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REEs Underscore Challenges of Erosion of Defense Industrial Base

While policies stemming from the dominating free-trade ideology “have succeeded in generating great wealth for the U.S. economy, they have also led to a number of unintended consequences, including the erosion of the manufacturing segment of the defense industrial base,” argues Jeff Green, president of Washington, D.C.-based government relations firm J.A. Green & Company, and member of the ARPN panel of experts in a new piece for National Defense Magazine.

Compounded by budgetary uncertainty during the Obama administration, he says, a “greatly reduced scope within the industry left the defense supply chain with a large number of single points of failure.”

Writes Green:

“Looking at U.S. industry more broadly, it is clear that while certain segments of manufacturing output are doing well, industries that supply defense manufacturing have sustained deep declines in recent years. The mining of non-fuel resources, for example, peaked in early 2006 and has declined ever since. The decline in textile production has been even more dramatic. At a time when the economy is increasingly dominated by service businesses, both the executive branch and Congress must take a hard look at the ideological underpinnings driving our industrial policy.”

Green points to the example of Rare Earths and our “near sole-source dependence on China” for these elements, which are essential components of a broad range of high-tech military equipment. The lack of domestic sources creates a serious strategic vulnerability vis-à-vis our adversaries, as underscored by the 2010 decision by China to cut off REE exports to Japan – an episode ARPN followers may remember.

Green is concerned by indications that “China may try to use the export of critical raw materials to gain geopolitical leverage over the United States,” citing a remarks by China’s former finance minister Lou Jiwei who reportedly told an audience in September of last year that China could restrict exports of core items for the U.S. manufacturing supply chain.

Thankfully, Green says, “government policy is rapidly changing to create a more secure industrial base, highlighted by efforts to create a more favorable business climate to sustain potentially low-volume, high priority production of key materials.”

To read Green’s full piece, in which he outlines recent government initiatives and calls on Congress to provide legislative support for executive action, click here.

And for a an insightful primer on Rare Earths supply and demand trends watch this interview with Roskill analyst David Merriman.