Stratfor: The Unstoppable Spread of Armed Drones

Summary:  America has played a special role in the post-WWII era, repeatedly unleashing horrors on the world. We started the nuclear arms race by bombing Japan, staged the first cyberattack on Iran (we now live in fear of the next being on us), and now we’re flooding the world with armed drones. Here Stratfor explains the likely consequences.

Stratfor

The Unstoppable Spread of Armed Drones
Stratfor, 25 October 2016.

Forecast

  • The United States will continue to lead in the development of armed drone technology, but China has taken the lead in drone exports and therefore has a bigger influence on the application of armed systems.
  • Only the United States and China have exported armed drones, but other countries are expected to join the lucrative market, causing a surge in globally available systems.
  • Because exporting states do not perceive a threat from armed drones, there is little willpower to establish a legal framework to curb their proliferation.

Analysis

The presence of armed drones is a reality of the modern battlefield, but only a limited group of countries has the technological ability to produce them or the military capacity to operate them. The United States once held the edge in drone development and use, but as more countries gain access to the technology, armed drones have entered a new stage of proliferation. From the perspective of the United States and others, this proliferation is dangerous. Attempts to curb the spread of armed drones are becoming more difficult now that the United States is no longer their sole developer. China, in particular, has grown as a global exporter of unmanned combat systems, and other countries are planning to follow suit.

Though the use of unmanned aerial vehicles has spread across all sectors at an incredible pace, the military in particular was quick to embrace drone technology. Even less-developed militaries now typically have some capability, though limited, to deploy unmanned platforms for surveillance and reconnaissance. So, too, do non-state actors, including militant and terrorist groups, albeit using technologically restricted commercial drones. The deployment of dedicated combat drones carrying offensive weapons systems has progressed at a reduced rate, however. Besides the significant legal and ethical concerns that surround the use of lethal platforms, only two suppliers are known to exist: the United States and China. More countries, such as Russia, Israel, Turkey and South Korea, are likely close behind. The increased availability will give other countries more opportunities to acquire armed drones.

Many countries have sought access to armed drones, but only a few have found suppliers willing to sell them. Of those, even fewer have actually employed the vehicles in combat. The United States has so far exported armed drones to only the United Kingdom and Italy, and just last year more stringent requirements were placed on U.S. exports to keep the technology out of the wrong hands.

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Economists forecast a boom soon. The numbers show slowing. Who is right?

Summary: 2014 was to be the year the US economy reached “escape velocity” from the slow 2.2% GDP growth since the crash. So far, as repeatedly predicted here, that has not happened. What might the second half of 2014 hold for us? The long-awaited acceleration, or more trend growth, or (what few economists expect) further slowing? Nobody expects a recession. Here’s some data that might help you prepare.

Bubbles

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In December 2013 there were widespread forecasts of a boom in 2014. On February 21, half way through Q1, I wrote:

The consensus forecast per Blue Chip Economic Indicators as of February 20 for US GDP: 2.7% in 2014 and 3% in 2015. But years of over-optimistic forecasts have made economists cautious, so their “whisper numbers” are higher than their official numbers. My guess is that 2014 will be another year of slow (2.2%?) growth. But, as always, surprises await us — good and bad.

I was a pessimist about 2014 in December through February. Now it appears I was too optimistic, since the first surprise of the year was Q1 GDP of -2.9%. Then most economists expected a big bounce in Q2. Now forecasts for Q2 look disappointing, but hope remains for the rest of the year:

  • Q2: 3.1% (the Atlanta Fed’s NowCast is 2.7%). There were estimates as high as 5% earlier this year.
  • 2H: 3.0%
  • 2014: 1.6% (from Q4 to Q4)

The basis for economists’ hopes

The four horses expected to pull the economy are export growth, housing, business capex, and consumer spending (especially autos). Three of these are likely to be disappointing. The fourth looks strong, but might prove the weakest later in the year. Let’s take a quick look at each.

(a)  Exports

With slow Q2 growth in both Japan and Europe, export growth might prove weak. The drop in Japan’s economy following the April sales tax increase has been far larger than expected.

(b)  Housing

Hopes for housing were great, looking for growth in new home construction, existing home sales, and rising prices. Purchase mortgage applications are down 17% YoY NSA. Both permits and starts were weak in June, an ugly leading indicator. Worse, there are indicators that the market is weakening. See top-analyst Mark Hanson’s June 8 report (free registration required), far from the consensus opinion. For a specific example see his June 10 report about May activity in Phoenix; confirmed by this July 7 report by the Center for Real Estate Theory and Practice at AZ State U.

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Q&A on the FM website

Here is a question asked on the FM website this week (some of these were assertions, which I’ve rephrased at questions): does the US still manufacture anything? Rephrased, is US manufacturing prospering or dying?

Maclaren writes about the decline of US manufacturing here.  Is US manufacturing prospering or dying? See the BLS tables here for the answers.

  • Manufacturing output in the US has increased steadily for generations in both nominal and real terms.
  • Measured by gross output/GDP, it has remains roughly flat, 14% of GDP since 1980.
  • But these measures mask a deterioration, as imports “hollow-out” our manufacturing base — and manufacturing valued-added increases more slowly than gross output. Hence the contribution of manufacturing’s valued-added to GDP was 20% in 1980 but only only 11% in 2008. Just like agriculture, which remains healthy but a shrinking fraction of the US economy.

The last point is the overlooked key. Output grows, but imports take a growing share of that.

Why?  One of the major problems with US manufacturing is the overvalued dollar (much as the overvalued pound was for the UK after WWI). When the bizarre large imbalances in the global economy right themselves, our trade deficit will melt away. That can happen in many ways, some more pleasant for us than other. I recommend that we do not continue trusting to luck in these matters. Some planning and effort now might prevent much pain in the future.

For more about this see Globalization and free trade – wonders of a past era, now enemies of America (16 March 2009).

Can you see the signs of spring in the coming of winter? A note about the recession.

My framework for analysis of current economic events sees this as the end of the post-WWII geopolitical and economic regime.  Like walking through a forest and seeing only trees, it is difficult to grasp the magnitude of these events.  Long-term graphs are needed, and easily show that current events reflect the ending of a long cycle — and transition to a new and different one.  The key word is cycle.  Although Winter might be dark and long, Spring will come again.  Look closely at current trends and you will see the new era emerging.

Here are two examples.

1.  New foreclosures as a percent of all mortgages

One of the major drivers of US growth during the past few decades has been the post-WWII debt supercycle:  the massive increase of US household debt (a term coined long ago by the folks at Bank Credit Analyst).  This accelerated after the 1982 recession, again in the mid-1990’s, and again after 2001.  Now the trend turns.

We enjoyed adding debt — like knocking back too many brews at the local pub.  The inevitable de-leveraging — like the resulting hangover — usually means a period of suffering.

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