US taking aim at industrial labour shortfall and China supply dependency, Pentagon official says

Senior defence official tells top government panel on China policy that gap between open positions and available workers estimated to stand at 2.1 million by 2030
In addition, ‘China’s competitive pricing and aggressive market capture strategy’ has led Pentagon suppliers to source materials from producers in rival nation

US-China relations

Robert Delaney

Published: 4:46am, 10 Jun 2022

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The US Defence Department said on Thursday it plans to use the country’s Defence Production Act (DPA) more aggressively to address shortages in key materials and industrial workers needed to produce its hardware, vulnerabilities accentuated by a migration of its supply chain to China.

Speaking before the US-China Economic and Security Review Commission (USCC), acting assistant secretary of defence for industrial base policy Deborah Rosenblum warned that her department relied too heavily on China for minerals like rare earths and microelectronic components, calling such vulnerabilities “a problem 70 years in the making”.

Rosenblum told members of the USCC, the top US government advisory panel on China policy, that the Pentagon would use DPA funds on programmes aimed at bolstering the domestic industrial workforce, singling out shipbuilding as a key component.

Investments made to modernise America’s military while reducing supply-chain vulnerabilities would “only be as effective if we have a manufacturing workforce here in this country that has the capacity to carry forward” with the Pentagon’s major modernisation programmes, Rosenblum said.

The US must contend with a gap of 2.1 million by 2030 between unfilled industrial manufacturing positions and available workers, she added in written testimony.

Rosenblum urged education-based partnerships with schools, community colleges and technical colleges, citing as an example the Pentagon’s work with pilots in Virginia and the mid-Atlantic because of heavy concentrations of shipbuilding there.

DPA funds would also be used “over the next two to three years” to spur domestic output of minerals, semiconductor chips and other microelectronics as well as energy storage technologies, munitions and other products critical to the supply chain, she said, resulting from an investment earlier this year in a California mining and processing project.

That matches the description of the Mountain Pass rare earth project, which is 9.9 per cent owned by China’s state-controlled Shenghe Rare Earth Shareholding Company.

Senior Pentagon official Deborah Rosenblum testifies before a US-China Economic and Security Review Commission hearing in Washington on Thursday addressing global supply chains. Image: USCC

“China’s competitive pricing and aggressive market capture strategy has led [Pentagon] suppliers to source materials from Chinese producers,” Rosenblum explained. “Predatory capital from [China] continues to erode [the US Defence Department’s] mission by undermining the foundation of the defence industrial base’s manufacturing and technology advantage.”

To reduce vulnerabilities, the Pentagon is relying on initiatives like its Industrial Base Analysis and Sustainment (IBAS) programme for which US$80 million has been spent on domestic workforce training since 2019. Many millions more have been poured into priorities like precision optics manufacturing and rare earth procurement.

Between IBAS and other department initiatives, the US Defence Department has spent US$140 million to address domestic rare earth element processing capabilities and capacity, according to Rosenblum’s written testimony.

‘Even more dependent’: China factories remain key to global supply chain

Rosenblum said her department was also turning to a quasi-government entity known as the Defence Innovation Unit (DIU). With offices in the US tech hubs of California’s Silicon Valley, Boston and Austin, the unit works to rapidly prototype and test technologies of prime importance to the US military.

One current DIU request for proposal seeks the development of “synthetic aviation fuel that can be produced on-site at fixed bases as well as remote forward operating locations”. She described the fuel as “capable of leveraging a variety of locally available feedstocks, such as air or seawater”.

Rosenblum painted a stark picture of the Pentagon’s procurement vulnerabilities: 88 per cent of the production of microelectronics, for instance, and 98 per cent of assembly, packaging, and testing of these products is done “primarily in Taiwan, South Korea, and China, with China aggressively pursuing a larger market share”.

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She also noted China dominates global production of advanced batteries, including 94 per cent for lithium hydroxide, 76 per cent for electrolytes and 70 per cent for lithium carbonate.

Other Pentagon measures include work to “better signal to industry what the likely total demand is across multiple programmes” so that companies can better anticipate order volumes from year to year, Rosenblum said.

On the issue of Washington’s coordinated global effort to counter Beijing, a regular theme in US President Joe Biden’s administration, the Pentagon official said her department planned to deepen cooperation with its “closest allies and partners such as Australia, the UK and New Zealand” on labour-intensive military industries like shipbuilding and procurement of militarily strategic minerals.