35 as a jet that would reshape the marketplace. Designed to take the place of three different U.S. military aircraft, the F-35 would be produced for many years at home. That, in turn, would enable the plane to be sold at a relatively low cost abroad, since the up-front development expenses would be amortized over its long production life. The best that foreign manufacturers could do, so the argument went, was scrap their indigenous weapons development plans, retool their operations, and
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