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Trump’s US lead hard life to european defence companies

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BETWEEN HOSTILE COMMERCIAL POLICY AND TIGHT CONTROL OF AMERICAN EXPORTS, HOW TO COPE WITH TRUMP’S PROTECTIONISM IN ARMAMENT?

UNDER COVERAGE OF NATIONAL SECURITY, PROTECTIONISM LIKE NEVER BEFORE

After a period of uncertainty over the last spring, the United States confirmed on May 31 their desire to introduce new tariffs on their imports of aluminum and steel from Europe, Mexico and Canada [1]. This surtax, 25% on steel and 10% on aluminum, is justified by Trump’s main concern: national security, a reason making WTO action impossible for the targeted countries concerned.

This is obviously not the first time that the United States have adopted protectionist measures by putting their interests above those of their allies, but the Trump administration goes beyond the protectionist policies of its predecessors by their scope and by the countries concerned: its main political allies and trading partners.

On May 23, the White House announced that it would study the possibility of taxing car imports from European countries in the event of retaliation by the latter concerning taxes on steel and aluminium. [2]

ITAR REGULATION, THE AMERICAN COMMERCIAL WAR WEAPON

Another trade war front directly affects French defence and armaments companies. In the continuity of its protectionist policy, Trump continues his crusade to prevent France from selling weapons containing “Made in USA” elements, while invocating internal security to justify its actions. However, on this last point, European companies have more and more credible alternatives to circumvent the barriers erected by the United States.

In this sector, one of the most effective levers of the United States to keep control of defence equipment trade is the ITAR list (International Traffic in Arms Regulations). Indeed, ITAR includes all US regulations concerning exports of defence-related items, which allows the United States to control technology transfers to foreign nations. [3]

What consequences for French companies? This hampers French Rafales exports to Egypt, for instance. In 2015, France and Egypt found an agreement for the sale of the Dassault fighter jet, equipped with “Scalp” missiles produced by MBDA [4]. Yet, one of the components of these missiles is manufactured by an American company, a sufficient condition to activate ITAR and allow the United States to veto the sale of the Rafales. In a context of tensions between Israel and Egypt, the United States also use the argument of internal security for geopolitical purposes.

The Rafale is not an isolated case and it is not the first time that the United States try to arbitrate international exchanges according to their interests, this trend tends to be reinforced with Trump’s “America First” policy.

ALTERNATIVES AND CHALLENGES FOR EUROPEAN COMPANIES

For France and Europe more generally, the application of these extraterritorial laws poses a real sovereignty problem. In this sense, alternative solutions are being studied to remedy these technological dependencies. The first of these would be to use entirely European “ITAR-free” equipment and thus get out of the US arbitrage zone.

This option, although expensive and requiring an increased level of collaboration between the European States, has already been adopted by the European Space Agency [5], which, with heavy investments, has built the capacity to produce European duplicates of components of the ITAR list. Similarly, France and Germany are collaborating on the MALE 2020 project, which aims to provide drones with great autonomy to the French, Italian and German armies.

The second alternative that has gained credibility over the past decade is located in Asia. Long regarded as “the factory of the world”, China has put in place a plan for the development of its army by focusing on innovation in advanced technological fields. Xi Jinping has also called for the army to modernize by 2035, and to be “a world-class army” by 2050 [6]. Under his leadership, China accelerates its technological catch-up, to such an extent that 61% of European companies established in the country believe that Chinese companies are as, if not more, innovative than they are. Thus, more and more European technology SMEs are going to Chinese suppliers who tend to catch up with the United States in terms of product and process innovation, while enjoying the advantage of having no restrictions on exports of equipment, especially on items considered as “defence”.

Nevertheless, it should be kept in mind that trading with China on such products represents a risk if precautions are not taken, especially regarding the technology transfers that Chinese authorities often request when an agreement is concluded with a foreign company. The establishment of a sound strategy minimizes the risks associated with theft of know-how, in an environment in which more than 48% of European companies find it “complicated to do business”. [7].

In short, while the United States are multiplying the acts of commercial war against Europe and China, alternatives requiring increased international collaboration exist, both between European countries and with China, who aims at becoming a global technology leader in the coming decades.

[1] France Info : interview de Lionel Fontagné (2 mars 2018)
[2] La Tribune : « Trump envisage des droits de douanes accrus sur les voitures européennes » (10 juin 2018)
[3] InfoGuerre : « Le rapport de force entre les industries spatiales américaines et européennes : l’enjeu de la réforme ITAR » (22 juin 2016)
[4], [5] La Tribune : « Réglementation ITAR : Etats-Unis, ces amis qui ne veulent pas que du bien à la France » (23 avril 2018)
[6] Les Echos : « Cette nuit en Asie : Pékin fixe ses priorités économiques pour 2018 » (5 mars 2018)
[7] Les Echos « En Chine, les entreprises européennes frappées par une concurrence locale de plus en plus innovante » (20 juin 2018)

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