Top defense officials said last week that the Pentagon intends to invest in domestic manufacturing to reduce it over-reliance on Chinese and other foreign-made parts in American weapons.
The Pentagon’s reliance on China is a major topic discussed in a new report about the overall status of the defense industrial base that President Trump is scheduled to release. Some other areas include “accelerating workforce development efforts to grow domestic science, technology, engineering, mathematics, and critical trade skills,” said Defense One.
“This assessment recognizes the global nature of our supply chain and really addresses the need for strengthening alliances and partnerships so that we can jointly address industrial base risk,” Ellon Lord, undersecretary for acquisition and sustainment, said Thursday evening during a press briefing at the Pentagon.
Pentagon officials are expected to ask Congress for additional funding for mitigating efforts in its fiscal 2020 budget request to Congress early next year.
“We already have existing industrial-base mitigation tools,” said Eric Chewning, the deputy assistant defense secretary for industrial policy, said during the briefing. “There’s already money available to address some of these challenges.”
According to Defense One, the new report says China is the only manufacturer of various chemicals needed in missiles and bombs, Europe and Japan are the only supplies of certain carbon fibers used in missiles, satellites, and rockets; Germany is the sole supplier of high-tech vacuum tubes for night vision goggles.
China is a major focal point in the report, mentioned more than 200 times, it seems US government agencies are rushing to halt weapon parts from the country. Some of the report’s findings and recommendations on reworking supply chains are considered classified because they describe vulnerabilities in US supply chains.
“I wouldn’t think of this just as an additional ask for money,” Chewning said. “We also need to be spending what we do more wisely. This isn’t just an investment fix. There’s legislative fixes, there’s policy fixes, there’s regulatory fixes. We need to be able to hit all of those levers.”
It is not that the Pentagon has not been investing in domestic manufacturing, he said. “Sometimes we’re just not spending money in the right way.”
Lord said the US defense industry supports roughly 2.4 million jobs and accounts for $865 billion “in annual industry output” and $143 billion in exports.
She said the report’s timing “is really excellent because it provides a site picture on industrial-base issues just as receive the  budget that really allows us to address many of those issues.”
Hawk, Carlisle, president and CEO of the National Defense Industrial Association (NDIA), said the report indicates a “sobering picture” of the defense industrial base. NDIA was one of the trade groups that helped the Trump administration develop the report.
“Reliance on single producers within the supply chain, dependence on unstable or unfriendly foreign suppliers for critical components, and misplaced presumption of continued preeminence of American military superiority are examples of findings that should be immediately addressed,” Carlisle said in a statement.
The Aerospace Industries Association, another trade group that participated in the review, said: “Ultimately, while it is essential that the Administration focus on addressing the specific challenges facing the industrial base, none of the advancements in acquisition policy, key capabilities or workforce will matter without adequate DOD budgets.”
There are two bottlenecks that arise from the Pentagon wanting to rework their global supply chain network: first, it is costly, and second, it could lead to global trade disruptions.
Government officials have stated that DOD budgets would have to increase to rework supply chains to produce more domestic parts for weapons.
The need for more defense spending comes as the Trump administration has set a record for military expenditures in 2018.
Defense spending plus tax cuts have pushed the US budget deficit over the $1 trillion mark for next year. Already, the net supply of Treasury securities have doubled this year, to over $900 billion, and could rise to nearly $1.2 trillion in 2019.
Treasury auctions are now having difficulty digesting the new supply, as the 10-year yield has hit a seven-year high. More military spending to rework supply chains could add further Treasury supply and continue pushing yields higher. Record military spending with out of control deficit spending via the Trump administration could strangle the real economy with borrowing costs on the rise.
Reworking the Pentagon’s supply chains also come at a time when global openness has peaked, and the old economic order from a post World War II recovery to hyper-globalization has ended. As a result, supply chain disruptions tend to trigger a slowdown in global growth momentum.
The Pentagon is not alone in the attempt of reworking their supply chains. Many multinationals are digesting President Trump’s trade war that is causing much uncertainty and rewriting trade routes from country to country, due to tariffs.
The only reason the Pentagon would want to rewrite their supply chains and become less reliant on the rest of the world is that they see a war on the horizon. War tends to disrupt global trade, the US government is now preparing for conflict by securing its supply chains.
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