‘Warning Signs Are Flashing Red’ On Chinese Dominance Over Semiconductors, Shipbuilding

WASHINGTON: A new bipartisan House Armed Services task force is pushing to get language into the coming 2022 defense budget to shore up support for domestic supply chains, as Washington grows increasingly concerned by Chinese dominance over several areas critical to national security.

In the wake of the COVID pandemic, where clear vulnerabilities were found in supply chains for protective and medical equipment, Defense Critical Supply Chain Task Force co-chair Rep. Elissa Slotkin told reporters today that “we’re seizing on the interest from a lot of corners around the country.”

The task force, co-chaired by Rep. Mike Gallagher, is looking across commercial tech and defense-related supply chains for similar gaps.
Slotkin said they want to make sure their final report and legislation actually makes a difference in how money is spent on the domestic manufacturing base, but also ensuring appropriators in Congress move money around where possible. The task force will also take a longer view, both lawmakers said, and will look for ways to tie their final language in with larger movements within the 2022 defense budget.

“I think this is going to be part of a much bigger conversation and debate about what to do about the top line of the budget, and how to spend our money, how to make trade-offs, and how to make sure that legacy systems that maybe need to be off ramped,” are identified. “I’m certainly not going to shy away from making recommendations” and push for them to be funded, she said.

Slotkin and Gallagher said they’re interested in making sure some existing “Buy America” provisions are enacted, but also want to make sure that close, trusted allies can be more fully integrated into trusted US supply chains.

“The trick is really just finding that right balance between what capabilities we absolutely must be able to make in the USA, what we can buy from our close allies, and what we can afford to source from broader networks of partners,” Gallagher said.

He did express real concern over the high-tech and semiconductor manufacturing hubs that are concentrated in China, South Korea, and Taiwan, however.
“All around us, particularly after the pandemic, the warning signs are flashing red,” Gallagher said. “All it takes is a look at the Defense Department’s industrial capabilities report from earlier this year to see how Chinese manufacturing capacity is dangerously outpacing ours.” He pointed to shipbuilding, where a third of all the vessels constructed in the world were made in China.

He also expressed concern over China’s dominance over the commercial drone market and semiconductor production, and projections that show in the near future, 90% of the world’s semiconductor manufacturing will likely take place in China, South Korea, and Taiwan, creating a regional chokepoint that could be shut down by China in the case of conflict.

“We dealt with this in the 5G debate, and to me, it wasn’t just a matter of Huawei and ZTE technology allowing [China] to spy on people around the world,” Gallagher added. “It was them being able to use that dominant market position in 5G in order to either shut down networks or coerce other countries into doing their bidding.”

The task force’s quick timeline to plug into the 2022 budget is part of a wider effort in Washington to understand supply chain vulnerabilities.
Last month, President Biden signed an executive order to review supply chains across a number of sectors, including pharmaceuticals, high-capacity batteries, and rare earth elements. The order also directed the secretary of defense to send a report to the White House on potential vulnerabilities in the defense industrial base.