Strategypage
January 9, 2014
The U.S. Department of Defense recently granted the manufacturer of the new F-35 fighter a waiver for having some illegal Chinese components in newly built F-35s. The cheap Chinese components were nothing exotic; they were $2 magnets and stuff like that. These items inadvertently got into the supply chain as a Japanese subcontractor built parts of the aircraft. An audit later discovered the Chinese parts. The manufacturer told the Department of Defense that it would cost over $10 million and weeks, if not months, to take apart the offending assemblies, replace the Chinese items with American ones and reassemble, test and reinstall everything. The Department of Defense decided to let it go (grant the waiver) to keep the much-delayed F-35s coming.
Since the 1970s the U.S. has had laws banning any foreign components in American weapons. But once more American politicians (and Americans in general) are reminded that complex systems, including weapons, are made from components manufactured all over the world. Ironically the cheap magnets involved in the F-35 are used in several American weapons systems in addition to the F-35. These specialty magnets tend to come from China. In some cases China is the only supplier. These magnets are made from "rare earths" (metals like cerium, europium, lanthanum, neodymium and yttrium). The United States used to manufacture some of these components, but China did it cheaper, and most manufacturing shifted to there over the last few decades.
This dispersal of components to nations throughout the world is nothing new. It has been going on for over half a century. Some nations have specialized in certain components, especially electronic, to such an extent that a local disaster could cause global shortages. This happened in 1999, when severe earthquakes in Taiwan shut down factories that produced the majority of the world supply of some computer components. There were worldwide shortages for months. There have been less several less striking incidents since then. Same thing happened a few years ago when record floods in Thailand shut down plants producing a large portion of the worldwide computer hard drive supply.
As China has become a major industrial manufacturer, they have, like neighbors Taiwan, Japan and South Korea, come to concentrate on certain items, and acquire a world monopoly (via lowest price and reasonable quality). Western nations, especially the United States and Germany, have the largest number of these mini-monopolies. But what the American legislators were worried about was war with China, and an instant shortage of key weapons components. It could take months, or years, to restore necessary supply quantities.
During the Cold War, there were war reserves of certain raw materials, and subsidies to keep American firms manufacturing certain components. But since the Cold War ended in 1991, there has been an enormous growth in electronic and specialty metal components. Many of these are now largely made in foreign countries, particularly Taiwan, Japan, South Korea and China. A lot of those Cold War subsidies and stockpiles were done away with after the Cold War ended in 1991. But the “use only American components” laws stayed on the books and cause more and more problems.
Trying to stockpile some items is more expensive than just having a lot of them sitting in warehouse. Many manufactured items become obsolete rapidly, so many of these warehouses would suddenly be full of scrap, as they were made obsolete by new technologies. Any solution is going to cost billions, and it's unlikely the Department of Defense will be eager to give up a chunk of its budget to prepare for a long war no one wants.
China reminded the world how this worked in September 2010 when it halted exports of rare earths. In November 2010 China resumed shipments. China was trying to use its near-monopoly on the production of "rare earth" metals to jack up prices. The reaction from the rest of the world was vigorous and hostile. "Rare earths" are ores that are found in tiny quantities all over the world. Because that they are expensive to mine, many mining companies don't bother. But in the last century, more and more rare earths have been found to have useful applications in metallurgy, electronics and other areas. In the last few decades, China has extracted rare earths more cheaply than anyone else, and driven nearly all foreign rare earth mining operations out of business. But because of the new Chinese threat, other countries are reviving their rare earth mining operations, even if it requires government subsidies and relaxed environmental regulations. Despite these efforts it’s still cheaper and easier to get items made with rare earths from China and that won’t change for a while.
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