America’s scrawny $200 billion defense industrial base

Conservatives are like liberals in at least one respect: You can solve a problem by throwing lots of money at it – just so long as the problem is America’s apparently anemic and fragile defense industry.

This, in a nutshell, is the biggest takeaway from the US Defense Department’s recent report titled “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States”: that US defense industry – or at least key parts of it – is “potentially approaching domestic extinction.” As such, nothing short of a massive government bailout – in the form of money and protectionism – is critical to its survival.

Dangerous dependencies, shrinking skills base

Semantics aside (how can one “potentially approach” something?), this report is chock-a-block with silly arguments and even sillier solutions, all driven by the Trump administration’s 18th-century, mercantilist notion that “economic security is national security.”

This tautology can be used to justify any kind of economic, trade or financial policy, since, ultimately, anything can be about national security. But what are the specific problems that this report says afflict the US defense industrial base?

In the first place, the report laments the US military’s reliance on single-source suppliers and foreign manufacturers. According to the report, the Defense Department has only one contractor each for such items as propeller shafts, tank gun turrets, rocket fuel, and space-based infrared detectors for missile defense.

Even worse, the US relies on foreign suppliers in such critical areas as CNC (computerized numerically controlled) machine tools and printed-circuit boards. The report argues in particular that “because the supply chain is globalized and complex, it is challenging to ensure that finished assemblies, subsystems, and systems exclusive leverage trusted discrete components due to diminishing US-based microelectronic and electronic manufacturing capability.”

Besides these “single points of failure,” the report argues that the US defense industrial base is slowly losing skilled personnel essential to keeping it up and running.

According to a New York Times op-ed by Peter Navarro, US President Donald Trump’s chief trade adviser and a vociferous protectionist, “America is simply not generating enough workers in the science, technology, engineering and mathematics [STEM] fields to fill jobs in sectors such as electronic controls, nuclear engineering and space. Nor are we training enough machinists, welders and other skilled trade workers to build and maintain our ships, combat vehicles and aircraft.”

Finally, the Defense Department report argues that “unpredictable demand” in procurement (due to “peaks and valleys” in spending) raises the “risk of potential bottlenecks across the many tiers of the supply chain.”

Nothing new?

There are all kinds of problems with this report. In the first place, most of it is simply a rehash of things we’ve heard before. I have reports on my bookshelves, written decades ago, that sang the same sad refrain about single source suppliers, foreign dependencies, and declining STEM talent.

And what is the result? Today, the US arms industry is still the largest, the richest, and the most technologically advanced in the world. The US defense sector enjoyed revenues in excess of US$217 billion in 2016, according to the Stockholm International Peace Research Institute (SIPRI), and it accounted for 58% of global arms production. The United States is the world’s largest arms exporter as well.

And when it comes to single-source suppliers, so what? If the market was lucrative enough for two or more competitors, wouldn’t they have arisen naturally in a free-market system? Or perhaps one supplier is all that is really necessary, and trying to maintain multiple contractors could actually be duplicative and wasteful?

And there is nothing inherently wrong or dangerous in relying on foreign suppliers. This is, in fact, a smart way to hedge against the sole-source supplier dilemma, that is, by leveraging overseas manufacturers who could provide competition and availability; this could even advantageous to national security, in that it would save the American people money and deliver more bang for the buck.

China! China! China!

Finally, the big bogeyman in this report is – wait for it – China. In fact, the words “China,” “Chinese” or “Beijing” appear in the report 232 times, and “Russia” just once. This is hardly surprising, given Navarro’s lusting fear of China and Trump’s apparent desire to make China his administration’s peer competitor.

Now, China does deserve its licks, particularly in light of recent reporting that a Chinese company had managed to insert tiny chips into motherboards that in turn went into hardware used by both the Defense Department and American intelligence services; this chip reportedly permits the Chinese to hack into critical American computer, communications, and networking systems.

But China cannot be blamed for making such basic items as CNC machine tools or even motherboards, or for its stranglehold on rare-earth elements. Again, that’s the free market at work.

A gift to the US defense industry

That said, the answer is not a return to mercantilism. The US defense industry has its problems, but protectionism and more funding – the central recommendations of this report – won’t solve them. Bottom line, this report is nothing but a huge promissory note to the US defense industry: that arms manufacturers will receive more money and less competition, even as they are currently awash in profits.

Moreover, the report makes the state the prime mover in all this. It basically advocates a statist-corporatist solution delivering a massive basket of goodies to just one industrial sector that is already doing well.

Never has a Republican administration been so adamant about pursuing government-run industrial policy. Of course, we already knew that populist-nationalist Trump is hardly a traditional Republican.