The Department of Defense (“DoD” or “the Department”) released its annual report to Congress on the Military and Security Developments Involving the People’s Republic of China (“PRC”) on May 2, 2019. This annual report details DoD’s assessment of Chinese security strategy and military strategy over the next 20 years, with a particular focus on China’s future course of military-technological developments. The Secretary of Defense sends both a classified and unclassified version of the report to Congress each year to fulfill the requirements of Section 1202 of the National Defense Authorization Act for Fiscal Year (“FY”) 2000, as amended by Section 1260 of the NDAA for FY 2019. Notably, the 2019 amendments refined the scope of the reporting requirements to include elements regarding emerging efforts by the PRC on espionage, technology transfer, economic pressure, political coercion, information operations, and predatory lending under its Belt and Road initiative.

The report highlights significant strategic challenges presented by Chinese foreign and military policy.  Its tone underscores sharp differences with several recent policy decisions and comments that take a more accommodating view of Chinese policy.  The UK defense minister, for example, was recently ousted over a leak concerning Britain’s proposed decision to allow Huawei to participate in certain parts of its 5G network.  The DoD report, by contrast, describes serious threats from China’s coercive military-civilian strategy.  China is taking major steps to modernize its military capabilities and can force cooperation under its laws from all potential sources of innovation within its borders.

Industry leaders in the United States should take note of this approach.  As they engage with U.S. government leaders and policy makers, it will be important to look for ways to continue building on key innovation efforts in the United States, and with allies and partners, to harness dual-use emerging technologies for future capabilities. The report also makes clear that cybersecurity and counter-espionage protocols will be key to thwarting efforts of the Chinese government – acting either through governmental agencies or through Chinese companies – to gain insight into the military and industrial capabilities of the United States.
Continue Reading Department of Defense Releases Annual Report to Congress on the Military and Security Developments Involving the People’s Republic of China

The aerospace and defense industry, including those in the defense trade press, have since late evening of November 6, 2018 been wrestling with the implications of the midterm elections for U.S. defense policy and spending over the next two years.  Quite frankly, it is too early to say with certainty. As Leo Rosten, the famous political scientist and humorist, once said, “Some things are so unexpected that no one is prepared for them.” That statement seems an appropriate caution given the current tumult of U.S. domestic politics.

That caution given, we can offer a couple, dare we say, steadfast observations about what is likely to be “normal” even given change to control of the House:

  • The President retains significant power to determine national security policy, and often enjoys first-mover advantage in this area; continuity, rather than change, will likely be the broad theme.
  • Congress has passed an annual National Defense Authorization Act for 58 consecutive years, and we expect them to do so again. This remains a must-pass piece of legislation, including policy issues in the jurisdiction of other committees (for example, the Foreign Investment Risk Review Modernization Act that governs the Committee on Foreign Investment in the United States was included in last year’s defense bill).

But with the change in control of the House, we do expect a more contentious and potentially drawn out debate regarding key defense policy priorities of the Trump administration and congressional Republicans. 
Continue Reading Implications of the 2018 Midterm Elections for U.S. National Defense Policy and Spending

(This article was originally published in Law360 and has been modified for the blog.)

Peter Navarro, assistant to the president for trade and manufacturing policy, recently offered in a New York Times op-ed that “[a] strong manufacturing base is critical to both economic prosperity and national defense.” The Trump Administration’s maxim that “economic security is national security” is rooted in several government initiatives, ranging from large-scale policy reforms (like renegotiating the North American Free Trade Agreement and strengthening the so-called “Buy American Laws”) to more granular contracting procedures (like the Department of Defense’s proposed changes to commercial item contracting and increased scrutiny of security across all levels of defense supply chains).

Business leaders should therefore pay close attention to the government’s long-awaited interagency assessment of the manufacturing and defense industrial base, available in unclassified form here.  The report was commissioned by Executive Order 13806, which described “[s]trategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains” as “a significant national priority.”  The Department of Defense served as the lead agency coordinating the report, in partnership with the White House’s Office of Trade and Manufacturing Policy.

Throughout the 140-page report, the Interagency Task Force (the “Task Force”) identifies myriad threats, risks and gaps in the country’s manufacturing and industrial base, and concludes that “[a]ll facets of the manufacturing and defense industrial base are currently under threat, at a time when strategic competitors and revisionist powers appear to be growing in strength and capability.”  To address these concerns, the Task Force lays out a methodology, diagnosis, and framework for policy recommendations and gives the government significant flexibility in crafting responses.  The report recommends – and we expect the President to issue – a follow-on Executive Order directing action on those responses.  That creates an opportunity for industry to participate in shaping the major implementing policies and regulations that are coming.

Continue Reading “Economic Security Is National Security”: Key Takeaways from the Defense Industrial Base Report

Generating and sustaining the United States’ global economic and military superiority over more than the last half century has depended on a dominant U.S. global economic position and perpetual technological innovation. The United States has increasingly relied on a global industrial supply chain and a relatively open environment for foreign investment in early stage technology development to sustain this dominant position, but in so doing has built risk into the foundation of its competitive advantage. The U.S. Government has growing concerns that these past practices meant to extend the U.S. economic and military advantage are contributing to its erosion. As a result, the Department of Defense (DoD), other Executive agencies, and Congress are taking steps to mitigate risks across the defense industrial and innovation supply chains that provide hardware, software, and services to the U.S. Government.
Continue Reading How Well Do You Know Your Supply Chain? New Policy Developments Affect Defense and Security Contractors