The US needs to rethink its overseas supply chain

By: Thomas Ayres

As Americans respond to the COVID-19 pandemic, we have become acutely aware of the outsized impact of our dependence on China in the supply chain.

Pharmaceutical companies learned key chemicals and minerals are exclusively made or mined in China. For instance, reports show China produces 97 percent of the antibiotics, 95 percent of ibuprofen and 91 percent of hydrocortisone consumed in the U.S. market. Hospitals also learned that while China produces 50 percent of the world's face masks, they are of dubious reliability. There is cause for concern with the quantity or quality of ventilators.

In sum, we learned as citizens what we in the Department of Defense have known for some time: Our national security supply chain must be free from dependence on China.

The DoD's concern for its supply chain is not new. Congress spurred activity over a decade ago by questioning the DoD's supply chain risk management, or SCRM, policies. The National Defense Strategy‘s recognition of a new era of strategic, great power competition further sharpened the DoD's focus, propelling recent efforts to enhance regulations and procedures in addressing supply chain threats.

We are transitioning from analog to digital, with the goal of planes, ships, tanks and satellites all seamlessly sharing data — a lethal version of the ride-sharing app on your smartphone. Yet, even as the DoD builds this future, the threat of supply chain disruption and concerns about component quality within the electronic backbone are real. Counterfeit or planted microelectronic parts can be vectors for cybersecurity intrusions.

Recently, for instance, the DoD voiced concerns that Chinese telecommunications giant Huawei's 5G solution provided back doors, purposefully or negligently, for data corruption, data extraction, system failure or worse. Similarly, SCRM policies have increasingly addressed the concern of intellectual property theft enabled by subcomponents designed to allow information to flow back to larger architectures. The COVID-19 pandemic is giving new meaning to that threat, and the risk of disruption to both raw and manufactured materials from abroad has become apparent.

Our SCRM focus must broaden in response to COVID-19 to better address national production capacity and sustainability. Being able to assure access to the minerals, chemicals, subcomponents and components required to build weapon systems is essential. China supplies 80 percent of the rare earth minerals imported to the U.S., many of which are essential to electronic parts. Since 1933, the Buy American Act has required federal agencies, including the DoD, to purchase items manufactured in the U.S. Additionally, these items must be made from supplies mined or made in the U.S.

The act is implemented by regulations requiring analysis of the components — where they are mined or made, and where they are assembled. Companies that falsify “Made in America” designations can be debarred from the federal marketplace. In July 2019, months before the pandemic emerged, President Donald Trump issued an executive order seeking to increase the minimum domestic manufacture thresholds above the current 50 percent floors. The pandemic now shows even more needs to be done. We must increase to President Trump's mandated percentages, and we must also analyze where each of the subcomponents are manufactured.

This doesn't mean we need to back away from allied contributions or alliance-based weapon systems like the F-35 fighter jet, which benefits from the industrial cooperation of nine partner nations. But in light of COVID-19, it does mean that when we make risk-based and measured decisions to produce an alliance system, we program in several months' worth of component backlogs to allow continued production during future quarantines.

The majority of our weapon systems are made in the U.S. by American companies with greater than 50 percent of component production and assembly done domestically. Yet, what is less clear are the composition of the subcomponents in the components themselves. Not recognizing the risks of the subcomponents equally jeopardizes the new reality of disruptions to our supply chain and risks of data extraction, degradation and spying, about which we have increasingly been concerned.

Recently, I sought to buy a grapefruit spoon on the internet and found it exceedingly difficult to learn where the offered spoons were made. The harder it was to find, the more I suspected it was made in China. Perhaps Congress should pass a law making it easier to learn the source of manufacturing. Ensuring my access to an American-made grapefruit spoon is not nearly as vital as assuring our access to critical weapon systems, rare earth materials, and pharmaceuticals and medical supplies. A vital step is knowing the source countries of components and subcomponents. We must have deeper knowledge of the full supply chains of subcomponents, and how and where they are produced.

Trust can only come once we know all that is required to understand our supply chains and we seek even greater focus in our new normal. Our security depends on it.

Thomas Ayres is general counsel for the U.S. Air Force.

https://www.defensenews.com/opinion/commentary/2020/05/22/the-us-needs-to-rethink-its-overseas-supply-chain/