2024 Annual Estimate of the Strategic Security Environment

Strengthening the US Defense-Industrial Ecosystem

In January 2024, the US Department of Defense released its first National Defense Industrial Strategy (NDIS). The strategy complements the White House’s 2022 National Defense Strategy of the United States of America, which links the criticality of the US defense industrial base (DIB) to the ability and need to bolster national resiliency and strengthen deterrence in an era of increasing geopolitical confrontation.

The strategy also aligns with various executive orders (EOs) and Department of Defense (DoD) policies issued by the Trump and Biden-Harris administrations, including the following.

2017 EO 13806 “Strategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains is . . . a significant national priority.”²²
The 2021 EO 14017 stresses the need to bolster weakened and vulnerable US supply chains.
The 2022 EO 14083 expands the purview of the Committee on Foreign Investment in the United States to review foreign investment in the DIB that poses national security risks.
The 2023 EO 14105 regulates outbound investments by US companies and individuals that “pose a particularly acute national security threat because of their potential to significantly advance the military, intelligence, surveillance, or cyber-enabled capabilities of countries of concern.”²³ Embedded in EO 14105 is the US government’s intent to constrain adversaries’ ability to compete with the US DIB.
The 2024 DoD Defense Industrial Base Cybersecurity Strategy improves protection from hackers and adversarial exploitation for companies engaged in DoD business.

These important policy measures put a spotlight on a downward-trending and precarious US DIB, the factors for which the US Army War College’s 2023 Annual Estimate of the Strategic Security Environment briefly discusses and that are worth revisiting in more detail.²⁴

US Army Sergeant James Nash (right), innovation noncommissioned officer with 2nd Group, Information Advantage Detachment, and a researcher from Anduril Industries (center) discuss the technical specifications of the Ghost-X Unmanned Aircraft System at Fort Irwin, California (US Army photo by Chaplain [Colonel] Ken Harris, 75th US Army Reserve Innovation Command).

Defense-industry consolidation: The peace dividend of the 1990s and subsequent DoD encouragement of industry rationalization through mergers and acquisitions led to consolidation in the defense industrial base. Concentration reduced 51 prime contractors down to five companies, which together make up 74 percent of the DoD’s major acquisition programs. Consolidation has been particularly acute among suppliers of tactical missiles, fixed-wing aircraft, and satellites. The ripple effect on sub-tier suppliers has witnessed 17,045 companies exiting the industry during the last five years.²⁵ Further, the number of people employed in defense-related work has shrunk by two-thirds, from three million workers in 1985 to 1.1 million in 2021.²⁶ The combined impacts have led to dependencies on critical sole-source suppliers and lack of redundancy, often forcing US defense contractors to outsource to foreign suppliers. In some cases, contractors must outsource to suppliers from adversarial nations, even if the suppliers are not outrightly state owned.
Deindustrialization: The United States is no longer primarily a manufacturing-based economy. In 1953, approximately 32 percent of the US workforce was employed in the manufacturing sector, versus 8 percent today. The corresponding shift to services means the US economy cannot quickly and nimbly mobilize domestic manufacturing capacity to produce at scale to support a peer-on-peer protracted conflict, as the United States did in World War II.
Globalization of production and supply chains: The 1990s witnessed a huge expansion of international trade, overseas investment by US companies, Chinese investment in the US economy, and the internationalization of supply chains. One of the unintended consequences of the economic dynamics of the 1990s is the People’s Republic of China is now embedded within the supply chains of US military platforms and weapons systems. Supply-chain dependency on China is evident in microelectronics, especially semiconductors, critical minerals, and rare earths. An additional fallout, brought to the forefront during the COVID-19 pandemic, is that in just-in-time supply chains, DIB suppliers do not stockpile sufficient inventories for surge production.

Studies, including from the Department of Defense itself, have highlighted compounding issues that are negatively affecting the health of the US DIB.²⁷ Key among the issues are DoD acquisition policies, outdated international traffic in arms regulations, bureaucratic foreign military sales processes, and unstable and uncertain defense funding due to the Department of Defense operating under congressional continuing resolutions, to name a few. Together, the current trend lines are nothing new, but as evidenced by the release of the NDIS this year, the US government has a sense of urgency to redress the ailing DIB and to derive mitigation strategies in concert with agencies outside the Department of Defense and with allies and partners.

The current and future strategic environment requires immediate, comprehensive, and decisive action in strengthening and modernizing our defense industrial base ecosystem to ensure the security of the United States and our allies and partners. As this strategy makes clear, we must act now.
—Deputy Secretary of Defense Kathleen H. Hicks²⁸

Why a Renewed Focus on the US Defense Industrial Base?

Two geostrategic issues are driving the renewed focus on the US DIB. First, the Russia-Ukraine War has brought immediacy to the conundrum of how to boost US weapons production for Ukrainian defense forces while avoiding precipitous drawdowns in domestic military inventories, especially artillery and munitions, which could affect US defense readiness. The struggle to meet Ukrainian requirements for American Javelin anti-tank systems and missiles, as well as large-caliber ammunition, points to the tenuousness of the US DIB. During 2023, for example, Ukrainian defense forces expended ammunition at a rate of 180,000 artillery shells per month, and US production stood at 14,500 shells per month.²⁹ The Department of Defense, with added congressional funding, hopes to raise output to 80,000 per month, but the DIB cannot support such production rates until 2025.³⁰

Across the Atlantic, NATO Allies’ military-industrial capabilities are also falling short of meeting Ukraine’s war-fighting needs and replenishing dwindling stockpiles, leading French President Emmanuel Macron to call for Europe to create an économie de guerre—a war economy to underwrite EU security. Indeed, the sobering state of EU defense-production capacity led to the European Commission and the high representative of the EU for foreign affairs and security policy announcing the very first European Defence Industrial Strategy (EDIS ) in March 2024. The EDIS aims to increase European defense-industrial and technological readiness by incentivizing EU member states “to invest more, better, together and European.”³¹ The EDIS ’s Europe-first approach is being driven by the uncertainty surrounding the outcome of the 2024 US presidential election and an overreliance on US weapons systems in NATO inventories the US DIB is unable presently to sustain.

The second geostrategic driver is the military-economic, competitive challenge posed by the People’s Republic of China. The rapid modernization of the People’s Liberation Army forces, civil-military fusion, Chinese companies’ supply-chain penetration into the US and European DIBs, and the underlying weakness in US and NATO Allies’ defense-industrial capacity exposed by the Russia-Ukraine War portend whether the United States can deter and sustain a protracted conflict in the Indo-Pacific.³² For integrated deterrence against the People’s Republic of China to succeed, the United States needs to have the necessary industrial-production capacity in advance so the United States can manufacture, stockpile, and pre-position equipment in theater as well as replenish equipment after hostilities have been initiated. The irony is the US DIB is heavily reliant on key People’s Republic of China imports. A US government–funded study by Govini, a defense-software company, found Chinese firms are heavily embedded in the supply chains of US prime and subcontractors across the DIB in sectors such as electronics, software, fuses and detonators, and data links affecting long-range precision-strike weapons.³³

US Army M1A1 Abrams tanks prepare to fire as part of the Eager Lion 2024 exercise at Training Area 5 in Jordan (US Army photo by Specialist Nataja Ford).

The 2024 Department of Defense National Defense Industrial Strategy

The first NDIS is an ambitious framework in which “the DoD seeks to catalyze generational rather than incremental change.”³⁴ The NDIS provides four main lines of effort and supporting actions to redress DIB deficiencies: resilient supply chains, workforce readiness, flexible acquisition, and economic deterrence. The strategy recognizes the Department of Defense implementing the NDIS ’s four key elements alone is insufficient and will require a whole-of-government approach, strong coordination with the private sector, and collaboration with allies and partners. Below is a quick summary of the NDIS ’s four main priorities.

1. Resilient Supply Chains

To produce defense systems, related technologies, and service securely and at speed, scale, and cost, the NDIS lays out multiple actions. Key among the actions are the following.

Incentivize industry to improve resilience by investing in extra capacity and stockpile planning to decrease near-term risk.
Continue and expand support for domestic production by encouraging a diverse supplier base and investing in new production methods.
Friend shoring: Engage allies and partners to expand global defense production and increase supply-chain resilience.

2. Workforce Readiness and Development

A healthy DIB relies on a highly skilled, steadily employed workforce. The NDIS recognizes the need to address shortages in the workforce due to baby-boomer retirement, decreased interest among the current generation in entering science, technology, engineering, and mathematics–related employment fields, and a labor market that lacks sufficient skilled workers with security clearances to meet even current domestic defense-production and sustainment needs. To counter current workforce trends, the NDIS calls for increasing access to apprenticeship and internship programs; destigmatizing industrial careers while targeting defense-critical skill sets in manufacturing and science, technology, engineering, and mathematics; and promoting diversity by expanding recruitment of nontraditional communities.

3. Flexible Acquisition Strategies

Being a monopsonist in the market, the Department of Defense has a determining role in shaping the state of the DIB. Consequently, the NDIS calls for DoD acquisition strategies that strive for “dynamic capabilities while balancing efficiency, maintainability, customization and standardizations” to reduce lead times, reduce costs, and increase scalability.³⁵ A whole-of-government approach can accomplish the strategies outlined in the NDIS by:

continuing to support acquisition reform;
prioritizing off-the-shelf acquisition and use of multiyear contract vehicles;
broadening platform standards and interoperability; and
updating industrial mobilization authorities and planning to ensure national preparedness.

Fear of materially reduced access to US markets, technologies, and innovations sows doubt in the minds of potential aggressors.³⁶
—National Defense Industrial Strategy

4. Economic Deterrence

The focus on economic deterrence in the NDIS mirrors the US government’s “invest, align, compete” approach to China.³⁷ The administration’s assertive approach to the People’s Republic of China involves a mixture of trade, industrial, and investment policies designed to bolster US competitiveness in emerging technologies and advanced manufacturing, especially in semiconductors, AI, and quantum computing, while restricting the People’s Republic of China’s access, via export and investment controls, to the US DIB. The intent is trifold: to decouple US supply chains from the People’s Republic of China, to contain the People’s Republic of China’s military modernization, and to deter military aggression in the Indo-Pacific.

Achievement requires:

strengthening economic-security agreements with partners and allies;
fortifying alliances to share sales and trading;
strengthening enforcement mechanisms against adversarial ownership in the US DIB;
coordinating with interagency partners to support industry in detecting, protecting, and recovering from cyberattacks; and
bolstering the current administration’s prohibited-sources policy.

Keeping a sustained focus on improving the health of the US DIB will be a challenge moving forward. The NDIS is an important first step by the Department of Defense to bring a concerted focus and collaborate with other interagency stakeholders, such as the Departments of State, Commerce, Treasury, and the Office of the US Trade Representative, and with the private sector. Achieving the NDIS ’s four main lines of effort requires a corresponding implementation plan that is set to be released in both classified and unclassified versions later in 2024.

The capacity of the US DIB to grow its output, fulfill a surge in military demands, and reconstitute in a major conflict stands as a key test of its health and readiness. Currently, US policies and financial investments are not oriented to supporting a defense ecosystem built for peer conflict.³⁸
—National Defense Industrial Association, Vital Signs 2024

A Defense Industrial Base View of the National Defense Strategy

This statement is a finding by the National Defense Industrial Association, a nonpartisan, nonprofit, educational association. Although affirming the NDIS is a notable and positive step in aligning the priorities of the federal government and industry on the topmost issues facing the DIB, more action, particularly from the Department of Defense and Congress, is needed. The National Defense Industrial Association canvassed its members and found the private-sector outlook remained gloomy. Institutional investor pressures, revenue volatility, and economic inflation (which makes meeting fixed-price contracts harder for firms because of rising labor and material costs), were some of the major challenges. Compounding economic impediments are legislative, regulatory, and compliance requirements. The number one recommendation from the National Defense Industrial Association’s report was for the Department of Defense and Congress to make substantial (in the billions of dollars, not millions) investments in the DIB with sustained, multiyear contracts and stable and predictable defense budgets. The report called out the impact of the federal government operating under continuing resolutions: “The parts of the budget most crucial to re-orient DoD to prepare for, deter, and—if necessary—respond to peer conflict are the accounts most vulnerable to being cut or squeezed during budget instability: R&D for emerging technologies, as well as procurement and sustainment of current and next generation major platforms.”³⁹

Arguably, the shortcomings discussed here are partial. The Army perforce must also address the current challenges in its organic industrial base. Admittedly, much progress has taken place, but the Army must explain a strategic vision and plan over the next 5–10 years, and not just short-term solutions for Ukraine and Israel.

Conclusion

The US DIB is operating on a late twentieth and early twenty-first-century peacetime footing, and Congress seems to have little appetite for increasing current defense-spending levels. Congress’s seeming ambivalence persists despite the United States balancing multiple conflicts—Ukraine, Israel-Hamas-Iran, and Houthi insurgents attacking global shipping in the Red Sea—and the competing requirements of building military strength to deter adversaries in the Indo-Pacific. As such, the problematic state of the US DIB is a systemic issue for the US Army—one that will involve trade-offs in the current budgetary environment. For example, how can the Army prioritize ramping up the DIB for relatively low-technology weapons and munitions to support the current Russia-Ukraine War alongside top Army modernization priorities, such as long-range precision fires; air and missile defense; command and control (C2); communications; computers; intelligence, surveillance, and reconnaissance (ISR); and targeting networks to support integrated deterrence in the Indo-Pacific? The Strategic Studies Institute’s 2025 Annual Estimate of the Strategic Security Environment will likely address these issues.

Endnotes

“Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” Exec. Order 13806, July 21, 2017, https://www.govinfo.gov/content/pkg/FR-2017-07-26/pdf/2017-15860.pdf. Return to text.
“Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern,” Exec. Order 14105, August 9, 2023, https://www.govinfo.gov/content/pkg/FR-2023-08-11/pdf/2023-17449.pdf. Return to text.
US Army War College Strategic Studies Institute, 2023 Annual Estimate of the Strategic Security Environment (Carlisle, PA: Strategic Studies Institute / US Army War College Press, 2023), https://press.armywarcollege.edu/monographs/962/. Return to text.
National Defense Industrial Association (NDIA), Vital Signs 2024: The Health and Readiness of the Defense Industrial Base (Arlington, VA: NDIA, April 2024), 17, https://www.ndia.org/-/media/sites/ndia/policy/vital-signs/2024/2024_vital_signs_final.pdf. Return to text.
Maiya Clark, “The US Defense Industrial Base: Past Strength, Current Challenges, and Needed Change,” Heritage Foundation (website), January 24, 2024, https://www.heritage.org/military-strength/topical-essays/the-us-defense-industrial-base-past-strength. Return to text.
See for example, DoD, State of Competition within the Defense Industrial Base (Washington, DC: DoD, February 2022), https://www.defense.gov/News/Releases/Release/Article/2934955/state-of-competition-in-the-defense-industrial-base/; and Luke A. Nicastro, The US Defense Industrial Base: Background and Issues for Congress, Congressional Research Service (CRS) Report R47751 (Washington, DC: CRS, October 12, 2023). Return to text.
DoD, National Defense Industrial Strategy (Washington, DC: DoD, 2023), 1, https://www.businessdefense.gov/NDIS.html. Return to text.
Seth G. Jones, Empty Bins in a Wartime Environment: The Challenge to the US Defense Industrial Base (Washington, DC: Center for Strategic and International Studies, January 2023), https://www.csis.org/analysis/empty-bins-wartime-environment-challenge-us-defense-industrial-base. Return to text.
Jones, Empty Bins. Return to text.
Directorate-General for Communication, “First-Ever European Defence Industrial Strategy to Enhance Europe’s Readiness and Security,” European Commission (website), March 5, 2024, https://commission.europa.eu/news/first-ever-european-defence-industrial-strategy-enhance-europes-readiness-and-security-2024-03-05_en. Return to text.
For an analysis of the impact of People’s Republic of China investments in the NATO defense industrial base, see Carol V. Evans, “Hybrid Threats to US and NATO Critical Infrastructure,” in Enabling NATO’s Collective Defense: Critical Infrastructure Security and Resiliency (NATO COE-DAT Handbook 1), ed. Carol V. Evans (Carlisle, PA: US Army War College Press, 2022), 75–102, https://press.armywarcollege.edu/monographs/955/. Return to text.
“Numbers Matter: Defense Acquisition, U.S. Production Capacity, and Deterring China,” Govini (website), n.d., https://www.govini.com/insights/numbers-matter-defense-acquisition-u-s-production-capacity-and-deterring-china. Return to text.
DoD, National Defense Industrial Strategy, 9. Return to text.
DoD, National Defense Industrial Strategy, 33. Return to text.
DoD, National Defense Industrial Strategy, 43. Return to text.
Anthony J. Blinken, “The Administration’s Approach to the People’s Republic of China” (speech), George Washington University, Washington, DC, May 26, 2022, https://www.state.gov/the-administrations-approach-to-the-peoples-republic-of-china/. Return to text.
NDIA, Vital Signs 2024, 9. Return to text.
NDIA, Vital Signs 2024, 19. Return to text.

Photo Credits

John Carkeet IV, Small but Mighty [Image 7 of 8], March 6, 2024, DVIDS, link.

Nataja Ford, Eager Lion 2024 Tank Range [Image 2 of 4], May 15, 2024, DVIDS, link.