Pentagon sees China as “growing risk” to US defence industry


China represents a “significant and growing risk” to the supply of materials vital to the US military, according to a new Pentagon-led report seeking to mend weaknesses in core US industries vital to national security.

The 150-page report, seen by Reuters ahead of its formal release, concluded there are nearly 300 vulnerabilities that could affect critical materials and components essential to the US military.

The analysis included recommendations to strengthen American industry, including by expanding direct investment in sectors deemed critical. Specific plans were listed in an unreleased, classified annexure.

China was given heavy emphasis in the report. It was singled out for dominating the global supply of rare earth minerals critical in US military applications. The report noted China’s global profile in the supply of certain electronics as well as chemicals used in US munitions.
“A key finding of this report is China represents a significant and growing risk to the supply of materials and technologies deemed strategic and critical to US national security,” the report said.

Relations with China are fraught with a trade war between the world’s two largest economies adding to tensions over cyber spying, self-ruled Taiwan and freedom of navigation in the South China Sea.

The report could add to trade tensions with China, bolstering the Trump administration’s “Buy American” initiative, which aims to drum billions of dollars more in arms sales for US manufacturers and create more jobs.

Vice President Mike Pence accused China of undermining President Donald Trump ahead of the November 6 congressional elections, saying Beijing was “meddling in America’s democracy.”

Pence’s comments echoed those of Trump in remarks at the United Nations last month, when Trump said “China has been attempting to interfere in our upcoming 2018 election.” Chinese officials rejected the charge.

The report also examined US shortcomings that contribute to weakness in domestic industry, including roller-coaster US defence budgets making it difficult for US companies to predict government demand. Another weakness cited was in US science and technology education.
“Although its findings are not likely to move markets, they present an alarming picture of US industrial decay driven by domestic and foreign factors,” wrote defence consultant Loren Thompson, who has close ties to Boeing Co and other companies.

A senior US administration official, speaking to reporters on condition of anonymity, cited several new steps to ensure US military supplies. These include a build-up of stockpiled reserves of scarce materials and expanding US manufacturing capabilities in areas like lithium sea-water batteries critical for anti-submarine warfare.
“There have been market failures here. And we can create new incentives to drive investment to help diversify,” said Eric Chewning, a deputy assistant secretary of defence who oversees industrial base policy.


Pentagon officials see national security risks from Beijing’s growing military and economic clout and want to be sure China cannot hobble America’s military by cutting off supplies of materials or sabotaging technology it exports.

The report noted 90% of the world’s printed circuit boards are now produced in Asia, with over half in China, presenting a risk to US defence.
“With the migration of advanced board manufacturing offshore, the Department of Defence risks losing visibility into the manufacturing provenance of its products,” the report said.

The Pentagon has long fretted “kill switches” could be embedded in transistors that could turn off sensitive US systems in conflict. The report cited the risk of “‘Trojan’ chips and viruses infiltrating US defence systems.”

US intelligence officials warned about China using Chinese-made mobile phones and network equipment to spy on Americans.

The report cited what it said were sometimes unfair and unlawful Chinese efforts to undermine US industry through strategies, including subsidising exports at artificially low prices and stealing US technology.

It identified multiple cases where the sole remaining US producer of critical materials was on the verge of shutting down and importing lower-cost materials “from the same foreign producer county who is forcing them out of domestic production.”