The Great Power Shift: How China's Industrial Surge Threatens US Defense Readiness

In its 2022 report, the National Defense Industry Association issued a sobering assessment of the state of the American Defense Industrial Base (DIB): “Unsatisfactory, failing.”

This stark critique underscores a critical reality—our defense readiness and capability may soon be shadows of their former glory. The era when American dominance in defense was unchallenged, reminiscent of the Cold War, is long gone. Today, the United States faces significant challenges across various domains of its DIB. Let's delve into the core issues:

People: A Shrinking Workforce

In 1985, the defense industry employed approximately three million workers. Fast forward to 2021, and that number has dwindled to just over one million, according to estimates based on Department of Defense (DoD) contracts and Bureau of Labor Statistics data. The decline in the defense workforce is not merely a numerical drop; it represents a profound shortage of skilled labor, engineers, and technicians. The defense industry struggles to attract new talent, partly due to a perceived lack of stability and growth prospects compared to the tech sector. This talent deficit undermines our ability to innovate and maintain our defense capabilities.

Companies: Consolidation and Vulnerability

The 1990s saw rapid consolidation within the defense industry, reducing it to a handful of large prime contractors and sole-source suppliers. This over-reliance on five major firms introduces a critical vulnerability—any disruption within these entities could have catastrophic effects on our defense readiness. Additionally, the lack of competition stifles innovation and drives up costs. The absence of a diverse and robust supply chain means the DIB lacks the surge capacity needed to respond to emergent threats swiftly.

Resources: Misaligned Funding Priorities

While Congressional appropriations for defense have increased annually, the percentage of national GDP allocated to defense has been on a steady decline over the past four decades. This trend highlights a misalignment in funding priorities, with a growing reliance on private investment that cannot match the magnitude of government spending required. The private sector's role, though essential, remains insufficient to address the comprehensive needs of the DIB. As a result, critical programs and projects face chronic underfunding, leading to delays and capability gaps.

Regulation: Burdensome Compliance

American manufacturers contend with a labyrinth of compliance requirements—environmental, health and safety, equipment standards, R&D protocols, and more. These regulations, while important for maintaining ethical standards, significantly increase costs and operational risks. In contrast, our competitors, particularly China, operate under less stringent regulatory frameworks, giving them a competitive edge in speed and cost-efficiency. The regulatory burdens on American manufacturers ultimately hampers their ability to establish and sustain a domestic production base, exacerbating our reliance on foreign imports.

These challenges offer some explanation as to why U.S. manufacturing output as a whole has declined from 25 to 17 percent of the global total since 1997, with the net loss of 4.6 million jobs. A shift towards imports and offshoring in the post-Cold War-era of globalization and unquestioned American hegemony seemed not only feasible, but ideal. That era has come to an end; the Great Power Competition is now underway with the rise of China, Russia, and their allies challenging the US. Now, supply chains and manufacturing far away from our borders pose a serious national security risk.

China, Meanwhile…

China is ramping up its own DIB and pushing defense development and manufacturing to new national heights. Last September, Pentagon acquisition and sustainment chief, William LaPlante, described the Chinese DIB as “seriously impressive,” citing its lightning-fast development-to-deployment defense tech cycle and their willingness to invest resources in multiple projects at once. China also continues to expand its manufacturing into neighboring countries that grow their regional influence and diversify their own supply chain risk.

Drones are the new weapons of war–a fact highlighted by the Russia-Ukraine conflict. China produces 90% of the world’s drones and is far ahead of the United States in production capability. Their streamlined defense technology development, coupled with ample production capacity for conventional and advanced weaponry, creates a formidable combination.

These advances coincide with China's role as a critical supplier of raw materials and machinery essential to the United States' own DIB. Here is a just small starter pack of products the US sources from China:

• Rare earth elements (REE): Elements such as lanthanum and gadolinium necessary for everything from magnets to intercontinental missiles
• Semiconductors: A critical electrical component in radar, communications, and advanced artificial intelligence
• Batteries: Essential for new communication and UAS warfighting technologies (As of 2022, China had more battery production capacity than the rest of the world combined)
• Brushless motors: Key components of industrial machinery, electric vehicles, and drones

This poses a disastrous future scenario for the United States. If the US and China found themselves in direct conflict, China could swiftly impose an embargo on all defense-related exports to the United States.

China could cripple the American DIB overnight without firing a shot.

While China's manufacturing environment is not without its flaws, the fact remains that the Chinese DIB is strengthening while the American DIB is faltering. This growing disparity is a destabilizing force. Should China establish a firm industrial advantage over the United States and throttle the supply of materials and machinery needed for American defense, our deterrence capability would be undermined, making conflict more likely.

Reducing Dependency: A Sisyphean Task?

The U.S. Department of Defense has made recent efforts to pivot away from Chinese dependency. There are some indicators of progress, but completely diverging the Defense Industrial Base (DIB) from Chinese suppliers in the near term is simply unattainable. In fact, imports from China are actually increasing in some areas. Furthermore, it’s evident that even the Pentagon is not fully aware of all our links to China within our defense products. Less than two years ago, the Pentagon halted deliveries of F-35 fighter jets, after it was discovered that an alloy in the new F-35’s turbomachine pumps was sourced from China.

This dependence is not a problem to be quickly solved. It is a fact. In the short term, the US cannot compete with China's manufacturing dominance. Instead, the focus should shift to innovation and creativity. That means maintaining a competitive edge through superior software and technology with affordable and available hardware. In the long term, the U.S. has a lot of work to do to secure our defense manufacturing independence.

The path forward requires a multifaceted approach. By leveraging our strengths in technology and innovation, and committing to long-term investments in our DIB, the United States can regain its competitive edge. Ensuring a resilient and independent defense manufacturing base is not just a strategic priority but a national imperative. The time to act is now.

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