By contrast, the decision was very welcome news for Obama's main rival, Republican presidential standard-bearer Sen. John McCain of Arizona.

Although Obama, D-Ill., has a clear record as a free-trader, he has moved to the protectionist left in his presidential campaign. Allowing the award of the air tanker contract to Northrop Grumman and its European partner, the European Aeronautic Defense and Space Co., to stand would have given Obama and Democratic congressional candidates all across the United States hot ammunition for the fall election campaign.

Sitting Republican senators and congressmen in districts and states with large numbers of jobs at stake in the program would have been particularly vulnerable.

Nullifying the award of the contract to EADS for its KC-45A air tanker, a modification of the A-330 Airbus, and putting Boeing's KC-767 tanker back in contention is therefore good domestic politics for the Republicans. The air tanker issue wasn't the biggest economic or business issue for Obama by any means, but it was clearly a potent one, and now it has been taken off the table.

Gates' decision will be welcome news to McCain. A strong free-trader, but also with strong support from the defense community, he only stood to be embarrassed by the issue and was steering clear of it as much as he could.

However, whichever of the two senators wins the November election, once in office he will be faced with healing the political and economic wounds that the air-tanker dispute opened. That will especially be the case if Boeing wins the re-competition for the enormously lucrative air-tanker order, expected to total 600 aircraft worth $100 billion over the next few years.

European leaders and policymakers have tended to prefer Obama to McCain, but privately, many of them express the view that either senator would be vastly preferable for them, and far more likely to take the major European nations seriously as valued partners for the United States, than current U.S. President George W. Bush.

Either a President Obama or a President McCain, however, would still face the conundrum of proving to the Europeans that the United States really wanted to boost the European defense industry and encourage increased and freer trade in both directions across the Atlantic. Nullifying the air-tanker contract to EADS sends precisely the opposite message.

On the other hand, if EADS wins the re-competition, either President McCain or President Obama would face intense criticism at home for failing to protect a key part of the U.S. high-tech and military-industrial base.

A solution to this dilemma might be for future Department of Defense leaders to seek to work far more closely with the Europeans in pointing out to governments and defense contractors on the other side of the Atlantic the areas where the U.S. domestic base does not produce key equipment and weapons systems, especially in the low-tech spectrum, and where buying European would both be better value for the U.S. taxpayer and not threaten any, or many, U.S. jobs or companies at all.

One such area could be the purchase of European-made dielectric-diesel submarines. France and Germany both make excellent models: the French Scorpion, which has been bought by India, and the German Dolphin, which has been supplied to Israel. No U.S shipyard makes any non-nuclear submarine anymore.

Damaging as the dispute over the U.S. Air Force tanker deal will be to U.S.-European relations, it should not deal a mortal blow to them, and there will be many opportunities to make amends for it.

(Part 4: The contesting aircraft)

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