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

October 5, 2018

By Phil Stewart and Mike Stone

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

The nearly 150-page report, seen by Reuters on Thursday ahead of its formal release on Friday, concluded there are nearly 300 vulnerabilities that could affect critical materials and components essential to the U.S. military.

Reuters was first to report on the study’s major conclusions on Tuesday.

The analysis included a series of recommendations to strengthen American industry, including by expanding direct investment in sectors deemed critical.

China was given heavy emphasis in the report. It was singled out for dominating the global supply of rare earth minerals critical in U.S. military applications. It also noted China’s global profile in the supply of certain kinds of electronics as well as chemicals used in U.S. munitions.

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

Relations with China are already fraught, with a bitter trade war between the world’s two largest economies adding to tensions over cyber spying, self-ruled Taiwan and freedom of navigation in the South China Sea.

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

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

Pence’s comments echoed those of Trump himself in remarks at the United Nations last month, when Trump said that “China has been attempting to interfere in our upcoming 2018 election.” Chinese officials rejected the charge.

But the report also examined U.S. shortcomings that contribute to weakness in U.S. industry, including roller-coaster U.S. defense budgets that make it difficult for U.S. companies to predict government demand. Another weakness was in U.S. science and technology education.

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

(Reporting by Phil Stewart; editing by Sandra Maler and G Crosse)

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