Remarks by APNSA Jake Sullivan on Fortifying the U.S. Defense Industrial Base
Center for Strategic and International Studies
Washington, D.C.
MR. SULLIVAN: Well, good afternoon. And thank you, John. It’s a pleasure for me to be here, and it’s a pleasure for me to come talk about what is, yes, a technical topic, but also a deeply strategic topic for the future of U.S. defense and deterrence and for the future of American statecraft.
Earlier this week, President Biden signed his 71st security assistance package for Ukraine. It was the latest step in a massive effort, on a scale not seen since the Second World War, to equip a partner with the military capability it needs to defend its sovereignty, independence, and territorial integrity against a brutal invasion by a larger neighbor.
And in the process of providing that support, we have also modernized our own arsenal. With every package, the Department of Defense provides Ukraine older equipment it has on the shelf, and then uses congressionally appropriated funding to purchase new, more modern equipment for our own stockpiles. This approach has enabled Ukraine to stand up against an adversary with an economy 10 times larger, a population three times bigger, and a military once ranked the second best in the world.
But at no stage was this historic undertaking a sure thing. In fact, in a matter of eight weeks of war in 2022, Ukraine burned through a year’s worth of U.S. 155-millimeter artillery production.
I hold a daily meeting on Russia and Ukraine in my office at the White House, and in those early months, in those daily meetings, we reviewed Ukraine’s run rate in excruciating detail, and we confronted a startling reality: The American arsenal of democracy was fundamentally underequipped for the task at hand. So, President Biden issued a straightforward order: Exponentially ramp up the production of 155-millimeter artillery munitions. It turned out, executing on that was not so straightforward.
At a stretch, we could only immediately add about 400 rounds on top of the 14,000 rounds we produced each month, enough for Ukraine to defend itself for a few extra hours. Our industrial capacity simply wasn’t there. We lacked supplies of critical precursor materials. We had to dig ourselves out of a deep hole.
Now, to offset their early munition shortage, Ukraine began to leverage drones and autonomous systems. And this is the second part of the story, one that continues to evolve today on the frontlines. They used off-the-shelf technology and cheap, mass-produced platforms to rapidly build an army of drones.
But even as Ukraine demonstrated success on the battlefield with these new systems, we were behind the curve in innovating, acquiring, and fielding those types of systems ourselves, and that was just the tip of the iceberg. The deeper we looked, the clearer it became that we needed larger stocks of many critical munitions and weapons platforms, both to maintain U.S. readiness and to equip a partner under attack.
Now, the men and women of our national security and defense communities are extraordinary, and they can pull rabbits out of hats. I’ve seen it done. But decades of under-investment and consolidation had seriously eroded our defense industrial base, and there was no way around it.
Now, in some respects, we had recognized this challenge from the moment we entered office, and in fact, we started taking steps to fix it in the President’s very first budget request. But Russia’s war against Ukraine sharpened the stakes and clarified the scope of the challenge. It was a strategic warning.
America’s defense industrial base, the one we inherited, was not up to the task that we face in a new age of strategic competition, including how we have to prepare for and deter future conflicts in Europe, the Middle East, and the Indo-Pacific.
So we had to act, and we did act. We did so thanks to the President’s clear direction, the able leadership of Secretary Austin and Deputy Secretary Hicks, and strong bipartisan congressional support.
By the time we leave office, our defense industrial base will be producing 55,000 155-millimeter artillery rounds per month, almost a 400 percent increase, and we’ve put it on track to double again, reaching 100,000 per month by early 2026.
But this effort extends way beyond 155-millimeter ammunition rounds. As we’ve drawn down our older stockpiles to support Ukraine of other weapons, we’ve invested in new weapons and platforms to replace them. Industry has responded and reoriented to meet our demand signal. New production lines have opened and increased output. We’re now building more javelins in Alabama and Arizona; tanks in Ohio; armored vehicles in Michigan, Pennsylvania, and Wisconsin; HIMARS in Arkansas; rockets in West Virginia. And our investments, all told, reach dozens of states.
We’ve galvanized defense industries, commercial companies, startups, and venture capital firms to focus increasingly on developing low-cost, uncrewed systems for our allies, and countering those of our adversaries and competitors.
The story also extends well beyond Ukraine, from our efforts to revitalize the submarine industrial base to a groundbreaking initiative with Canada and Finland to spur the production of polar icebreakers.
All told, the Biden administration has made major investments across four defense budgets and multiple supplemental funding bills to strengthen the U.S. defense industrial base, devoting almost $1.3 trillion to the research, development, and acquisition of capabilities that is driving production and driving industrial capacity.
In real dollars spent, this is more than the United States investment in procurement and R&D in any four-year period throughout the entire Cold War.
But this challenge is not one that can be met in a single term in office. There is still so much work to do. This has to be a generational project.
So, today I want to do two things. First, I want to share the steps that we’ve taken to modernize, invigorate, and expand our defense industrial base. And then, second, I want to offer a roadmap for the next Congress and the next administration to carry this work forward on a bipartisan basis.
But let me provide a little bit of context.
Over the past several years, we’ve seen a tectonic shift in the global landscape. We’ve seen the rise of a peer competitor in the PRC. We’ve seen patterns of cooperation deepen between the PRC, Russia, North Korea, and Iran. We’ve seen the proliferation of low-cost lethal technologies to a number of state and non-state actors across multiple continents.
Against this backdrop, a strong defense industrial base is essential to effective statecraft. This means not just more investment, but smarter investment, production, innovation, and integration with allies.
A stronger defense industrial base is necessary for us to deter military aggression against NATO or our Indo-Pacific allies and partners. It’s necessary for us to equip our partners when they come under attack. It’s necessary for us to respond to threats to the global commons, including freedom of navigation. And it’s necessary to strengthen our hand at the negotiating table as we pursue diplomacy to end conflicts like we recently have done with the war that raged across the border between Israel and Lebanon.
In the Cold War era, our DIB was formidable, but it took a long time to build up. We understood then, almost intuitively, that our production capacity was central to our military capability and, therefore, to our deterrence. When the Iron Curtain fell, we turned the page. In the decades that followed, we enjoyed a brief moment without a peer competitor to pace us, and our defense enterprise atrophied.
In part due to the urging from the government, mergers collapsed significant defense companies into each other, from 50 to the five major prime contractors that we have today. Factories closed. Production lines shut down. Our skilled workforce declined. The number of defense suppliers shrank. And many of our supply lines migrated overseas.
Now, I’m not suggesting we need to retool for a new Cold War, but we once again face a dangerous, complex, and contested global landscape. Our adversaries and competitors are taking more risks, and importantly, they’re working together to strengthen each other’s defense capacity.
So, today, once again, we need to heed the maxim that industrial might is deterrence. Given the DIB we inherited, our task has been to reverse years of decline while simultaneously increasing agility, innovation, and integration.
So we’ve made three big pushes to try to strengthen our defense industrial base:
First, as I’ve described, by boosting production of munitions and weapons platforms and creating the infrastructure to sustain that boost in production. This has meant new factories, new lines, accelerated delivery times on the weapons and munitions we need most.
The Department of Defense released its first-ever National Defense Industrial Strategy. We’re strengthening supply chain resilience and increasing stockpiles of key inputs, like the solid rocket motors that power our most advanced missiles. We’ve made notable progress on our air defenses, another critical component of our global defense architecture, which is in high and increasing demand across Europe, the Middle East, and the Pacific.
Germany, the Netherlands, Romania, and Spain are working together to procure almost $6 billion worth of Patriot missiles that are now being produced through a joint venture between a U.S. and German company.
At the same time, we’re working to expand joint production deals with Japan to strengthen our air defense umbrella in the Indo-Pacific.
On long-range fires, another essential element of deterrence in the modern era, we’ve made big strides towards modernization. We’re investing heavily in the next generation of ground attack missiles, what we call PrSM, to rapidly increase production capacity.
We’re taking similar steps to expand production of several kinds of anti-ship missiles across a variety of ranges.
And we’ve made significant investments across the American shipbuilding supply chain — that entire supply chain. The challenge there on shipbuilding has been especially immense. We’ve sought to recover from an erosion that actually traces its decline to decades of erosion in the overall American manufacturing base.
Over the last 40 years, in the submarine industrial base alone, five shipyards closed, the workforce shrank, suppliers left the market. Our approach to production was built on post-Cold War assumptions about a global security environment and just-in-time supply chains that, frankly, have not borne out.
To give you a sense of the scale of the problem, we need an additional 140,000 more skilled workers — 140,000 — machinists, welders, pipe fitters, electricians — than we currently have to meet submarine production demand over the next 10 years.
Now, we can’t fix four decades of challenges in four years, but we have surged to invest in our submarine industrial base. With billions of dollars in new funding, we’re developing new suppliers across more than 30 states to reduce bottlenecks, expand the use of robotics and additive manufacturing, and upgrade and expand shipyards.
These investments will leave the submarine industrial base in a stronger position, but frankly, more is needed. And so, we’re seeking more funds from Congress, especially for more manufacturing technology, for more infrastructure improvements, and for wage increases to ensure we can retain the workers we have while we work to hire thousands more.
The second big push we’ve made is to try to leverage and unleash the potential of innovative technologies and the power and speed of our commercial sector.
On the battlefield in Ukraine, we’re seeing the character of war evolve before our eyes as Ukraine pairs artificial intelligence with low-cost drones to create powerful and cheap alternatives to precision-guided munitions.
Ukraine’s missile and drone manufacturers are among the most innovative on the planet, a product of both necessity and Ukrainian resolve and ingenuity. They bring groundbreaking, state-of-the-art capabilities to the fight at costs that are an order of magnitude lower than our traditional munitions.
By facilitating collaboration between American and Ukrainian industry, we’re ensuring that our own companies are pioneering new technologies to complement our more exquisite capabilities. Our firms are learning what technologies work best and how to use them and iterate them during conflict.
We’re creating a feedback loop that prizes and enshrines innovation. And that way, the American military can get to and remain on the cutting edge of these new forms of warfighting technology.
Here at home, the Department of Defense’s Replicator initiative is just one example of how we’re trying to adapt more institutionally to the future character of warfare. Through Replicator, DOD is procuring and fielding attributable [attritable] autonomous capabilities at speed and scale — thousands of systems across air, land, and sea — in less than 24 months.
And we’re establishing the processes to be able to adopt and scale new technologies as needed in the future, including from non-traditional defense companies and from the commercial sector, because we need to keep pushing the envelope in terms of speed and scale.
Recognizing the power of responsible AI to transform the way militaries fight, we released our first-ever National Security Memorandum on Artificial Intelligence. It provides a blueprint for harnessing the power and managing the risks of AI to advance our national security.
Now, all this we’re doing at home, but we recognize that we can’t and shouldn’t do this alone. As strategic competition intensifies, as the global environment becomes more contested, we have to take bold steps in concert with our allies and partners to integrate and strengthen deterrence across the major theaters of the Indo-Pacific, Europe, and the Middle East.
And that leads to the third big push we’ve been making: laying the foundation to build an integrated defense industrial base for the free world.
In the first year of our administration, we launched one of the most ambitious defense projects in modern history, the trilateral security partnership, AUKUS. Under AUKUS, we joined forces with the UK and Australia to support Australia’s acquisition of a conventionally armed, nuclear-powered submarine capability in ways that will strengthen our collective submarine industrial bases.
And we’re creating opportunities for innovation and collaboration through AUKUS on cutting-edge technologies in advanced cyber, undersea capabilities, electronic warfare, quantum, AI, and hypersonics.
Just this year, we held trilateral exercises in Australia, with Japan in attendance, conducting tests on the collective use of autonomous and uncrewed systems in maritime operations.
And this push for an integrated DIB for the free world extends way beyond AUKUS. Over the past four years, we’ve ramped up efforts to expand and accelerate what we call global defense production, a catch-all term for co-development, co-production, and co-sustainment of platforms and munitions with allies and partners.
Similarly, we’ve worked with our NATO Allies to follow our example and overhaul their defense industrial bases. And this was a major line of effort and set of outcomes at the NATO Summit President Biden hosted here in Washington for the 75th anniversary of NATO this summer.
As part of this effort, we’ve had to rethink our strategic technology controls to account for today’s realities. The fact is our non-proliferation and export control regimes, especially when it comes to allies, were formulated in a different era. The risks were different. The nature of technology diffusion was different. These outdated restrictions have actually caused us to withhold critical technologies from close partners and close allies. And without a significant change in the way we do business, our friends could be left behind as our adversaries march forward with deeper technology-sharing among themselves. So we can’t let that happen.
Through AUKUS, we began the hard work of driving major reforms in our export control regime to strengthen cooperation with Australia and the UK.
And now, our team is finalizing a National Security Memorandum on Missile Technology Exports to modernize our implementation of the MTCR, the Missile Technology Control Regime.
We will renew our commitment to a strong non-proliferation regime to keep these technologies out of the hands of bad actors, but we will also add flexibility to transfer this technology to certain partners with strong export control systems. That means we can now boost our friends’ production of advanced missiles to increase the global availability and interoperability of long-range and precision-guided munitions that can strengthen our collective deterrence.
And this cooperation with our allies and partners enhances not just our national security but, frankly, our joint economic prosperity. We’re creating jobs for American workers, opening new markets for American businesses, all while reaping the clear national security benefits of this work.
Those are the three big pushes, and we’ve made progress over the last four years. But frankly, we need progress over the next 40. We need a roadmap for the future that builds on what we’ve done, because there is still a lot left to do. I’m not here to report that the job is finished. I’m here to report the job has started, and now it needs to continue in a big and sustained and bipartisan way.
Now, there will be important debates over the size of the defense budget in the new administration and the new Congress. Wherever the defense topline lands, I see at least four critical pieces of work that demand the sustained effort of the next administration, the next Congress, the armed forces, and industry all working in common purpose.
First, and most fundamentally, we’ve got to keep ramping up and accelerating production and procurement of the things that we need most. This includes long-range critical munitions, vital air defense capabilities, and attritable and autonomous systems that are shaping the future of warfare. Because no budget will be unlimited, this is going to require that we make hard trade-offs, prioritizing these key capabilities in particular.
The bottom line here is that we’ve got to keep growing our magazine depth. Future conflicts are going to consume munitions and equipment at a rate we have not seen in a very long time. That means stockpiling both the vital munitions we know we’ll need in sufficient quantities and the components needed to produce them on short notice.
We actually asked Congress for a critical munitions acquisition fund that would have guaranteed an ongoing demand signal to industry and enabled us to stockpile munitions that are in high demand, both at home and among our partners.
Despite bipartisan support for that fund, Congress didn’t ultimately come through with the appropriation. I urge Congress to work with the next administration to get this done.
When it comes to funding our defense needs, we also need Congress to return to regular order. The practice of relying on continuing resolutions to equip our forces creates uncertainty and instability for both DOD and the industries we rely on.
Pentagon leaders, and leaders from both parties across multiple administrations, have continually raised the alarm about this. On a bipartisan basis, Congress should fund the defense enterprise — and, frankly, the rest of the U.S. government — responsibly and on time.
And we also need industry to do its part to grow our magazine depth, by moving beyond the current cycle in which they hedge against uncertainty and do just enough to meet current demand, even when DOD is prepared to sign multiyear contracts.
This calls for a new era of public-private partnership to build and sustain more commercial facilities, to maintain warm production lines, and to invest in a long-term effort to shore up our DIB workforce so that we have surge capacity when we need it.
And while we’re doing that, we need to expand the shipyards, the armories, and the plants owned by DOD as well, to make our defense industrial base more resilient.
Second, we need to accelerate major acquisition reform at DOD to prize innovation agility and to encourage a degree of risk taking. This requires rethinking our requirements process to ensure that even tech companies outside the traditional defense orbit can understand and provide what DOD needs. It requires adapting our system to allow flexibility for innovation mid-cycle in the development of a new system or platform.
We also need to make it even easier for the defense enterprise to absorb more technological solutions from the commercial sector, and to do so quickly and at scale.
Today, collaboration among DOD, Silicon Valley, and America’s wider innovation ecosystem is better than it’s been in decades. And that’s been met with significant bipartisan funding and support from Congress. We’ve got to keep up this virtuous cycle.
Two years ago, Congress created a bipartisan commission that examined ways to improve the Pentagon’s six-decade-old process for how it plans budgets and spends. They put forward dozens of smart recommendations that DOD is already in the process of implementing. But to really make that report work, we need new authorities from Congress too. The critical munitions acquisition fund is one example of that. Providing DOD with department-wide resources that can be used to meet emergent requirements is another.
Third, we have to institutionalize the work we’re doing, in concert with our allies and partners, to integrate our defense industrial bases.
Working together boosts our collective readiness. It allows us to dramatically expand our total production. It creates resilience in our supply chains and manufacturing bases. And most importantly, it strengthens deterrence as our adversaries learn that they will have to deal with the combined industrial might and fighting capacity of the U.S. and our allies and partners around the world.
And finally, we can produce all the military hardware in the world, but it will mean nothing without our people, the talented men and women of the joint force. They are the ones who ensure the equipment we buy translates into the capability we need. They underwrite our deterrence and security, and we have to continue to invest in them and ensure that we’re recruiting and retaining the talent and leadership that we rely on to field the best military in the world, the best military in history.
Now, none of this will be easy. We don’t know what the future holds. But we do know that the best way to preserve peace and protect American interests is to maintain a force that is strong enough to deter a future conflict. That has been at the front of the President’s mind for nearly four years, and it will have to remain so for the next administration as well.
We’ve laid the foundation to renew our great arsenal of democracy, but the work will have to continue to ensure we have the munitions and capabilities we need to navigate a myriad of contingencies. After all, history teaches us that the adversary rarely chooses to start the war that we are most prepared for, but it also teaches us that when we galvanize the collective power of American national security and defense communities, American workers, American businesses, and American ingenuity, we will prevail.
Thank you for listening to me on what can be a dense subject but I believe a subject of profound consequence for hearing now both on what we have done and what we need to do. And I look forward to taking a few questions. Thank you very much. (Applause.)
MR. JONES: Thank you. And for those who have not read the FDR speech on the arsenal of democracy, it is well worth going back and rereading that from the early days of World War Two.
Thanks for coming to CSIS. I wanted to start, actually, not with our industrial base — defense industrial base, but with the Chinese defense industrial base. Part of the need, I think, for a strong industrial base is that we have adversaries that are building their own.
So I wonder if you could start off with your sense of where the Chinese are at on their defense industrial base. What is of particular concern? Where do you see vulnerabilities? The new DOD report on China also highlights major corruption within the Chinese industrial base. So how would you characterize the industrial base? And what’s the significance, then, as we look at continuing to build ours?
MR. SULLIVAN: So, first, China has been growing its defense budget year on year, closing the gap in terms of their outlays and ours. Second, because they have a state-directed system with state-owned enterprises working hand in glove with the PLA, with their military, they’re able to direct production and expand production at rates much more rapidly than we historically have been able to.
And they’ve also increased their innovation capacity, going beyond merely stealing technology, and then copying it, to developing new systems.
So I think we have to take the overall industrial base capacity of China very seriously, and it is a key factor in the way that we think about what we’ve got to tool up to do ourselves and along with our allies and partners.
At the same time, I think that there are three areas where the U.S. has inherent advantages. One of them is: The same state-owned enterprises that are able to very rapidly send the demand signal and generate the production of key munitions and weapons platforms, they’re also — they can put brakes on or limits around innovation.
And so we continue, I believe, to have an edge. And watching how Ukraine in particular has dealt with this uncrewed, autonomous system issue, this is something that the U.S. is uniquely capable of being able to iterate, evolve, adapt over time, and that’s an advantage of ours that we need to continue to nurture.
Second is this corruption problem you described. I think it is — the reports that you’re referring to and other public reporting on this has shown that throughout the entire PLA, you have major problems of corruption in terms of the acquisition, the testing, and the reporting on the defense capabilities that they have, which raise real questions about whether there’s a gap between reality and advertisement.
And then, the third goes to the issue of workforce and people, both the people operating the systems and the people building the systems. And the United States has always had a huge advantage when it comes to people. Now, we have a shortage of them, but the ones we have are the best in the world and the most tested in the world, because they’ve had to go through building the systems, having them end up in conflict, and then learning lessons from them, adapting them, and so forth. The PLA really hasn’t, and the entire Chinese defense industrial base really hasn’t had to do that.
So we’ve got to double down on our advantages. And where they have the single biggest advantage, the sheer scope and scale of production, we have to close the gap in the ways that I describe by increasing our magazine depth.
The final point I’ll make is that God forbid we end up in a full-scale war with the PRC, but any war with a country like the PRC, a military like the PRC, is going to involve the exhaustion of munition stockpiles very rapidly. So, a big part of the answer to a healthy defense industrial base over time is the ability to regenerate, to surge, to build during a conflict, not just to build before to prepare for a conflict. And that’s got to be a key lesson that we take away from what we’ve seen over the last three years on the battlefield in Ukraine.
MR. JONES: So, one follow-up on this. Your sense and level of concern as we’ve seen greater integration or coordination of the industrial bases of the North Koreans, the Iranians, the Russians, and the Chinese. What does that say about cooperation between them and their industrial bases? And what’s the implication then for us?
MR. SULLIVAN: I’m glad you mention that. And when you asked the question, I made a mental note in my head to get to that point, because it’s a critical point. I didn’t do so, although I spoke about it in my remarks.
We are seeing concerning flows of capability and know-how among these various actors. You’ve got Iranian drones going to Russia; now Russia is indigenizing that capability. You’ve got North Korean munitions going to Russia, and in return, Russia is sending back know-how and capacity in some of the more high-end capabilities that North Korea is trying to develop. Going both ways between Russia and the PRC, you see both dual-use capacity going from the PRC to Russia that is helping fuel Russia’s war machine, and Russia is reciprocating by providing certain types of technological capabilities to China that they’ve been behind on.
So this is something that is going to be a feature of the landscape as we go forward, and it means we’re going to have to get better ourselves, and we’re going to have to get more integrated with our allies and partners so that our collective industrial might exceeds that of our competitors and adversaries. And then we are also going to have to look for ways, through sanctions, export controls, and other restrictive measures, to try to put a drag on or reduce or restrict or disrupt that flow that I just described among these actors.
But this is a feature of the modern landscape that, in my view, only reinforces the various calls to action that I made in my remarks today.
MR. JONES: One of the issues that you mentioned in your remarks is on the subject of munition stockpiles. And if you look at some of the war games that have happened, whether it’s here at CSIS or some of the ones that have happened within the Pentagon, one of the things that’s interesting with current stockpiles is that with, say, some of our long-range anti-ship missiles, LRASMs, or our extended-range JASSMs, we run out pretty quickly in a conflict.
So, two questions along those lines. And again, you mentioned this a little bit earlier, but how serious of an issue is this? How are you thinking about addressing and dealing with addressing it? And, you know, along the latter lines too, how does this impact deterrence if we’re not effectively able to increase those stockpiles?
MR. SULLIVAN: This is, I think, a significant learning experience for all of us. And, by the way, that goes for the U.S., our friends, and our adversaries, out of what we’ve seen unfold in the course of the war against Ukraine.
First, it means that we need deeper magazine depth now, which means accelerating and ramping production and trying to reduce what are, kind of, eye-poppingly long timelines to generate what you and I might not think are a huge number of these high-end systems, LRASMs or JASSMs or what have you, or PrSM, for that matter, which I referred to in my remarks. So we’ve got to build the stockpile, build the magazine depth.
Second, and the point I made just a minute ago, we have to have the production lines and the skilled workforce ready for surge capacity so that, in a conflict situation, we’ve got a warm, kind of turn-key ability to dramatically increase production on demand.
I started my speech by talking about our desire to do that with 155-millimeter artillery production. On demand was another 400 rounds a month. I mean, we didn’t have it. So part of the defense industrial base has to build that.
Third, we have to recognize, as the Ukrainians did, that we’re also going to need substitutes for the highest and most exquisite capabilities, and those substitutes will be cheaper autonomous systems that just come in much greater scale, quantity that can actually be, to a certain extent, a fill-in for delivering effects, battlefield effects that aren’t identical to what an LRASM could deliver, but at sufficient quantity can help sustain the fight even as you’re drawing down your magazine depth.
Fourth, we have to think not just about the most high-end, most exquisite capabilities. We also have to think about cheap, attritable stuff; more dumb munitions, frankly, as part of any conflict going forward; and get out of a mindset that says everything has to be the most whiz-bang thing ever.
And then the final point that I would make is that another key lesson from Ukraine is the EW environment, the electronic warfare environment in which all of this is happening, and the way in which this is a very dynamic, iterative game where defense gets better, then offense adjusts to overwhelm it, then defense gets better.
And so, the other thing we have to think about across all of the four lines I just described — stockpile, surging, attritable systems, dumb munitions — we have to think about how are we building a feedback loop so that everything we built doesn’t get neutralized, we actually can adapt it to overcome whatever defenses that we happen to be up against. That has been another critical lesson from Ukraine.
MR. JONES: Yeah, it was interesting, my last trip a few months ago to Ukraine. As several folks in Zelenskyy’s office were briefing on the speed with which the battlefield was rapidly evolving on the electronic warfare, the UAV — counter- UAV dimension, just the speed with which things were changing was dramatic, and, you know, the need to be very adaptive in how to respond.
One of the issues you mentioned in your talk was the submarine industrial base. We had — a couple of months ago, we had Mike Waltz and Senator Kelly; it was a bipartisan discussion on the maritime industrial base. And one of the issues that they have highlighted, and others have as well, is more broadly shipbuilding.
So I want to read you just briefly the bipartisan congressional report, just one sentence from it, sort of the topline conclusions: “Decades of neglect by the U.S. government and private industry had weakened our shipbuilding capacity and maritime workforce, contributing to a declining U.S. flag-shipping fleet to bring American goods to market and support the U.S. military during wartime.”
There have been other assessments. The U.S. Office of Naval Intelligence, unclassified assessment: The Chinese have 230 times the shipbuilding capacity of the United States. That’s one assessment. That’s not how much they’re producing; that’s a capacity issue.
So where do we stand on the broader shipbuilding side, not just the submarine base? And where do we have to go?
MR. SULLIVAN: Well, first, just diagnosing the problem, a big part of the problem is a skilled workforce issue, where we’ve just lost a skilled workforce in shipbuilding that we need to rebuild, and this administration has put a series of initiatives in place to begin to build that back.
Second, we have a huge supply chain problem. Suppliers of the necessary components for ships have disappeared from the United States, and — or there’s one, and we have to rely on that one for any shipbuilding we do, whether it’s a U.S. flag commercial carrier, of which we build very, very few, or it’s a ship that we’re building for a defense requirement.
And then, third, there are major problems we have in being able to adjust to changes in design over the course of the life of a — you know, of a ship line, and our ability to just, like, have a design, execute it, and churn it out. This is something the Chinese are very good at. We have not proven to be very good at this.
Now, part of this is so fundamental and so structural, and it goes back to the early 1980s when the bottom fell out of the American shipbuilding industry, commercial shipbuilding industry. That’s not going to reverse overnight. But there are steps that we can take to push back against unfair practices. We, the Biden administration, accepted a petition for a 301 investigation of Chinese shipbuilding practices that are putting downward pressure on our ability to compete effectively.
And then part of it is pick spots where you can get wins and build step by step to get back some of that lost ground over the last few decades. I mentioned very briefly in my remarks something called the ICE Pact, which we entered into with Norway — I’m sorry, with Finland and with Canada. Finland and Canada are at the cutting edge of polar icebreaker construction and production. The United States has one producer producing, basically, one cutter for our Coast Guard.
We have the capacity to do so much more than that on something that, for our allies and partners, the other places they can go are Russia and China; where we really could build this out in concert with Finland and Canada, and, for that specialty capability, reinvigorate an aspect of the American shipbuilding base that then we could take to other specialty areas, and over time build back a larger capability that would have amazing knock-on effects for our capacity to do naval shipbuilding much more rapidly, at much greater scale and at cheaper cost.
Because anyone who knows, you know, when we contract for a given ship or line of ships, by the third one being turned out, the cost has gone up dramatically for a variety of reasons that get to supply chain, workforce, and other things. But part of it is we don’t have the backbone of a healthy commercial shipbuilding base to rest our naval shipbuilding on top of. And that’s part of the fragility of what we’re contending with and why this is going to be such a generational project to fix.
We’ve taken these beginning steps on it, and particularly focused on the submarine industrial base because of the centrality of that to our deterrence. But it is a larger issue that Secretary Del Toro has been passionate about, Secretary Austin.
I have dug into the details of workforce development initiatives in this area because it’s something that’s so core to our national security over time.
MR. JONES: So, last question before we get to a few audience questions here. Role of other allies and partners. If you look at the shipbuilding industry, both the Koreans and the Japanese have major capabilities. We’ve got some regulations, we’ve got some congressional acts, including the Jones Act, that make some of that more difficult. Should we rethink make it easier for us to collaborate with some of our partners? That’s the first question.
And two is, AUKUS — how do you think about expanding — or do you think about expanding AUKUS to include more than just the UK and Australia in the future?
MR. SULLIVAN: So, on the first question, I think, you know, I’ll leave it to others to debate the relative merits of some of the, kind of, domestic regulations.
I’ll just make one, I think, really important point, which is: In semiconductors, in clean energy technologies, we’ve developed a suite of industrial policy tools that are stimulating a revolution in the manufacturing capacity of the United States in these critical sectors. I believe that those same tools, in some cases those same pots of money, could actually attract a Hanwa or another Korean or Japanese shipbuilder to the United States the same way that we’ve attracted a Samsung or an LG to the United — or a Hyundai to the United States.
And so, we should have a theory of stimulating American shipbuilding that is in part about attracting our allies to invest here in building out their capabilities.
How we then get into the regulatory landscape for what will work and what wouldn’t in the puts and takes of that is harder for me to speak to, but I think the overall theory of the case that we’ve applied in these other critical sectors could be applied to shipbuilding. There are some green shoots of that in the maritime initiative that Secretary Del Toro has underway. We really need to build on that because that, ultimately, is going to be an important part of the long-term answer to revitalizing the American shipbuilding industry.
MR. JONES: Yeah, and I think it is an area where I think we’ve got to close that gap with the Chinese.
So, one question —
MR. SULLIVAN: Oh, you said AUKUS. We don’t have any plans to expand pillar one of AUKUS, which is the conventionally armed nuclear-powered subs.
MR. JONES: Subs. Yeah.
MR. SULLIVAN: We do see other partners coming in to work with us on pillar two, which are all these other advanced —
MR. JONES: I’ve seen the aperture already start to open a bit. Yeah.
On — questions for the audience. This has nothing to do with the subject of the discussion here, the industrial base. But first question here from someone in the audience is: “South Korea’s president declared martial law, which he then lifted. What has been the White House response? It looked a little slow from our vantage point.” How would you — I mean, what has been your response? How concerned have you been with the unfolding events in South Korea?
MR. SULLIVAN: You know, it’s — you know you’re living in a modern information age when an entire episode like this unfolds over the course of less than a day, and the characterization of the White House response is slow. (Laughs.)
MR. JONES: Too slow. Yes.
MR. SULLIVAN: But it’s a fair question.
I mean, we were not consulted in any way. We learned about this from the announcement on television the same way the rest of the world did. It raised deep concern for us, this declaration of martial law. The National Assembly worked according to constitutional processes and procedures. The president retracted martial law. Now there’s, you know, a series of procedures in place to kind of react to what happened there, and they’ll be toing and froing between the main parties in Korea.
What we want to see is just the proper functioning of the democratic institutions of the ROK. And after this rather dramatic announcement that raised alarm bells everywhere, including here in Washington, we have seen those processes and procedures work. South Korea’s democracy is robust and resilient, and we’re going to continue to speak out publicly and engage privately with South Korean counterparts to reinforce the importance of that continuing as we go forward.
MR. JONES: Thanks.
This question is about the industrial base, which — and it’s an interesting one because it deals with critical minerals. “China has banned exports to the U.S. of gallium, germanium, antimony, which have significant military applications in the industrial base. How significant are these actions? And probably more importantly, what are U.S. options to decrease reliance from China on critical minerals?”
MR. SULLIVAN: The most important thing about this is that it is a continuing reminder of the need of the United States to have diverse and resilient supply chains for critical minerals with national security applications, and not to be reliant on any single country, especially a competitor like the PRC. We knew that. We know that. We are reminded of that when they take steps like this.
Now, we, in particular, anticipated this step because they had already moved to restrict germanium and gallium in the past, before taking the full move this week to say no more exports to the United States. There are other sources of germanium and gallium in the world. But as we look at the wider aperture of critical minerals, not just for military purposes, but for strategic purposes — semiconductor manufacturing, clean energy transition technologies, et cetera — we need to get together with likeminded producers, processors, and users of these critical minerals for a high-standards critical mineral marketplace that ensures that China can’t, for example, crash the price of a given critical mineral, drive mines out of business, reduce the overall global supply, and operate as a chokehold. That’s, ultimately, the logic we need to break.
We’ve taken some really important steps on this in the last few years. It has allowed us to diversify and make more resilient our supply chains. But that, too, just like the defense industrial base, is a work in progress, and we need the next administration to continue it, working with the Congress and private industry. And I will be the biggest cheerleader of that ongoing effort, because it’s something we’ve devoted a lot of attention to over the last four years and something that is going to take, you know, at least the next decade to get ourselves in a position where we can really breathe a sigh of relief.
We’re there. We’re doing better. We have solutions to a lot of these issues, but this is going to be a highly contested space, and there’s a lot more work to be done.
MR. JONES: Thanks.
And last question. Can be brief. From Time Magazine: “Is DOGE friend or foe in an effort to revitalize the defense industrial base?” I mean, what would you say to an effort to look at the Elon Musk initiative?
MR. SULLIVAN: I just don’t know. I mean, I’ve read, but I don’t know what it actually is. Do we need more government efficiency? Of course, we can all use more government efficiency. So at a very macro level, finding ways, as I described in my speech, to modernize, streamline, make more effective procurement and all of the decades-long rules and regulations of the Defense Department. I laid out a whole list of things in the speech that we should do. Whether this initiative is about that or about something else, I just don’t know, so it’s hard for me to speak to.
MR. JONES: Well, thank you. If you can all join me in thanking Jake for coming to CSIS. (Applause.) And if you could briefly just stay put as we get out, that’d be great. Just 30 seconds or so. Really appreciate everyone taking the time to come. Thanks.
