Outsourcing U.S. Defense: national security implications.

• Author: Hamilton, Scott
• Position: INDUSTRYINSIGHTS

Catch-22:A situation in which a desired outcome or solution is impossible to attain because of a set of inherently illogical rules or conditions.

The classic and satirical book and movie, Catch-22, perfectly describes the dilemma confronting the Defense Department today as it faces replacing worn-out equipment, conflicting procurement policies regarding the reliance on foreign suppliers and looming budget cuts.

Politicians and labor unions demand that the Defense Department buy American when, in fact, the reliance on foreign suppliers has increased sharply in the last decade and is likely to do so even more in the future.

The growing influence of anti-government lawmakers and the budget cuts that are being recommended by the bi-partisan National Commission on Fiscal Responsibility may only exacerbate the problem. With potentially fewer defense contracts, U.S. primes are already seeking to increase sales to foreign governments. But these deals often come with a requirement to use local suppliers, which conflicts with Buy American sentiment for common systems, such as jet fighters that are sold to the U.S. military as well as foreign countries.

U.S. primes are already using foreign suppliers that are considered adversaries in some war planning scenarios. China, for example, produces about 97 percent of rare earth materials--not so much because the country has most of the resources, although it does--but because most of the Western world, including the United States, stopped production for cost reasons. Russia is the world's largest producer of titanium, an indispensable component in aircraft. Russia is also one of the world's biggest producers of cobalt, a key component in aircraft engines, along with Canada and Australia, Cuba and several countries in Africa. The United States doesn't produce any of its own cobalt.

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The risks to national security are clear. The use of foreign suppliers and concern about the decline of the U.S. defense industrial base has been on the radar among some for years. As far back as 2003, this magazine noted that "The U.S. is becoming dependent on countries such as China, India, Russia, France and Germany for critical weapons technology. It is conceivable that one of these governments could tell its local suppliers not to sell critical components to the United States because they do not agree with U S. foreign policy."

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