Procurement: Toxic Imports And Fatal Fakes

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June 1, 2013: In the United States a growing number of people are becoming aware of how dependent the United States is on foreign components for military equipment. This is nothing new, but as so many other nations began developing their economies in the last fifty years, a growing number of cheaper sources for raw materials and manufactured goods have shown up. Many of these have driven American suppliers out of business, leaving the U.S. dependent on foreign sources for more and more items. While there are some restrictions on using foreign made components or raw (or refined) materials that can be brought in, this has not really slowed down the growing dependence on imported items. This has reached the point where China, for example, is the source of key components of a large number of weapons and key items of military equipment. This has led to a call for laws to limit this dependence. It is believed that the major problem with this would be the additional cost of buying from the more expensive American supplier.

Actually it’s much worse than that. This can be seen from what has happened with American warship building. This work must be done only in U.S. yards, and there are few of them because they are dependent on American warship orders. Foreign builders can do the work cheaper and better and thus grab all the other shipbuilding business outside the United States.

This has led to higher prices and lower quality in American warship construction. It’s gotten so bad that a growing number of admirals are willing to take career risks, try for some fundamental reform, and finally fix the "system" that turns out more problems than warships. Victory is not assured. The shipyards and their suppliers have powerful allies in Congress. All that money translates into votes that get incumbent politicians reelected. Congress is not inclined to attack this kind of patronage and pork, since nearly all members of Congress depend on it. The admirals can openly complain but offended legislators can quietly cripple the careers of those critics. The smart money is betting against the good guys here. So far, the smart money is right. The smart money would love to have some company in the form of other “protected” (from competition and reality) suppliers.

The problem with protecting a wide range of component or raw materials imports is that the U.S. and most major trading nations are bound by a large number of mutually agreed on trade rules. These are necessary to keep the cheating to a minimum. China is one of the biggest cheaters, in part because it is a police state and can quickly (and quietly) implement practices that violate the trade rules and keep foreign investigators from gathering evidence inside China. Democracies have a difficult time competing with this outlaw Chinese attitude. Moreover, everyone (China and the rest of the world) have to pay attention to market mechanics. While China can subsidize some illegal practices (so that Chinese firms can undercut foreign competitors and put them out of business), this is expensive and increasingly the international courts are ruling against China (despite the difficulty of gathering evidence inside China). China is also the source of most of the counterfeit components on the world market (which is particularly when this stuff gets into complex systems, like aircraft or some military gear). This is another type of import that is dangerous. There is no easy fix for these toxic imports, although Western nations are increasingly cooperating in fighting back.  

 


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