Murphy's Law: Weak Dollars Make Mighty Munitions

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July 17, 2008: American weapons manufacturers are thriving at the moment. Export sales are booming. There are several reasons for this, besides the "combat tested" angle. The big edges has to do with the value of the dollar on currency markets. This is determined by how many want to buy, or sell, dollars on international currency markets. Because of the growing U.S. trade deficit (importing more than is exported), the dollar has become weaker (less sought after). In the last six years, the dollar has declined 40 percent versus other major currencies. That means importing things into the U.S. is more expensive, but exports are cheaper for foreigners. That applies particularly to weapons, which tend to use fewer imported components. Thus U.S. weapons are cheaper for foreigners to buy.

For other nations, there are basically three sources for the most modern weapons. The first choice should be American stuff, but many European nations will pay more to buy weapons built in Europe. This keeps defense jobs in Europe, and plays to the ancient attitude that one should not depend on foreigners for weapons. But with the continuing decline in the value of the dollar, the premium paid for buying European is going up. This makes nations that buy U.S. weapons feel better, and those buying European are having second thoughts.

The third source of modern weapons of Russia. But there are some unique problems with Russian weapons. The big one is a bad track record. In the past sixty years, Russian weapons have rarely beaten U.S. or European ones. The Russians have some good reasons why this should be so, but the evidence is still damning. Another problem with Russian gear is reliability and tech support. The Russians have a bad reputation in both areas. While Russia has been spending a lot of money to prop up its currency (the rouble) versus the dollar, it still has to pay more for imported components. Some customers insist on this. So the Russians are having a harder time selling on price (the lowest one.)

The power of the weakening dollar can be seen more clearly in the new U.S. F-35 fighter. Thousands of these will be exported over the next twenty years, accounting for hundreds of billions of dollars in sales. And for European nations, those F-35 purchases are getting cheaper each year.

 


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