A new report from data analytics firm Govini measures Chinese penetration of the U.S. defense supply chain and concludes that our industrial base cannot deter China.
Released this morning, the report was issued by Arlington, VA-based Govini which was awarded a five-year $400 million contract from the Pentagon in 2019 to deliver data, analysis and insights into DoD spending, supply chain and acquisition using a database it continues to compile.
Its simplest and most telling insight lies in the authors’ observation that;
“U.S. domestic production capacity is a shriveled shadow of its former self. Crucial categories of industry for U.S. national defense are no longer built in any of the 50 states. With just 25 well-constructed attacks, using any of a variety of means, an adversarial military planner could cripple much of America’s manufacturing apparatus for producing advanced weapons.”
I spoke with Govini CEO, Tara Murphy Dougherty, in a telephone interview last week. In the conversation she revealed three headline numbers that describe the unsettling dependence that the Pentagon and U.S. forces have on China for defense supplies from electronics to materials.
First, over 40 percent of the semiconductors that sustain DoD weapons systems and associated infrastructure are now sourced from China. Second, from 2005 to 2020, the number of Chinese suppliers in the U.S. defense-industrial supply chain has quadrupled. And third, between 2014 and 2022, American dependence on Chinese electronics increased by 600 percent.
The seriousness of the vulnerability of American weapons systems and munitions to Chinese supply and control is vividly illustrated by the number of Chinese supplied semiconductors on which they run.
According to Govini, the U.S.’ newest Ford-class aircraft carriers depend on over 6,500 Chinese-sourced semiconductors to operate. Many other U.S. Navy ships and aircraft are similarly dependent on thousands of Chinese semiconductors to function as instruments of U.S. defense and power projection.
The numbers are alarming but the trend they describe underlines a corollary decline in domestic capacity to make the building blocks of U.S. defense systems. Many of these systems are critical to both Ukraine and Israel as they struggle with U.S. support for their own conflicts.
“The China problem is one aspect of what I would describe as the overall situation of the U.S. industrial base cratering,” Dougherty says.
According to the report, the failure of America’s defense industrial base can be attributed in part to three decades of federal government guidance to defense companies.
At the government and DoD’s behest, defense OEMs have enthusiastically pursued lean production and financial efficiency, delivering weapons systems just-in-time from deliberately minimalist production lines to a military which has kept its inventories as small as possible.
The outcome, Govini asserts, has been the opposite of what was intended – reduced savings. These have not been delivered and the strategy has simultaneously made America’s security vulnerable by leaving stockpiles low and shrinking our capacity to replenish them.
U.S. adversaries can see the weakness clearly. As domestic capacity has withered, countries like China have bolstered their own and expanded into global markets. Today, the report points out, nearly a third of global defense companies are in China.
The demand for munitions, particularly precision-guided weapons from Ukraine and Israel, has brought into stark relief the small and dwindling stock of “bullets” in America’s arsenal.
Govini’s CEO says that the whitepaper and a 2023 National Security Scorecard the firm generated using its “Ark” suite of commercial data, government data, and AI-enabled applications, have been presented to “everyone in the Commerce Department, DoD, the White House, NSC [National Security Council] and others to be sure. They are all convinced of the need to do something.”
Given that the government (i.e. taxpayers) is paying Govini $400 million for its insights, one would hope so. But real evidence of any progress in reversing the decline in U.S. industrial capacity, weaning the U.S. supply chain of Chinese participation or replenishing vanishing munitions stocks is scant.
Daugherty says that “a lot” has been done with existing authorities under the Defense Production Act which the Biden administration invoked in 2022 and notes that the Pentagon is about to release its first ever national industrial base strategy.
“It’s not like there’s nothing happening,” she says. “The approach, typical of the United States government, which says let’s start by establishing out strategy and then it’s going to take us 18 months to get it out the door, is part of the problem.”
Indeed, the problems are inaction, lack of will, layers of obstructionist government and Pentagon bureaucracy, and executive policies that do nothing.
For example, last week, the Commerce Department breathlessly announced that the Biden-Harris Administration and Microchip Technology Inc. have reached a “non-binding preliminary memorandum of terms (PMT)” to provide approximately $162 million in federal incentives under the CHIPS and Science Act to support the onshoring of the company’s semiconductor supply chain.
Meanwhile, the White House and the Department of Energy revealed the allocation of a “historic” $169 million for nine projects across 15 sites nationwide in December, “aiming to boost electric heat pump manufacturing” under the Defense Production Act.
The Biden administration has repeatedly used the Defense Production Act – which the average American might reasonably expect to be focused on national defense – to try to deflate its inflationary economy and fund its pet projects.
China will probably not fret much over a $162 million non-binding PMT for onshoring microchips but will surely stand up and applaud the $169 allocated for mandated electric heat pumps.
Govini’s report includes case studies on shipbuilding and naval readiness and U.S. munitions expenditures. The former concludes that with current Navy plans and budgets, “U.S. warship-builders do not see an economic case for creating more production capacity at their own expense.”
The latter asserts that the long-range weapons the U.S. will sorely need to deter and if necessary, take on China in the Pacific “are also vulnerable to the same supply chain challenges that plague the broader American industrial base.”
Govini’s study does not offer information on the emerging hypersonic weapons sector but given that the U.S. players are the same as those above, it’s reasonable to expect a similar level of Chinese participation. The lesson here is also that if America at long last actually succeeds in bolstering its weapons stocks, the benefits extend to Beijing.
With its databases and artificial intelligence tools duly integrated, Govini’s whitepaper is an ironic reflection of the American defense establishment’s obsession with and striving for ever more data, insights and situational awareness. These enable it to articulate exactly how China and other U.S. adversaries are beating us on and off the battlefield.
But it can do nothing to respond.
In the meantime, we’ll have more reports whose value Daughtery underlined in our conversation when she observed that, “It’s amazing how that [the need to act] can be said over and over and be widely accepted and yet we have so much change still to drive.”
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