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Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States

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Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States UNCLASSIFIED UNCLASSIFIED Base and Supply Chain Resiliency the of United States Assessing and Strengthening the Manufacturing and Defense Industrial Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States Report to President Donald J. Trump by the Interagency Task Force in Fulfillment of Executive Order 13806 September 2018 Office of the Under Secretary of Defense for Acquisition and Sustainment Office of the Deputy Assistant Secretary of Defense for Industrial Policy UNCLASSIFIED UNCLASSIFIED Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States UNCLASSIFIED Contents I. Executive Summary .......................................................................................................... 1 II. Introduction ....................................................................................................................... 7 III. Methodology .................................................................................................................. 11 IV. An Overview of America’s Manufacturing and Defense Industrial Base ............... 15 The Domestic Manufacturing and Defense Industrial Base .............................................................. 16 The Global Manufacturing and Defense Industrial Base .................................................................. 16 V. Five Macro Forces Driving Risk into America’s Industrial Base ................................. 19 1. Sequestration and Uncertainty of U.S. Government Spending ................................................. 20 2. Decline of U.S. Manufacturing Capabilities and Capacity .......................................................... 24 3. Deleterious U.S. Government Business and Procurement Practices ......................................... 32 4. Industrial Policies of Competitor Nations ................................................................................... 34 5. Diminishing U.S. STEM and Trade Skills .................................................................................... 42 VI. Ten Risk Archetypes Threatening America’s Manufacturing and Defense Industrial Base .................................................................................................................................. 45 1. Sole Source .................................................................................................................................... 46 2. Single Source ................................................................................................................................. 47 3. Fragile Supplier ............................................................................................................................. 47 4. Fragile Market .............................................................................................................................. 48 5. Capacity Constrained Supply Market ......................................................................................... 48 6. Foreign Dependency ..................................................................................................................... 49 7. Diminishing Manufacturing Sources and Material Shortages ................................................... 49 8. Gaps in U.S.-based Human Capital .............................................................................................. 50 9. Erosion of U.S.-Based Infrastructure........................................................................................... 50 10. Product Security ............................................................................................................................ 51 VII. A Blueprint for Action ..................................................................................................... 53 Current Efforts ..................................................................................................................................... 53 Future Efforts and Recommendations ............................................................................................... 54 Appendix One: Executive Order 13806 ................................................................................... 59 Appendix Two: Sector Summaries ............................................................................................ 63 Traditional Defense Sectors ................................................................................................................ 64 Cross-Cutting Sectors .......................................................................................................................... 87 Appendix Three: Contributing U.S. Government Agencies ................................................ 105 i UNCLASSIFIED Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States UNCLASSIFIED Appendix Four: U.S. Government Sources ............................................................................ 111 Appendix Five: Industry Listening Sessions ............................................................................. 119 Appendix Six: Agreements with Foreign Governments....................................................... 121 Photo Credits ............................................................................................................................. 125 Endnotes .................................................................................................................................... 129 ii UNCLASSIFIED Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States UNCLASSIFIED I. Executive Summary Requirement On July 21, 2017, President Donald J. Trump signed Executive Order (EO) 13806 on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States. The EO directs the Secretary of Defense to conduct a whole-of-government effort to assess risk, identify impacts, and propose recommendations in support of a healthy manufacturing and defense industrial base – a critical aspect of economic and national security.1 The EO 13806 effort was initiated by the White House Office of Trade & Manufacturing Policy led by the Department of Defense’s Office of Industrial Policy in coordination with the Departments of Commerce, Labor, Energy, and Homeland Security, and in consultation with the Department of the Interior, the Department of Health and Human Services, the Director of the Office of Management and Budget, the Director of National Intelligence, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, and the Assistant to the President for Trade & Manufacturing Policy. America’s manufacturing and defense industrial base (“the industrial base”) supports economic prosperity and global competitiveness, and arms the military with capabilities to defend the 1 UNCLASSIFIED Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States UNCLASSIFIED nation. Currently, the industrial base faces an unprecedented set of challenges: sequestration and uncertainty of government spending; the decline of critical markets and suppliers; unintended consequences of U.S. Government acquisition behavior; aggressive industrial policies of competitor nations; and the loss of vital skills in the domestic workforce. Combined, these challenges – or macro forces – erode the capabilities of the manufacturing and defense industrial base and threaten the Department of Defense’s (DoD) ability to be ready for the “fight tonight,” and to retool for great power competition. The following report explains the macro forces impacting the industrial base, identifies primary categories of risk, illustrates impacts within sectors, and provides recommendations for mitigation. Methodology The EO 13806 assessment evaluated risk based on current and planned operating priorities as of late 2017/early 2018. An Interagency Task Force, led by DoD, created sixteen working groups with over 300 subject matter experts from across the federal government. Nine working groups focused on traditional sectors; seven working groups assessed enabling, cross-cutting capabilities (Figure 1). Figure 1: List of Traditional and Cross-Cutting Sectors These macro forces collectively represent the root causes of ten risk archetypes distributed throughout the industrial base. The working groups identified discrete impacts within their sectors, many of which fall under more than one risk archetype, as illustrated in Figure 2. 2 UNCLASSIFIED Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States UNCLASSIFIED Figure 2: Macro Forces Map to Risk Archetypes Findings The risk framework used for the EO 13806 effort evolved from the working groups’ assessments of their sectors. The assessment identified: Five macro forces shaping industrial base-wide trends and causing a deterioration in U.S. capabilities; Ten risk archetypes resulting from the macro forces, each of which contribute to insecurity in DoD’s supply chain; Over 280 impacts across sectors, acutely affecting the vitality and resiliency of the industrial base.* Major findings include: Macro forces have led to impacts primarily in the sub-tiers of the defense supply chain; A surprising
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