One of the biggest trends shaping the defense industry since the end of the Cold War has been the internationalization of manufacturing. Responding to declining military spending after 1989, defense companies sought greater efficiency through consolidation, specialization, and the production of civilian goods. Now, big-ticket items like the F-35 stealth aircraft are often made with inputs from several friendly countries, and big defense manufacturers source parts from around the world. This playbook has enabled the industries of the United States and its allies to develop mutually beneficial expertise. Unfortunately, Democratic appointees at the U.S. International Trade Commission (ITC) are threatening to halt this trend.
The ITC recently imposed penalties on Finkelstein Metals, an important but little-known brass rod manufacturer in northern Israel. The commission claims that Finkelstein receives subsidies from the Israeli government that have allowed it to undercut American producers and amass 3 percent of the American market for certain kinds of brass metalwork. In the eyes of the Democratic commissioners, the subsidies to Finkelstein have helped the company undercut American brass producers.
ITC Chairman David S. Johanson argues that this decision was wrongheaded. In a dissenting opinion, Johanson explained that Finkelstein’s gains in market share were “very small and amounted to no more than a few days’ production for the far larger U.S. industry,” and that to the extent Finkelstein did succeed in the U.S. market it helped to alleviate U.S. brass rod supply shortages resulting from the pandemic. It doesn’t seem like the subsidies were the driver of its success.
Moreover, though the ITC investigation considered only trade data from January 2020 to September 2023, the month before the Hamas attack, commissioners are tasked to consider “significant circumstances and events” that occur before they vote on a ruling. Johanson points out that October 7 precipitated a step change in the capacity, production, and export propensity of Israeli industry. As former U.S. ambassador to Israel David Friedman has noted, Finkelstein is the sole supplier for key components of the Iron Dome air defense system that protects Israelis from Hamas’s and Hezbollah’s rocket arsenals. While the demand for Iron Dome has surged since Hamas’s October 7 attack, Finkelstein would not survive long if Israeli missile-defense components were its main source of revenue: nearly three-quarters of its sales volume comes from the United States. Evidently, however, the ITC’s Democratic members do not find the war to be a significant event.
Apart from the moral implications of punishing a company whose products save innocent lives in the middle of a war, the ITC’s actions have major implications for American allies. Washington’s failure to deter China, Iran, and Russia has put other democracies in danger, and they are now taking steps to enhance their security. Japan is beginning a defense buildup that by 2027 will add long-range missiles, as well as space, cyber, and other formidable new capabilities. The European members of NATO are collectively on pace to meet the 2 percent of GDP target this year. Even the Germans, who have been remarkably complacent about Europe’s deteriorating security situation, are now fulfilling their defense-spending commitments.
After letting their defense industries atrophy for years, these countries are making up for lost time by subsidizing weapons manufacturers. Japan is budgeting more than $600 million to shore up its defense industry. The European Union is throwing 1.5 billion euros into a similar effort, and European Commission president Ursula von der Leyen wants to spend much more.
With all that cash sloshing around, one might suppose the military-industrial complex is making money hand over fist, but the truth is more complicated. Even countries with well-developed defense industries, like France, need to export arms to stay afloat, and many smaller defense contractors cannot survive producing only military components. The Pentagon, meantime, still has to keep an eye out for single-source contractors that want to shift to more lucrative civilian pursuits.
The U.S. and allied militaries need small amounts of highly specialized components from thousands of companies to keep in fighting shape. Many of these companies need both subsidies and exports to stay in the business. If the ITC focuses only on subsidies these companies get and starts blocking more of their products, it will tell our allies’ business communities that they need to choose between their own countries’ national defense and access to American consumers. Forcing them into such dilemmas will make everyone worse off.
Given the White House’s newfound disapproval of Israel’s efforts to pursue victory over Hamas, the timing of this ITC decision is troubling. Many American allies already fear that the U.S. is becoming dangerously erratic. If they believe that Washington will cripple their strategic industries because of domestic politics, their trust will erode further. Israel is already looking for alternatives to American-made weapons.
In his first foreign policy speech as president, Joe Biden said, “America’s alliances are our greatest asset, and leading with diplomacy means standing shoulder-to-shoulder with our allies and key partners once again.” A noble sentiment. He should make sure his party and administration understand that.