Pentagon sees China as ‘growing risk’ to U.S. defense industry

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WASHINGTON (Reuters) – China represents a “significant and growing risk” for the supply of materials fundamental to the U.S. military, determined by a new Pentagon-led state that seeks to mend weaknesses in core U.S. industries fundamental to national security.

The nearly 150-page report, seen by Reuters on Thursday in advance of its formal release on Friday, concluded there is nearly 300 vulnerabilities which can affect critical materials and components essential for the U.S. military.

Reuters was to directory of the study’s major conclusions on Tuesday.

The analysis included a range of recommendations to bolster American industry, including by expanding direct purchase of sectors deemed critical. The plans were marketed in an unreleased, classified annex.

China was handed heavy emphasis within the report. It absolutely was singled out for dominating the world supply of rare earth minerals critical in U.S. military applications. The report also noted China’s global profile through the supply of certain kinds of electronics and even chemicals used by U.S. munitions.

“A major finding on this report is the fact that China represents a big and growing risk towards the supply of materials and technologies deemed strategic and significant to U.S. national security,” the report said.

Relations with China will already be fraught, having a bitter trade war within the world’s two largest economies causing tensions over cyber spying, self-ruled Taiwan and freedom of navigation on the South China Sea.

The report could include in trade tensions with China, bolstering the Trump administration’s “Buy American” initiative, which aims to assist drum up vast amounts of dollars more in arms sales for U.S. manufacturers which will create more jobs.

Vice President Mike Pence accused China on Thursday of efforts to undermine President Mr . trump ahead of the Nov. 6 congressional elections, stating that Beijing was “meddling in America’s democracy.”

Pence’s comments echoed that regarding Trump himself in remarks from the United Nations recently, when Trump asserted that “China may be attempting to interfere of our own upcoming 2019 election.” Chinese officials rejected the charge.

The report also examined U.S. shortcomings that help with weakness in domestic industry, including roller-coaster U.S. defense budgets that make it difficult for U.S. companies to calculate government demand. Another weakness cited was in U.S. technology education.

“Although its findings are not likely to move markets, they provide an alarming picture of U.S. industrial decay driven by both domestic and foreign factors,” wrote defense consultant Loren Thompson, having close ties to Boeing Co in addition to other companies.

A senior U.S. administration official, chatting with reporters on condition of anonymity, cited several new steps to be sure U.S. military’s supplies. Examples of these are an effort to build up stockpiled reserves of scarce materials and expand U.S. manufacturing capabilities in aspects such as lithium sea-water batteries which are critical for anti-submarine warfare.

“There have just been market failures here. For that reason we can create new incentives to push investment in areas to help you diversify ourselves,” said Eric Chewning, a deputy assistant secretary of defense who oversees industrial base policy.

CHINESE DUMPING

Pentagon officials see national security risks from Beijing’s growing military and economic clout and need to be sure China is unable to hobble America’s military by reducing supplies of materials or by sabotaging technology it exports.

The report noted that 90 percent of the world’s printed circuit boards at the moment are produced in Asia, with more than half of that occurring in China, presenting a risk to U.S. defense.

“While using the migration of advanced board manufacturing offshore, (the Department of Defense) risks losing visibility within the manufacturing provenance of that products,” the report said.

The Pentagon has long fretted that “kill switches” could be embedded in transistors that might turn off sensitive U.S. systems inside of a conflict. The report cited possible risk of “‘Trojan’ chips and viruses infiltrating U.S. defense systems.”

U.S. intelligence officials also warned the year 2010 about the possibility China needs Chinese-made mobile phones and network equipment to spy on Americans.

The report cited exactly what it said were sometimes unfair and unlawful Chinese efforts to undermine U.S. industry from a host of strategies, including by subsidizing exports at artificially low prices and stealing U.S. technology.

The report identified multiple instances where the sole remaining U.S. producer of critical materials was on the verge of shutting down and importing lower-cost materials “out of your same foreign producer county who is forcing them using domestic production.”