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America’s Defense Industrial Base Suppliers Facing “Domestic Extinction”

A blend of Chinese influence and budgetary uncertainty means America’s defense industrial base is dissolving at the lower levels, with many suppliers facing “domestic extinction.” A new study from the Trump administration is warning direct investment in the administration appears to be the solution.

The study was the result of an executive order issued by president Donald Trump last July, warned when the relationship is not remedied, the Pentagon will face “limited capabilities, insecurity of supply, lack of R&D, program delays, and an inability to surge in times of crisis.”

The language of the study appears dire, but high on the 140-page report shows nothing new for those who have heard defense industrial issues during the last few years. Many of the concerns addressed in the report were similar to the Defense Department internal study, released recording, which warned of long-term trends, including demographics and sole-source suppliers moving away from business, were set to produce major hurdles.

Trump ordered its creation in July of 2017, with Peter Navarro, who is regarded as a trade tsar and a well-known China hawk. At the time, Navarro said the study was being driven by concerns that “we cannot retain a preeminent military with out a healthy, growing economy along with a resilient industrial base.”

By May 2018, the Pentagon delivered its findings to the White House for review, which set industry expectations of the release shortly thereafter. However, the release date continued to be pushed back due largely because of other news overtaking the White House.

Trump, in addition to Deputy Secretary of Defense Pat Shanahan, are expected to show up at the White House Friday at 1:45 PM eastern time to sign several actions into law. The full report will be released soon after.

The report identifies five macro issues facing the defense industrial base:

  • Sequestration and uncertainty in U.S government spending, which create instability and drives small firms far from defense work
  • A decline of U.S. manufacturing capability and capacity, leaving weaknesses throughout the supply chain
  • Antiquated U.S. government business practices, which the report warns contributes to contracting delays and discourages innovation
  • Industrial policies of competitor nations, both because of “collateral damage of globalization” and specific targeting by great powers like China
  • And diminished U.S. STEM and trade skills, that are creating gaps inside the workforce.

The Departments of Defense, Energy, and Labor all submitted recommendations within the report, to manage 300 individual weak points that are of concern. Those disadvantages are identified, with potential fixes, inside a classified document.

Notably, DoD’s conclusion calls for the expansion of “direct investment inside the lower tier from the industrial base,” over the department’s Defense Production Act Title III, Manufacturing Technology, and Industrial Base Analysis and Sustainment programs. That would address “critical bottlenecks, support fragile suppliers, and mitigate single points-of-failure.”

Ellen Lord, undersecretary of defense for acquisition and sustainment, told reporters it would not be “prudent” now to place an overall total dollar figure on the investment could be coming, but a senior administration official, speaking on background ahead in the report release, identified several shops being given more money.

Those include $70 million for any plant that creates gun components, to be able to launch modernization and risk mitigation programs, and also $1 million to the facility that produces the Abrams tank to procure better tooling. The official also listed two other projects that would be signed off on tomorrow by Trump, without giving a price tag: the expansion of manufacturing capabilities for lithium seawater batteries, utilized in Navy subs, and “cutting edge fuel cells” for future Navy underwater unmanned vehicles.

DoD’s conclusions also call for the creation of an advert policy to “inform current and future acquisition practices;” to attempt to diversify from complete dependency on causes of supply in politically unstable countries who may stop U.S. access, including “reengineering, expanded use with the National Defense Stockpile program, or qualification of recent suppliers,” to use allies on joint industrial base challenges; and to “modernize” the organic industrial base to make sure readiness.

The Department of Energy, whose National Nuclear Security Agency handles the introduction of nuclear warheads, will propose establishing an “Industrial Base Analysis and Sustainment program to handle manufacturing and industrial base risk inside energy and nuclear sectors” within its FY2020 budget request.

And the Department of Labor will continue to work to encourage STEM growth, along with consider “potential incentives to recruit and retain workers to penetrate and/or stay in the industrial base, including tuition reimbursement.”

All three departments must present an update 180 days in the issuance in the report.
The Chinese Bogeyman

While the report casts itself as part in the broader return of great power competition, it can be impossible to miss the authors view China because the industrial bogeyman. The words “China,” “Chinese” or “Beijing” appear inside the report 232 times; “Russia” appears just once, as part of the quote from another document, which mentions China.

The report has been released the same day that Vice President Mike Pence gave a keynote speech in Washington decrying what he called Chinese efforts to influence the American public, and hours after Bloomberg issues a bombshell report that a Chinese company had managed to insert tiny, microscopic chips into hardware utilized by the DoD and American intelligence services.

“The Chinese Communist Party has used an arsenal of policies inconsistent with free and fair trade, including tariffs, quotas, currency manipulation, forced technology transfer, intellectual property theft, and industrial subsidies doled out like candy, to name a few,” Pence said in their speech. “These policies have built Beijing’s manufacturing base, at the cost of its competitors, especially America.

That China is attempting to infiltrate the defense industrial base is no surprise to prospects who are tracking DoD’s comments for the issue inside the last several years, however the report sums it thusly: “While multiple countries pursue policies to bolster their economies on the cost of America’s manufacturing sector, none has targeted our industrial base as successfully as China.”

“China represents a significant and growing risk on the availability of materials and technologies deemed strategic and important to U.S. national security; a challenge shared by key allies for example Germany and Australia,” the report adds, singling out rare earth metals and critical energetic materials for munitions and missiles as areas of concern.

“China’s actions seriously threaten other capabilities, including machine tools; the production and processing of advanced materials like biomaterials, ceramics, and composites; and the production of printed circuit boards and semiconductors.”

China is four times as huge as its next closest competitor with regards to exporting to the U.S. rare earth materials, used in lasers, radar, sonar, night vision systems, missile guidance, and jet engines, making Beijing an important supplier of such capabilities necessary for America’s high-end defense capabilities.

While much of the specific disadvantages inside the defense industrial base are not spelled out inside the public-facing part of the report, the 140-page document does include a amount of instances of weak spots inside defense industrial base, largely inside the lower-tier suppliers who make pieces and parts that would ordinarily go unnoticed on a large military system.

The senior administration official cited ceramics, high performance aluminum and steel, titanium, tungsten and carbon fibers as some in the components the Pentagon is worried about.

The report offers further examples. For instance, it says there are only four America suppliers with the capability to manufacture large, complex, single pour aluminum and magnesium sand castings, needed to help produce American airpower. Those suppliers “face perpetual financial risk and experience bankruptcy threats and mergers mirroring the cyclicality of DoD acquisition,” per the report.

Meanwhile, there exists only one qualified source for the upper, intermediate, and sump housing on an unnamed heavy lift platform utilised by the Marines (potentially the CH-53 King Stallion) that recently underwent bankruptcy proceedings. “Without a qualified source because of these castings, this system will face delays, impeding the U.S. power to field heavy lift support to Marine Corps expeditionary forces,” the report warns.

A material called ASZM-TEDA1 impregnated carbon is found in 72 chemical, biological and nuclear filtration systems of the DoD, and there exists just a single qualified source, the report notes. “The current sourcing arrangements cannot keep pace with demand. DoD is using Defense Production Act Title III authorities to ascertain a different method to obtain this critical material,” the report says.

In yet another example, the study looked in the companies that make flare countermeasures for military aircraft. There are only two domestic suppliers for flares with “little incentive to purchase infrastructure,” and both suffered explosions at their production sites lately. “Both companies have experienced quality and delivery problems because the accidents. As program offices look to improve quality and cost, these are start to look offshore at newer facilities, where you can find fewer quality and safety concerns.”

Eric Chewning, deputy assistant secretary of defense for industrial policy, said cash infusions are not the only tool being considered through the Pentagon, but alternatively a last resort if other regulatory options are not able to protect vital sources of supplies.

But the department will not be shy about using cash as required, he was quoted saying.

“There is existing capability all of you have where it’s just eroding since the invisible hand, and perhaps, that invisible hand has been directed by a state-backed wrist, is moving things offshore,” Chewning said. “That’s where we’d start to see the should selectively intervene with such things as the defense production act or some of our other programs.”

Hawk Carlisle, an ancient Air Force officer who now leads the National Defense Industrial Association, known as the reporter’s findings “sobering.”

“Recent efforts by Congress along with the administration are already encouraging, but more must be done,” Carlisle said. “Streamlining purchasing process, updating the Committee on Foreign Investments inside United States guidelines, and reforming the way we sell our systems to allies and partners have got all been steps inside the right direction.”

Added Eric Fanning with the Aerospace Industries Association, “Guaranteeing the health with the American manufacturing and defense industrial base is an important national security and economic priority because the United States combats today’s threats the ones we’ll face tomorrow. We applaud the Administration’s focus on these issues and appearance to cooperating to implement the assessment’s recommendations sticking with the same spirit of industry-government cooperation and engagement that led to today’s report,”
Both groups were section of 15 conversations the working group had with industry during the production with the report.

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