US Defense Industrial Base Faces Numerous Threats, Multi-Department Study Finds

A new multi-department, multi-agency study released by the White House Thursday called the array of challenges facing the industrial base"unprecedented." Lockheed Martin photo.

There are numerous threats to the health and “resiliency” of the national manufacturing and defense industrial base, which likely require a new national industrial policy and hundreds of administrative changes and actions to address them, according to a yearlong, multi-agency and multi-department study released by the White House on Thursday.

Many of the problems besetting the American defense industry are self-imposed, according to the report, which was the result of a Pentagon-led task force that included inputs from departments such as Commerce, Labor, NASA, various trade organizations, the intelligence community, and others. These self-inflicted problems include budget sequestration, self-defeating contracting practices, the loss of workforce skills, and reduced demand from the military. Other problems were blamed on foreign entities, such as espionage and “aggressive” trade practices.

The Defense Department-led task force largely affirmed the truth of the concerns which put it in motion; namely that reduced demand from the Pentagon for defense goods and services over the last quarter-century, coupled with manufacturing flight and a host of other “macro factors,” have resulted in many key supplier categories diminishing to a few, one or even no domestic supplier at all. This in turn harms innovation and raises concerns about the reliability of defense goods produced overseas, such as microchips.

The report, titled “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” said the array of challenges facing the industrial base is “unprecedented” and “threaten the Department of Defense’s (DoD) ability to be ready for the ‘fight tonight,’ and to retool for great power competition.” The report identified hundreds of separate “impacts” on the defense industry, general areas of “risk,” and identified ways to mitigate them.

Unsurprisingly, the report found most of the trouble “primarily at the sub-tiers of the defense supply chain.” It noted, for example, a single small company that produces a part critical for helicopter gearboxes went out of business, “imperiling” the ability to produce all the helicopters and the V-22 tiltrotor now in manufacture.

“A surprising level of foreign dependence on competitor nations exists,” the task force found, and “many sectors continue to move critical capabilities offshore in pursuit of competitive pricing.” Moreover, “workforce challenges face employers across all sectors.”

Among its headline recommendations, the task force urged budget stability as a key way to keep the industrial base predictable, manageable and attractive to investment. It urged “passage of the Bipartisan Budget Act of 2018, providing stable funding through Fiscal Year (FY) 2019.”

Another step, keyed against industrial knowledge loss spying, urged “modernization” of the Committee on Foreign Investment in the US, “and investigations under Section 301 of the Trade Act of 1974 into Chinese intellectual property theft, to better combat Chinese industrial policies targeting American intellectual property.”

The US has a strong remotely-piloted aircraft industry, but self-imposed export controls prevent many of such companies from selling overseas, despite potential customers being able to buy comparable systems from other countries. The task force recommended fixing this situation.

Although a significant reorganization of the Pentagon’s acquisition bureaucracy is underway, pushed both by new legislation and internally, the report urged even more of an overhaul to further streamline the procurement process. It also pushed for a restructure of Defense Acquisition University to increase the number of contracting personnel and foster a culture of “agility.”

The report called for a “National Advanced Manufacturing Strategy by the White House Office of Science and Technology Policy,” which would focus on nurturing “advanced manufacturing.” It cheers a Labor Department initiative to “promote apprenticeships” and other steps to increase the qualified workforce, and urged increased domestic production of microelectronics to increase “national competitiveness.” Separately, an updated Pentagon industrial policy will “support…national security efforts, as outlined in the National Defense Strategy, to inform current and future acquisition practices.”

Within the Pentagon, the task force urged the creation of “cross-functional” teams charged with “maintaining technology advantage.” The existing National Security Industrial Program is to “assess and counter threats to critical technologies,” which includes improving contractor defenses against sophisticated hacking.

A “classified action plan” goes with the report, but outlines steps to be taken with “four levers: investment, policy, regulation, and legislation.” These include:

  • “Expanding direct investment in the lower tier of the industrial base through DOD’s Defense Production Act Title III, Manufacturing Technology, and Industrial Base Analysis and Sustainment programs to address critical bottlenecks, support fragile suppliers, and mitigate single points-of-failure.”
  • Creating diversification of suppliers to avoid “complete dependency on sources of supply in politically unstable countries who may cut off U.S. access.” These steps may include reengineering, expanded use of the National Defense Stockpile program, or qualification of new suppliers.
  • “Working with allies and partners on joint industrial base challenges through the National Technology Industrial Base and similar structures.”
  • Modernizing the US industrial base to ensure it can “sustain fleets and meet contingency surge requirements.”
  • Accelerating workforce development efforts in STEM (science, technology, engineering, mathematics) and “critical trade skills.”
  • Accelerating the process of granting security clearances and clearing the backlog of clearance cases now pending.

Finally, the report urges aggressive efforts to explore “next generation technology” to deal with future threats.