From Production Lines to Front Lines

Executive Summary

The U.S. defense industrial base (DIB) is struggling to meet the demands of the current strategic environment—let alone prepare for a potential conflict against an advanced adversary such as China. Today, the DIB cannot keep pace with defense modernization efforts while also filling the massive demand for defense items in Ukraine, the Middle East, and the Indo-Pacific. It is struggling to simultaneously meet the current needs of the U.S. military and America’s allies and partners while preparing for future challenges. The chasm between U.S. defense strategy and defense industrial reality has been exposed. Without significant industrial reform, the United States is at risk of being unable to deter China and Russia from aggression today and, if needed, win a future great power conflict tomorrow.

Despite the renewed importance of industrial policy to U.S. economic and national security, the DIB is beset with chronic challenges. Decades of defense-industrial consolidation, inconsistent government demand, and bureaucratic rigidity have made the U.S. DIB more vulnerable, less capable, and slow to react. The DIB lacks the capacity to produce enough of the right kinds of capabilities to roll back adversary aggression and prevail in future conflict. It does not possess the responsiveness and flexibility to dynamically and swiftly surge production of a diverse array of weapons and platforms in times of crisis. The DIB also lacks the resilience required to withstand global shocks and the strain of modern conflict.

The United States needs a different DIB than it has today if it wants to deter and prevail in future great power conflict. This report aims to bridge the gap between U.S. defense strategy and industrial planning to strengthen deterrence. It details the existing challenges within the U.S. DIB before illustrating how it is insufficient to manage the future dynamics of great power conflict. The report makes the case for improving the DIB by emphasizing four core defense industrial attributes: capacity, responsiveness, flexibility, and resilience.

To meet the demands of future great power competition, the DIB must significantly expand its capacity so that it can produce the volume of critical weapons, platforms, and equipment needed to deter and defeat increasingly challenging and complex threats. The DIB also must become considerably more responsive so that it can surge production of key items at decisive moments and rapidly fill critical gaps. The diversity of systems required to address emerging threats, from low-cost attritable drones to submarines, requires the DIB to become more flexible so that it can support the high-low capability mix of future conflicts. Finally, the DIB must bolster its resilience to external disruption so that its supply chains can withstand interference, manipulation, and other shocks likely to arise in conflict.

Reforming the DIB around these attributes will not be without significant time and financial cost. However, the cost of inaction is far greater. As currently organized, the U.S. DIB risks undermining deterrence today and undercutting U.S. strategic objectives in future competition and conflict. Without change, the U.S. DIB may put America at risk of failing to win a war against China, and the DIB is likely to increasingly become a critical strategic vulnerability to U.S. security and leadership.

The U.S. DIB must be reformed so that it better serves U.S. interests, strengthens deterrence, and ensures American and global security today and tomorrow.

Recommendations: Revitalizing the U.S. DIB for Great Power Competition

Build Production Capacity and Speed in the Right Areas

The Department of Defense (DoD) should expand production of priority systems and establish an advisory group to help identify the relevant capabilities ripe for greater production. Congress should appropriate the requisite funds to enable expanded production of the capabilities needed for great power conflict.

Generate Consistent Demand

The DoD should grow its use of multiyear procurement (MYP) and block-buy contracting to support steadier demand over time and enable cost savings. Joint portfolios of common weapons systems such as precision-guided missiles and joint enablers can further stabilize demand. Congress should approve additional MYP and block-buy funding requests.

Use Flexible Contracting and Flexible Funding Mechanisms

The DoD should expand its use of undefinitized contract actions to enable industry to begin work while contract negotiation is still being finalized. Options contracts should be employed to enable greater surge production. Congress should establish a Critical Munitions Acquisition Fund to strengthen munitions inventories and establish similar funds to bolster reserves of other in-demand items.

Invest in Spare Capacity

Extra capacity requires manufacturing facility space, materials stockpiles, and workforce availability. Defense Production Act Title III authorities and congressional appropriations should provide incentives for reserve facility space and stockpiles. Industry should maximize fungible production lines while government regulatory processes should adapt to enable flexible manufacturing and faster production timelines. Congress and industry should work together to create economic incentives for new workforce entrants through national service initiatives such as AmeriCorps.

Build Inventories and Stockpiles

The DoD should increase overall inventories, replenish diminished materials, and include new materials in the National Defense Stockpile. Congress should provide budget authority for new stockpile acquisitions and fund domestic materials development research to ensure continued U.S. access to and onshoring of key materials. Congress also should authorize special contracting measures for the advanced procurement of long-lead items shared across different programs or families of systems.

Embrace New Paradigms of Production

The DoD should encourage industry to adopt new and alternative manufacturing approaches, including those from the commercial sector, to expand and surge production while also creating greater efficiencies and cost savings. The department should reform regulations that hinder the adoption of new manufacturing techniques and reduce its risk aversion in testing and evaluation.

Encourage Competition

The department should award production contracts to build production capacity outside of the prime contractors and should selectively encourage “dual-sourcing” acquisition. The DoD also must reform acquisition and contracting practices so that they do not present insurmountable barriers for new entrants. Congress should continue to fund programs that encourage and support new entrants while also passing legislation that promotes innovation and acquisition reform.

Cooperate with Allies and Partners

The DoD and industry should incorporate allies and partners at the design stage of capability development to boost exportability and interoperability while also seeking coproduction opportunities to expand DIB capacity. Congress should consider reforming or creating exemptions to long-standing regulations to enable greater industrial cooperation. The DoD should improve information sharing to make it easier to work with allies and partners, while the Department of State should reform the Foreign Military Sales process to enable faster deliveries to allies and partners. In turn, allies and partners will need to be more transparent about their inventories and projected needs to improve interoperability and their security contributions.

Introduction

Russia’s invasion of Ukraine laid bare the challenges the U.S. defense industrial base (DIB) faces. The COVID-19 pandemic had illustrated the brittleness of international supply chains, but the lessons learned from that experience failed to translate into action in the defense sector. The conflict in Ukraine served as a stark wake-up call that underscored the limitations of the American DIB. Subsequent insecurity in the Indo-Pacific and the Middle East reinforced DIB constraints as rising requests from allies and partners for munitions, platforms, and air defense systems stressed already thin supply chains and further depleted dwindling U.S. stockpiles. The DIB is struggling to simultaneously meet the current needs of the U.S. military while also supplying its allies and partners across the globe—let alone meet the future demands of a great power conflict against an advanced competitor like China.

America is no longer the arsenal of democracy it once was. The DIB of today is not the DIB that helped the United States and its allies win World War II and prevail in the Cold War. In the more benign post–Cold War environment, the Pentagon bought significantly fewer weapons, which forced the DIB to contract and consolidate. At the same time that the defense marketplace shrank and became less competitive, the Pentagon prioritized budgetary efficiency and waited to place weapons orders when needed instead of stockpiling weapons or maintaining excess production capacity as a hedge. Today, despite the renewed importance of industrial policy to U.S. economic and national security and the Trump administration’s desire to restore American manufacturing prowess, the DIB is beset with chronic challenges that are not improving quickly enough to ensure U.S. and global security. The DIB lacks the capacity to produce a diverse array of defense capabilities at relevant scale, and it does not possess the responsiveness and flexibility to dynamically and swiftly surge production in times of crisis. The DIB also lacks the resilience required to withstand global shocks and the strain of modern conflict. Without significant industrial reform, the United States is at risk of being unable to deter China and Russia from aggression and, if needed, win a future great power conflict.

U.S. officials have claimed that “production is deterrence”—that the U.S. ability to manufacture the right types and numbers of defense capabilities, arm allies and partners, replenish depleted weapons stores, and demonstrate industrial preparedness for future conflicts will deter great power adversaries from aggression.¹ The DIB’s deterrent value is predicated on the United States possessing the requisite capabilities, the collective commitment and resolve to use them, and the resilience to reconstitute capabilities once exhausted. In this line of thinking, a productive and resilient U.S. DIB will raise the stakes for China, Russia, and their growing list of collaborators to achieve their objectives and thus alter their calculations.