The fundamental challenge I see for the Biden administration is balancing reshoring versus Buy America. The Buy America approach is problematic when it comes to the industrial base because it becomes a food fight, whereas we really need to focus on getting-out-of-China business. Where do we have weaknesses in terms of relationships with companies in adversarial countries and get out of that.
Second, we got to pick our priorities. The last administration picked shipbuilding and microelectronics. This administration will probably pick differently. They might choose microelectronics and something else, but they can’t do everything in the budgetary environment.
The third thing is we got to use all our tools. The DPA [Defense Production Act] we talked about is an incredibly powerful tool for industrial base matters. But there are several other big programs, such as the one Brett [Lambert] started, the Industrial Base Analysis and Sustainment program, manufacturing technology, the national stockpile that Steve [Grundman] mentioned. These programs didn’t have the attention they needed, and they’re going back to the previous status quo if we don’t have an ASD [Assistant Secretary of Defense] level position.
The final point is that the administration needs to focus on doing this with a little help from our friends. There are some areas where natural relationships — whether its geographic like Canada and Mexico, or capability such as Australia in mining or Japan in rare earth magnets — there are natural relationship we need to strengthen. They stood up this National Technology Industrial Base several years ago, but it’s really just a talking point. How do we get that into contracts? How do we get DPA Title III to companies based outside the United States? — and from Canada which is already in there.
That was executive director of Mason GovCon Jerry McGinn on the Defense & Aerospace Report. Listen to the whole thing, interesting throughout. There was a good discussion about industrial policy. Of course, defense program decisions are industrial policy because the government is a monopsonist in this regard, as Vago Muradian pointed out.
In my view, one of the crucial changes in mindset will be from a sole focus on program outputs like F-35s and frigates to one that’s more balanced with Title III-style investments into capital or industrial capability.
In the program-output view, the market system works itself out. Companies will structure their capital investments to meet program requirements, and they will outsource those items which can be done more effectively by other firms. For whatever economic reason, many parts of the manufacturing process have been outsourced to other countries over the past few decades. While that might make sense from a market perspective, it creates a real vulnerability from a national security perspective. Markets are great at what they do, but for these existential risks like war, they are not prepared for the shock — even though they are also the best way to bounce back from a shock.
Balancing that with direct support for capital and supply chains is important. In one respect, investments into the latest manufacturing techniques can propel military programs to more sophisticated states. For example, it wasn’t the biologists who were clamoring for an electron microscope, but they sure benefitted from its invention. So it’s not always the fact that program requirements will pull the kinds of machine tools or processes needed to make it happen.
Another part of this view is investments into dual-use activities that are nonetheless crucial to weapons programs. Rare earths mining and processing and microelectronics are two big ones. While the former can be stockpiled to an extent, the latter requires a capability because it’s little use stockpiling obsolete electronics — then again, many of the weapons run on obsolete electronics.
The second aspect takes DoD a little farther afield. Certainly, it makes sense to use defense dollars to reshore critical dual-use capabilities. The whole purpose of DoD is to prepare not just for limited wars, but major wars. To the degree supply chains could grind a major war effort to a halt right when it’s needed most, that needs to be on the minds of leaders. But even with that knowledge, it is hard to divert budgets from more weapons today to fix a problem that might occur in a possible future.
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