US-China Decoupling and Vulnerabilities in the American Defense Industrial Base

Decoupling from China may result in a shock to the U.S. defense industrial base.

US-China Decoupling and Vulnerabilities in the American Defense Industrial Base
Credit: U.S. Navy photo by Mass Communication Specialist 2nd Class Nathan K. Serpico/Released

As the United States and China have begun to consciously decouple, the implications of breaking up the relationship that has driven global economic growth for the last 30 years are coming into view. The complex relationships between U.S. and Chinese firms, which manufacture goods in both countries for sale around the world, are under threat as tariff and regulatory walls make inter- and intra- firm trade more difficult. These developments have made FDI, and the establishment of long-standing alliances between firms, a sketchy prospect for U.S. companies.

This process, which could have huge implications for the future of global economic growth and the distribution of economic power, necessarily has security implications. As Stephen Brooks argued in Producing Security, the globalization of production has served to increase the costs of great power conflict, while also giving the United States (in particular) access to a broad set of technologies that underlie its national innovation system (NIS). Essentially, globalization (and the existence of a stable network of allies) enabled U.S. defense firms to take advantage of the same returns to globalization that firms in other sectors have long enjoyed.

In addition to these broad strategic issues, the U.S. dependence on Chinese industrial products in its defense supply chain has long evoked concern. A recent analysis by Michael Kidd suggested that while the U.S. defense supply chain is staggeringly complex, it does not depend to great extent on either Russian or Chinese firms. Trade wars with other states, however, might prove problematic for the health of the U.S. defense industrial base (DIB). Moreover, further decoupling might affect the U.S. DIB in ways that are difficult to predict, as strained linkages affect production in Europe, Korea, Japan, and elsewhere.

This phenomenon is not lost upon the Chinese. According to a Financial Times article, hawks within the Chinese military and security establishment have argued for decoupling on the grounds that it will undercut the U.S. DIB. While Chinese firms normally don’t produce directly for the U.S. DIB, they do participate in global trade and technology networks that help undergird the U.S. NIS. The article suggest that some in Chinese security circles welcome the relative autarky of decoupling from the U.S.-led global system.

To be clear, Chinese hawks are probably excessively optimistic in their hopes that autarky will produce positive outcomes on either civilian or military innovation. And the United States retains access to most of the world’s most productive innovation nodes, even if decoupling proceeds apace. Nevertheless, the potential that decoupling might have significant effects on parts of the defense industrial and innovation systems should be taken seriously by policymakers in Washington, Tokyo, and Beijing.

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The views expressed here are his personal views and do not necessarily reflect those of the Department of Defense, the U.S. Army, the Army War College, or any other department or agency of the U.S. government.