Abstract
Thanks to its unparalleled defense budget, the United States possesses a comparative advantage in arms production. This confronts US allies with the US hegemony dilemma, a trade-off between efficiency and autonomy. Allies can procure comparably cheap high-end weaponry from US sources instead of securing more costly autonomy in arms supply. Overall, US defense industrial market power forces its allies to specialize in arms production, thus, to decide what kinds of weapon systems to produce on their own. Given this need to specialize caused by US hegemony in the defense industrial order, what explains US allies' defense industrial specialization? I confine my analysis to Europe since it represents an especially interesting case with its unparalleled regional economic and political integration and its relationship to the US shaped by geostrategic cooperation on the one hand, and industrial competition on the other hand. Furthermore, I focus on the missile sector, a rather understudied arms production sector compared to fighter aircraft and drones. I argue that since the US is the structural constraint that sets the conditions under which European defense industries operate Europeans seek to strike a balance between efficiency, i.e., buying American, autonomy, i.e., producing nationally, and cooperation. I leverage market size, understood as the national market but also the market countries expect to sell to, as the central variable explaining European missile production decisions. These production and export decisions have important political implications because they shape countries' foreign policies decisively. According to conventional wisdom, a country's grand strategy shapes its defense industrial policy. I argue that this causal relationship is more complicated and that a country's defense industrial policy has a profound effect on its grand strategy.