Trump Executive Order Directs Major Study of U.S. Defense Industrial Base
President Trump has directed the Pentagon to work with other agencies on a deep-dive analysis of the defense industrial base. The White House called it a “groundbreaking” effort to look at U.S. manufacturing capabilities from a broad national security perspective.
Trump’s executive order issued Friday is titled “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.” Its release was timed a day before the president will attend the commissioning of the U.S. Navy’s newest aircraft carrier, the USS Gerald R. Ford on Saturday. The Pentagon for years has sounded alarms about gaps and “weak links” in the shipbuilding industrial base as many suppliers have gone out of business or moved operations overseas.
The executive order is a natural product of the Trump administration’s “America first” ethos, said Peter Navarro, deputy assistant to the president and director of the White House Office of Trade and Manufacturing Policy. This will be a “broad assessment,” he said Friday at a White House news conference.
The United States has seen many domestic manufacturing capabilities weaken or disappear outright, and that could be detrimental to national security, states the executive order. The ability of the United States to “maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains.”
The Pentagon has in the past conduced its own studies of the defense industrial base — an annual report of industrial capabilities is mandated by Congress — but this will be the first time it will have to work with other agencies and look at the nation’s manufacturing and supply sources far more comprehensively.
The secretary of defense will lead the study but must coordinate with the secretaries of commerce, labor, energy, and homeland security. The defense secretary also must consult with the secretaries of the interior and 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, the director of the Office of Trade and Manufacturing Policy, and the heads of other agencies the secretary of defense deems appropriate, according to the executive order.
The agencies have 270 days to provide to the president an unclassified report, with a classified annex if needed, Navarro said.
Navarro described the review as “one of the most significant presidential actions on the state of America’s industrial base since Eisenhower” and the “first ever whole-of-government assessment into the health of the defense industrial base.”
This executive order, he said, is a recognition that the nation has yet to assess the impact that 60,000 closed factories and the loss of more than 5 million manufacturing jobs has had on the military and other sectors of the national security apparatus.
“We see ‘single points of failure’ in the supplier base,” where only one company is able to provide critical pieces of equipment, said Navarro. There is, for instance, just one vendor in the United States than can repair propellers for Navy submarines. “Certain types of semiconductors and circuit boards have become endangered species,” he said. And the nation has lost domestic manufacturing capability to make flat panel displays for aircraft and has almost no domestic sources of so-called rare earth minerals essential for manufacturing microelectronics.
The study also asks for an analysis of the U.S. manufacturing workforce, particularly skilled workers needed to build ships, aircraft and ground military vehicles.
“Workforce skills are important to national defense,” the executive order says. It calls for “strategic and swift action in creating education and workforce development programs and policies that support job growth in manufacturing and the defense industrial base.”
The executive order “recognizes that every element — manufacturing, workforce, energy, a resilient supply chain, international trade — is needed to ensure national security,” said Navarro. “President Trump understands the United States can’t be a military power without a prosperous economy and vibrant manufacturing and defense industrial base.”
This review of the industrial base is part of the administration’s broader plan to rebuild the military and also examine how gaps in defense-focused manufacturing affect other areas including intelligence, energy and homeland security, said Alexander Gray, deputy director of the National Trade Council for the Defense Industrial Base.
“The ability to manufacture, the ability to obtain essential components and raw materials is absolutely critical,” Gray told reporters.
Navarro acknowledged that, regardless of what the study concludes, the government depends largely on a market-driven private sector for products and services, and that economic motivations drive their decisions. “There’s no envisioning of forcing the private sector to do anything,” he said. “We’re simply trying to evaluate the capabilities. We are looking ahead, trying to anticipate future needs as part of the broader building of our military,” he said. “This is long overdue.” And the idea that it will be an interagency review is significant, he insisted. “This shouldn’t be underestimated.”
Defense industry watchers have long known that the health of the American industrial base has deteriorated over time. The industry goes through boom-and-bust cycles based on how much money the Pentagon spends. It saw a long period of growth after 9/11 that ended in 2010 after the withdrawal of U.S. forces from Iraq. Politics also has been a factor in the shrinkage of the industry. Widespread layoffs and closings followed deep cuts in U.S. defense spending after the budget sequester in 2013. This cycle started after the 2010 midterm elections, when the Tea Party movement in the Republican Party called for a reduction in government spending and lower taxes, which led to the Budget Control Act and strict caps to military budgets.
The Defense Department for a long time has sought for ways to “manage” the defense industrial base to ensure it has sufficient suppliers and competition in the market, but has relatively few tools to do so. With every defense spending downturn, Pentagon contractors have merged, consolidating the market into a handful of monopolies and diminishing competition. The Defense and Justice Departments can seize on anti-trust laws to stop corporate mergers, but have no levers to pull if a company wants to exit the market.
Some of the gaps in U.S. manufacturing that the Trump administration worries about have been the result of global trends. Microelectronics offers a stark example. Once dominated by domestic sources, microelectronics manufacturing has migrated to Asia and is focused on high volume production driven by demand for consumer electronics.
During the recent downturn, defense industry analysts have warned the Pentagon to not naïvely assume that companies will make decisions based on national security concerns rather than profits and shareholder value. They will be quick to get out of an industry that is not making money.
If the Trump administration decided that a specific industry needed to be nurtured domestically, it would have to subsidize it like a public utility.
The defense sector, further, has become much smaller and less consequential to the national economy than at any time in recent decades. Today, only a handful of Pentagon contractors crack the Fortune 100 list.
In shipyard-heavy areas where Navy ships are built, the shrinkage of the supplier base has been quite noticeable. During the construction of the USS Ford, many contracts were not competitively awarded because in each instance there was only one qualified vendor. The same issue is seen in the procurement of Coast Guard cutters.
The ups and downs in the defense industry have been studied in detail by the Center for a New American Security and other think tanks. In a report two years ago CNAS estimated that the defense sector in the past two to three decades went from 40 or 50 major players of size down to a half a dozen. Only one prime contractor builds aircraft carriers, two build Navy submarines, and two firms manufacture tactical aircraft.
Even though the defense industry has shrunk, the military has been able to tap into commercial suppliers that are now leading the technology innovation train, noted a CNAS report. “There will be only one or two vendors that will be qualified to build major categories of weapon systems, but in other areas — like information technology, communications and robotics — there is robust competition.”