The decline of the defense industrial base – and what to do about it


Defense News 

new report released by the White House documents the gravity of the situation facing the defense industrial base, while also offering solutions to counteract these challenges. By evaluating seven tiers deep into the supply chain, the report has documented more than 280 major supply chain vulnerabilities and an alarming dependency on foreign nations, especially China.

The report is not all bad news, however: it notes that a targeted approach involving funding, policy, legislation, and regulation could combat these declines and significantly improve the outlook for American defense production.

Keen observers of the defense industrial base have noticed many of the problems identified by the report, classified into ten different “archetypes,” for years. Foreign dependencies abound within the defense supply chain, especially at the “sub-tier” levels of component or raw material manufacturing. Even when the U.S. military is not entirely dependent on a foreign source for these supplies, it is often the case that a sole source or a single source, often fragile, is the only remaining producer of the material.

These risks are among those clearly identified by the report, which offers solutions to help them, ranging from additional funding to keep domestic manufacturers in business to sourcing restrictions, such as the proven Berry and Specialty Metals amendments, that protect manufacturers from hostile foreign acts.

In addressing the prevalence of hostile foreign trade practices and other strategies designed to produce foreign dependence and weaken the American industrial base, the report goes further than the Department of Defense has traditionally wanted to venture. The report clearly identifies five macro factors that have weakened the defense industrial base, including the “Industrial Policies of Competitor Nations.” Though U.S. manufacturing has declined for a variety of reasons, the report notes that China, in particular, has used illegal means to dominate critical global markets. These means include espionage, evasion of export controls, market access restrictions, subsidies, and dumping, among others.

Only the hardiest of free-market economists would say that the U.S. should ignore this flouting of the rules of global trade, and no serious national security analyst should ignore how China has used these techniques to acquire and exert dominance in sectors of critical concern to the U.S. military, such as rare earths and energetic materials.

Fortunately, the report goes beyond problem identification to provide a Blueprint for Action. Though many of these are locked away in a classified annex to the report, the White House has provided some clues as to how it wishes to proceed.

First, and probably most importantly, is the creation of a national industrial policy to support national security efforts. This is an area where the Department of Defense has been deficient for decades. Though the Pentagon retained an office of industrial policy, defense observers will tell you that its resources and power were quite limited. It had no power over the major program offices, who tended to pursue low-cost globally available options, sometimes from unreliable foreign suppliers, even at the expense of overall industrial base health. A cohesive industrial policy that has buy-in from all the major offices in the Department of Defense will go a long way in restoring needed capabilities within the defense supply chain, with the potential to actually lower costs in the long run by using the overall purchasing power of the U.S. military to create economies of scale.

Secondly, the report encourages the use of direct funding to target and support critical sectors of the supply chain. Though the programs available to carry out this important mission — the Defense Production Act Title III, Manufacturing Technology, and Industrial Base Analysis and Sustainment — already exist, they need additional resources to make significant changes in the industrial base. Congress, to its credit, has provided the Title III program with $20 to $30 million in additional funds annually, but this has been insignificant compared to the efforts made by China and other nations to strip industrial capacity away from the United States. If the recommendations in the report are to be executed, more Title III funds will be required.

The report also calls for additional efforts in education and with allied nations to address workforce shortages and joint industrial challenges. Finally, though not specifically addressed in the formal Blueprint, the report acknowledges that the Pentagon’s own acquisition processes continue to pose challenges for innovative manufacturers, with red tape and uncertain funding driving many potential suppliers away.

Supporters of a strong defense industrial base should view this report as a significant step forward for the U.S. military. After years of being overlooked, the sub-tiers of the defense industrial base, in particular, are now being monitored, evaluated, and supported. The Department of Defense and the White House have started an important conversation by doing the research to bring these problems to the foreground, and it will be up to Congress next year to provide the resources and legislation necessary to cure them.

Jeff Green is the president of J.A. Green & Company, a government relations firm based in Washington, D.C. He previously served with the House Armed Services Committee and the Defense Department.