With geopolitical tensions rising between China and the United States, the U.S. Defense Department is making a push to boost domestic production of crucial technology in hopes of cultivating an American alternative that can be used securely on the battlefield. Its most immediate worry: the global small-drone market.
Faced with growing security concerns about Chinese tech companies sharing sensitive data with Beijing, the Pentagon recently banned the use of drones built by China’s DJI and may soon ban all Chinese-built drones and Chinese-manufactured components from military use. But due to the country’s domination of the market and the dwindling U.S. supply of the smallest class of unmanned aerial systems (UASs)—handheld drones increasingly used for reconnaissance missions—U.S. troops now have limited options.
“We don’t have much of a small UAS industrial base because DJI dumped so many low-price quadcopters on the market, and we then became dependent on them,” said Ellen Lord, the Pentagon’s chief weapons buyer, in an Aug. 26 press conference. “We want to rebuild that capability.”
In an effort to bolster the defense industrial base across the board, this fall the Defense Department is launching what it is calling a “Trusted Capital Marketplace” to connect trusted sources of capital with small tech firms. The proposal began as an attempt to set up a matchmaking website of sorts but has now evolved into a series of face-to-face meetings the Pentagon plans to convene between investors and industry representatives.
The Pentagon’s efforts come as senior U.S. officials, starting with President Donald Trump, are portraying China as a major adversary.
“China is the No. 1 priority for this department,” U.S. Defense Secretary Mark Esper said in a recent TV interview with Fox News, noting that Beijing has engaged in the “greatest theft of intellectual property in human history.”
“They are clearly professionalizing and expanding the capacity and capabilities of the military in order to push the United States out of” the Pacific theater, he said.
In the latest escalation in an ongoing trade spat with Beijing that has roiled global markets, Trump in a series of tweets last Friday ordered American companies to seek alternatives to business in China, including “bringing your companies HOME and making your products in the USA.”
The first meeting of the Trusted Capital Marketplace, planned for October, will target the small UAS industry sector, Lord said, adding that there may be opportunities for the Pentagon to invest in participating companies as well.
“We actually have had a lot of work going on in the department about architectures for small UASs, whether they be fixed wings or quadcopters,” Lord added. “So we thought it was a good time to stand it up.”
The push to boost domestic production of small UASs is part of the U.S. government’s efforts to counter China’s recent technology explosion—not just in the unmanned sector but also in areas like hypersonic weapons, artificial intelligence, and 5G. The United States this year blacklisted the 5G giant Huawei, banning U.S. companies from selling or transferring technology to the Chinese tech firm unless they were granted a special license.
But China’s rise in the drone market has been particularly explosive. Over the last few years, DJI has soared to take two-thirds of the small UAS market globally, dwarfing Western competitors such as France’s Parrot. They are relatively cheap and easy to use, making them the go-to product for individual consumers. Overall, Chinese manufacturers dominate three-quarters of the nonmilitary drone market, which is expected to triple in size to $14.3 billion in sales over the next decade, according to a recent study.
China’s rise in this area can be partially attributed to the U.S. government’s restrictive drone export policies, said Ben Schwartz, the executive director of the Defense and Aerospace Export Council at the U.S. Chamber of Commerce.
“The Chinese have grown their UAS manufacturing capability in large part because of the U.S. government’s ham-handedness in its own export release policies,” Schwartz said. “The Chinese government has actually been quoted saying, ‘We’ve taken advantage of the U.S. government’s restrictions in terms of export sales to fill the market.’”
This is a particular problem in the small UAS niche because the United States has such a limited market to begin with. In fact until recently, the U.S. military used DJI products, primarily for scouting missions in urban areas where large military drones such as MQ-9 Reapers would be a challenge to operate.
“The idea is for small units on the battlefield, that you have small drones that soldiers can quickly unpack and get in the air,” said Michael Horowitz, an associate professor of political science and the associate director of Perry World House at the University of Pennsylvania. “These quadcopters are also inexpensive enough that if one crashes or you lose one, it’s not that big a deal.”
But the U.S. Army banned the use of DJI drones in August 2017 after concerns emerged about cyber-vulnerabilities. In particular, the Pentagon is worried that DJI shares data with the Chinese government—the same claim the U.S. government makes about Huawei and one DJI denies.
Then in June 2018, under pressure from Congress, the Defense Department banned the purchase of all commercial off-the-shelf UASs. An amendment from Sen. Chris Murphy in the 2020 defense policy bill would ban all Chinese-made drones and Chinese-manufactured parts from military purpose.
“The challenge is that the quadcopter market has generally been a consumer or commercial market, where the level of built-in security is not at the standards that the DoD would want,” Horowitz said. “That lack of security is an issue even putting aside DJI’s ties to China.”
The Trusted Capital Marketplace is a promising step that will help U.S. industry catch up to China in the small UAS market, said David Silver, the Aerospace Industries Association’s vice president for civil aviation. The hope is that the government can help develop commercial products that can be modified by the military for use on the battlefield, rather than designing specific defense products, “which have a tendency to be a lot more expensive,” he said.
But in order to truly solve the problem, the U.S. government also needs to update policies and regulations governing sales and operations of drones across the country. One area that needs to be addressed is establishing a standard for cybersecurity, Silver stressed.
“It is not just getting groups of people in the room—it is ensuring that they have the right policies in place,” he said.
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