Uncertain budgets, a broken procurement system and an unfair trade environment have eroded the United States’ defense industrial base to levels at which national security could be at risk, a long-awaited White House report released Thursday concluded, bringing new urgency to problems that have worried acquisition experts for years.
The report states that “all facets of the manufacturing and defense industrial base are currently under threat” and that there are entire “industries near domestic extinction,” forcing the Pentagon to look overseas for help. Top procurement officials said the findings underscored the need to think more critically about the U.S. military’s supply chain and its relationship with defense contractors.
“Without a robust, secure and resilient industrial base, you cannot provide lethality for the warfighter,” said Ellen Lord, undersecretary of defense for acquisition and sustainment. “Our industrial base is only as strong as our Department’s relationship with industry.”
President Trump is expected to unveil a public version of the report Friday afternoon and sign an executive order meant to address the problems it raises. In a Thursday evening phone call, Lord and Deputy Assistant Secretary of Defense for Manufacturing Eric Chewning declined to provide an exact dollar figure for how much extra defense funding would be behind the effort, and they shied away from directly answering questions about whether new subsidies for defense firms could be part of the solution.
But a senior administration official, speaking on the condition of anonymity to discuss how the White House would respond, described targeted cash infusions designed to shore up particular areas of weakness, including $70 million for a company that makes gun components and extra funding for Abrams tank parts.
The report drew attention to long-standing problems affecting the defense industrial base, with a focus on China. The report makes the case that U.S. economic security and national security are inseparable, a line of thinking that the Trump administration has also used to justify erecting new trade barriers against Chinese steel and aluminum.
As the global economy has become more integrated across transnational borders, the vast supply chain serving the U.S. military has become dependent on low-cost foreign components — too dependent, Trump administration officials say. Things such as machine tools, infrared detectors and night-vision systems are largely provided by foreign suppliers, officials say, raising questions about whether the U.S. military would have access to them in a protracted war.
The report also alleges that years of decreased defense spending under the Obama administration — when “sequestration” spending caps limited defense spending after 2013 — have left “fragile” manufacturers with safety or cash-flow issues, hampering their ability to meet the military’s standards. A wave of consolidation during that period has meant there is often a single supplier for some important parts, forcing the government to turn to a monopoly supplier.
The report also emphasized difficulties in attracting skilled laborers to work for the U.S. government, as skilled engineers, software developers and tradesmen are in short supply. While those shortages have also dogged much of the U.S. manufacturing base, they are particularly troublesome to military suppliers, who often have to wait a year or more for those professionals to receive security clearances allowing them to work on secret military programs.
The report identified nearly 300 supply chain vulnerabilities in which particular components are produced by just one company, a “fragile” supplier, or a foreign supplier. It singled out obscure but important components such as submarine propeller shafts, gun barrels that go on combat vehicles, and ceramics that go in soldiers’ body armor as being potentially unable to meet the U.S. military’s needs in a protracted war.
The warning comes as the Pentagon’s National Defense Strategy has, after years of U.S. forces’ fighting counterinsurgencies in Iraq and Afghanistan, placed an increasing importance on competing with Russia and China for global military dominance. For years, those potential adversaries have been working to chip away at the technological superiority that the United States has enjoyed since World War II. But now those countries “appear to be growing in strength and capability,” the report said, adding a sense of urgency to bolstering the Pentagon’s suppliers.
Wes Hallman, a vice president with the National Defense Industrial Association, called the report a “wake-up call,” noting that the defense industrial base of today is “not what the arsenal of democracy was going into World War II.” Decades ago “it took you more than two hands to count the number of companies that could produce a fighter jet, and now we’re down to essentially two. That’s a big deal, and that’s just one sector.”
Some of the problems identified in the report — such as the Pentagon’s slow and bureaucratic procurement system — have been around for years. And others, such as the “decline of U.S. manufacturing base capabilities and capacity” concerned Pentagon leaders in the Obama administration, who attempted to push back against further consolidation in the industry.
The Pentagon has also sought to better harness innovation by broadening its reach to places like Silicon Valley and Boston, hoping to get companies that shied away from federal work to become defense contractors — an effort that has been met with mixed results.
The relationship between the Trump administration and the defense industrial base has largely been a positive one, despite early presidential tweets aimed at Boeing and Lockheed Martin that sent stock prices swooning industry-wide.
The Trump administration’s policies have generally led to increased profits for defense firms, who have benefited from increased defense spending as well as corporate tax cuts. But defense firms have occasionally griped about the Trump administration’s efforts to erect new trade barriers; when the administration moved last March to erect steep tariffs on steel and aluminum, Aerospace Industries Association president and chief executive Eric Fanning said such barriers would hurt defense firms by stirring retaliation against U.S. suppliers.
In reaction to Tuesday’s report, major defense industry associations said they welcomed its conclusions even as it called out their industry’s shortcomings. The three major trade associations representing the defense industry — the National Defense Industrial Association, the Professional Services Council and the Aerospace Industries Association — had all been consulted as part of the report, officials said.
NDIA president and chief executive Hawk Carlisle, a retired four-star Air Force general, called the report a “sobering” look at the health of the U.S. defense industrial base.
“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. “Compounding these risks, the report highlights a drain on talent that now flows toward Silicon Valley start-ups instead of defense-focused industries.”
Aerospace Industries Association’s Fanning praised the Trump administration’s approach of lumping in elements of economic security and national security.
“Guaranteeing the health of the American manufacturing and defense industrial base is a critical national security and economic priority as the United States combats today’s threats and those we’ll face tomorrow,” Fanning said.