Pentagon pushes defense companies to limit use of Chinese supplies

Defense contractors, encouraged by the Pentagon and lawmakers, have said they are weaning themselves off microelectronics and specialized metals from China, one of the biggest global suppliers. In the U.S., new facilities are under development to process rare-earth minerals, most of which remain widely sourced from China.

The Pentagon has identified China’s rapidly expanding military as its main threat driving policy and, by extension, the Pentagon’s own spending. China’s defense budget has climbed 72% between 2012 and 2021, according to the Stockholm International Peace Research Institute.

That growth is helping to drive increased U.S. spending on high-end weaponry including long-range missiles and nuclear submarines, and Defense Department leaders have said the U.S. is losing its long-held technological advantage in key areas such as satellites and missiles. U.S. defense companies also expect additional military spending in the coming years, in part because of the arms shipped from Western countries to help Ukraine fight Russia’s invasion.

Relying on China for circuit boards or Russia for titanium makes no sense if sanctions or conflict cut off supplies, Pentagon leaders have said. The recent heightening of tensions over Taiwan has added to the unease.

The Defense Department earlier this month stopped accepting new F-35 combat jets made by Lockheed Martin Corp. after being informed they contained magnets sourced from Honeywell International Inc. with metal alloys produced in China.

Honeywell disclosed to the Pentagon in recent weeks that engine components it made for the jets contained two alloys sourced from China that were turned into magnets. The company said it had identified an alternative supplier but didn’t give details. Honeywell said it remains committed to supplying high-quality products, and Lockheed Martin said production continued at its plant in Fort Worth, Texas. The Pentagon said it expects a waiver will be issued to allow F-35 deliveries to resume.

Bill LaPlante, the Pentagon’s acquisition chief, said a continuing probe is expected to show that the use of the Chinese alloys—stretching back over a decade—doesn’t affect the security or airworthiness of the F-35. However, he said, the incident has highlighted continuing vulnerabilities in the defense supply chain, even after efforts to improve visibility.

“Any company that says they know their supply chain is like a company that says it hasn’t been hacked," Mr. LaPlante said at a media briefing on Sept 9.

The F-35 incident was a setback for the Pentagon’s efforts to manage contractors’ supply chains and identify potential vulnerabilities. Air Force and Army acquisition officials had said in recent months that ongoing efforts to minimize or eliminate Chinese content hadn’t interrupted any programs.

Pentagon leaders have for years recognized potential vulnerabilities arising from Chinese-supplied raw materials and microelectronics. Those concerns gained prominence during the Trump administration, with a number of Pentagon studies identifying increasing reliance on China and other overseas suppliers. Pentagon officials said the Covid-19 pandemic exposed how fragile supply chains have become, even for high-end weapons, and the extent to which China remains the source for materials and components, including computer chips and rare-earth minerals used to make magnets and the chemicals used in explosives.

One of biggest concerns, said Pentagon and industry leaders, is with the U.S. reliance on China for 80% of rare-earth elements, sometimes called technology minerals, which are used in magnets for weapons-guidance systems as well as commercial applications such as electric-vehicle batteries. China has invested heavily in mining and refining rare earths over the past decades, and dominates the global supply chain.

To redevelop domestic production, the Pentagon has awarded two contracts to Lynas Rare Earths Ltd. to co-develop a U.S. refinery, using minerals imported from Australia. Amanda Lacaze, chief executive of the Australian company, said it aimed to have a refinery in Texas open by 2025.

While the rare-earth minerals themselves initially would come from Australia, the planned refinery could also source domestic U.S. supplies, said Lynas. Competition from China forced the closure of two U.S. rare-earth mines, in Texas and California, in the past decade.

Defense contractors and lobbyists said they agree with the broad thrust of the Pentagon’s efforts to boost domestic production and require traceability of all materials. However, some said they have reservations about the added cost of compliance and how long the effort will take.

Domestic U.S. production of many materials has declined, undercut by cheaper production overseas. The number of Chinese companies in the Pentagon’s supplier base rose more than fivefold to 655 between 2012 and 2019, according to a survey by consultant Govini, a unit of Poplicus Inc.

Mr. LaPlante said the Pentagon has recently instituted a program of what he called “supply-chain illumination" that uses artificial intelligence and other tools to track raw material sources in real time.

A bill before Congress that is being debated as part of the next defense authorization act would preclude any Chinese rare-earth minerals from being used after 2027. A similar timeline is being pursued for printed circuit boards, with a combination of government funding for domestic plants and tracing systems to guarantee the security of semiconductors.

Congressional defense committees have said they want this to be in place by 2027.

This story has been published from a wire agency feed without modifications to the text