American Security and the Supply Chain

A recent report for the Alliance for American Manufacturing claims that the U.S. is risking its national security with its growing reliance on raw materials, parts and finished products purchased from sometimes unreliable foreign sources.  It concludes that the Pentagon relies too heavily on imports to keep the armed forces equipped and ready.


  • The U.S. solely relies on a single Chinese company for the chemical Butanetriol, needed to produce the solid rocket fuel used in HELLFIRE missiles.
  • The U.S. imports 91 percent of the rare earth element lanthanum, needed to make night-vision devices, from China.
  • Production of Neodymium-Iron-Boron magnets has migrated offshore, where China now fabricates 75 percent of these high-tech magnets.
  • The U.S. share of semiconductor fabrication has decreased from 50 percent to 15 percent in the last 30 years.

The disappearance of a U.S. industry for many of these products has eroded U.S. leadership in patents and our ability to design new applications.  The reliance on foreign suppliers for critical defense materials undermines the ability to develop capabilities needed for the future.  The risk here is that a vulnerable supply chain will cause us to lose our technological advantage over time.

It also raises quality concerns as it puts commercial and military products at risk for counterfeiting and higher rates of defects.  These could very well be intentional depending on which suppliers we pick as well as the current and future conflicts we choose to involve ourselves in.  Suppliers in other countries may be unsympathetic the causes of the United States.  The U.S. must also be prepared for the future if there ever comes a time when we must rapidly equip our armies.  Foreign suppliers may not be ready or willing to provide for our increased needs.

We talked in class about the recent push to globalize in operations management.  There are many good reasons for globalizing.  The most important being reduced costs since foreign locations with lower wage rates can lower direct and indirect costs.  Globalization should also, in theory, improve the supply chain as facilities are closer to unique resources.  Because of objective characteristics of goods, we could also expect better quality goods.

The United States spends more on defense than any other country on the planet; about $690 Billion dollars per year.  U.S. defense spending accounts for 40% of the world, and is greater than the European Union, China, Russia, United Kingdom, Japan, India, and Saudi Arabia combined.

It also needs to be noted that China and Chinese corporations are in fact our largest suppliers of raw materials, parts and finished products used in U.S. Defense.  Is there a reason for us to be concerned about China having so much power and influence in supplying for U.S. Defense?

Is it worth risking American Security to save a billion dollars?  How about 100 billion dollars?

Is it important that this report was prepared for the Alliance for American Manufacturing?


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