Executive Summary

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While industrial and military self-sufficiency was U.S. policy for more than two centuries, that policy no longer exists. Instead, the U.S. Government has elected, through many uncoordinated decisions made over a number of years, to globalize the U.S. economy and its defense industrial base.

Consequently, the U.S. manufacturing sector is rapidly hollowing out. Basic and high technology industries are shifting their production, R&D, and now back office functions to other nations. A host of U.S. policies are encouraging these shifts.

One consequence of this policy shift and the resulting economic hollowing out is that a large and growing portion of the manufactured goods used in both the U.S. economy and the U.S. defense sectors are coming from factories based in other nations. More significant, more than half of all merchandise imported into the United States, other than from Canada and Mexico, now comes from factories located in China and the nations that immediately surround it.

Another result is that as the U.S. military increases its reliance on readily available commercial technologies, it also increases its reliance on suppliers located in other nations. Moreover, many of these components, particularly electronics, are coming from China and the nations clustered around it. The two key policy questions this raises are these: Would that long supply line across the Pacific be secure in time of war and are reliable alternatives available?

Today, the United States Government does not know the source of many key components used in its weapons systems. Without that knowledge, the Department of Defense cannot assure the reliability of supply during a time of prolonged warfare.

Nor can the United States be assured of the integrity of many items it is putting into its vast system of electronic networks that underpin both the domestic and military economies. Increasingly, these networks rely on imported components that are vulnerable to sabotage or being modified to carry "Trojan horse" programs and viruses that could be used against the United States in an information war. Moreover, a number of sources claim that China’s military doctrine is to make a first strike at an adversary’s information system. This is a U.S. "Achilles heel."

Ultimately, the key concern identified in this analysis is less that of the transfer of high technology capacities to China, which is inevitable, but the hollowing out of the US defense industrial base, which is not.