Arsenal of Unpreparedness: The Fallout of Globalization

It’s been 75 years since the end of the Second World War — enough time for people collectively to forget quite a few lessons.

You may have learned that in World War II, the United States was the so-called “Arsenal of Democracy.” The country produced literal mountains of products with which to fight the war.

Fleets of ships. Hundreds of thousands of aircraft. And much more…

It’s fair to say that absent massive levels of U.S. wartime production, the outcome of the global conflict would have been different.

That was then…

Today, the U.S. is in a bind. After 30 years of globalization, the country is unprepared to fight even the flu, let alone a war.

Below, I’ll explain what I mean…

Back during World War II, American industry churned out food and fuel, guns and ammunition, tanks, artillery, trucks, ships, aircraft, electronics and much more… Enough to equip American forces and supply (via “lend-lease”) allies like Great Britain and the Soviet Union.

navy landing ship

Navy landing ship (LST) crammed with supplies.

U.S. wartime production was a historic accomplishment. But today, there’s much that the U.S. can no longer produce. For some critical items, the output is zero; as in… Not. At. All.

At best, the U.S. can produce certain truly critical items only by relying on long and precarious supply chains.

Production gaps cover a wide spectrum, from basic medicines to super-sophisticated submarine components.

In short, the U.S. is unprepared for any significant conflict. And for that, we can credit – or blame – the past 30 years of “globalization.”

It may seem strange to read that the U.S. is unprepared for war. After all, American troops have been in direct combat — Middle East comes to mind — every day since 2001. Or since 1990, if you go back to the original Desert Shield/Desert Storm.

But the way the U.S. fights wars these days isn’t related to national preparedness. That is, preparedness is not what the military burns up or expends in the field; preparedness is related to procurement and the national industrial base.

Here are the key issues: What is the source of your equipment and supplies? Where does the warfighting materiel come from? Keep your eye on that ball.

From the dawn of the 20th century on, the U.S. military system has bought and delivered ample supplies. From boots, uniforms and bullets to every manner of advanced hardware and weapon platform, the cargo showed up.

But that’s the root of the problem. Today’s U.S. military procurement system is actually the country’s Achilles’ heel.

Look at it in another way… To be “prepared” for war is to have a system that reliably supplies what the military needs, when it needs it. And if you look behind the curtain, the current level of U.S. preparedness is abysmal.

Begin with how things “ought” to work.

When military forces (Army, Navy, etc.) need something, there’s a system in place that issues requests for bid or proposals. Then there’s an entire industrial ecosystem out there, ready to provide it.

But over the past 30 years, that ecosystem has gone global. Not just in the sense of the U.S. working with a friendly, adjacent nation like Canada. Or buying items from other NATO countries, or allies like Japan, Australia and such.

No…the U.S. now relies on critical materials from the likes of China, for example. Many U.S. politicians and policymakers have long been aware of the situation. But nobody raised an alarm. And that’s a problem, too.

Consider something basic, like medical supplies…

As I discussed here not long ago,  China produces about 97% of antibiotics used in the U.S.

Indeed, the last U.S. plant for even basic penicillin closed in 2004. Almost everything else beyond penicillin is produced in China, or perhaps in another locale but using Chinese ingredients.

If you get sick and need antibiotics, it’s Chinese drugs that will cure you. There’s no U.S. alternative supplier.

But this isn’t just a civilian problem. The U.S. military buys drugs — and much else — from the same vendors as everyone else. Meaning that much of the drug supply traces back to… China.

And it’s not just antibiotics, either. Blood pressure meds, cancer drugs, heart drugs, HIV/AIDS drugs, antidepressants and even birth control pills; it’s nearly all out of China.

Then there’s “hardware” like protective clothing, breathing masks and even humble plastic tubing used for intravenous treatments. Nearly none of that is “Made in U.S.A.” anymore.

Now think ahead to some future confrontation… military, or just “Cold War”-like. Can the U.S. rely on China as supplier for critical medical goods? Is that true preparedness? The question answers itself…

But surely, you may believe, the U.S. can build its own nuclear submarines, right? Well, no… Sorry to break the news.

Consider just two items that are essential to a nuclear submarine, starting with the nuclear fuel.

Currently, there’s NO uranium being mined in the U.S. All U.S. uranium mines and processing operations are shut down. Yes, there are uranium deposits in the U.S.; in places like Texas, Colorado and Wyoming. But none are operational.

This means virtually no U.S. workers in the mining occupation, which means the skill set for uranium mining is fading. Without demand for people, there are no training programs, from vocational tech in high school to university programs.

So where does the U.S. obtain uranium for both commercial nuclear power and for Navy nuclear propulsion?

Some comes from Canada. But most uranium comes from Kazakhstan, via Kazatomprom, a company with heavy influence from Russia’s atom power group, Rosatom.

Why did the U.S. uranium mining industry shut down? Again, globalization… That economic myth that has killed off so much else within the U.S. economy. Or call it the myth of “free trade.” Of “everyday low prices!”

The idea was to open markets; but it was mostly U.S. markets that got opened. In the process, globalization has ruined the U.S. nuclear fuel industry, which is now open to foreign control over a critical part of the submarine program.

And here’s another example of a critical material not under U.S. control.

A submarine uses electric drive motors to turn the propeller shaft. These motors are quite large, but fit inside the hull, of course.

That motor, in turn, uses a set of strong permanent magnets — which are made using large amounts of rare earth elements (REEs).

Where do most of the world’s REEs come from?

Well, in the 1980s, China made a national-level policy decision to produce REEs. Chinese industry now dominates the global REE arena as the world’s low-cost producer.

China is home to vast mines and mills that process REE. Also, China is home to human talent required for producing REEs. China boasts entire universities that train people to work in the REE field. Heck, it has entire cities where people work on REEs.

So today, about 85% of world REE supply comes from China.

Good for China, I suppose…

But it’s not so good for the U.S., where there may be about a hundred people across the nation who are skilled in the field of extracting REEs. (I’ve met most of them.)

I could keep naming examples, but you see the point.

The U.S. relies on potential foreign adversaries for critical parts of its military supply chain, from medical supplies to submarine components.

Without these foreign inputs, U.S. national defense is deeply at risk. We’re in a state of “unpreparedness.”.

The root of the problem is the thoughtless acceptance of the idea of “globalization” over the past several decades. The idea that somehow, “capital should flow” to wherever it goes and we — in the U.S. at least — should not worry about it.

This is what gave the U.S. tens of thousands of closed factories and millions of unemployed former-manufacturing workers. It’s the tap-root of current politics, which enabled Donald Trump to run for and win the office of president. Another story there…

But back to preparedness… Where do we go?

Trump’s tariff-war with China was a key opening shot in the battle to reestablish supply chains under U.S. control. That is, tariffs were intended — if not designed — to tilt the economics of trade away from China’s former lopsided advantage. Plus, the idea of tariffs was to convince multinational companies to relocate supply lines away from China, if not back into the U.S.

Meanwhile, the U.S. military is awakening to the risks associated with uncertain foreign “partners” like China, if not Kazakhstan and Russia. There’s a move within the U.S. procurement system to rebuild a REE industry within North America, meaning the U.S. and Canada. It’s happening, but slowly in my view.

Over the years, I’ve met numerous management and technical teams in the U.S. and Canada. They’re working to revitalize uranium production and output of REEs here at home.

When capital begins flowing towards U.S. investment for critical items, the follow-on effects are apparent. It’s the key to new industry, jobs and a reawakening within U.S. universities, to begin training new people for new career paths.

So, there’s hope…

But the constant battle is against the impersonal forces of globalization and its handmaiden of financialization.

Deep-down, the move offshore was money-grubbing. Wall Street forced U.S. companies to pinch every penny and flee higher-cost America to lower-cost foreign shores. That was driven by a finance-focused attitude that all profits somehow belong to the stock traders.

Many people made serious money over the years by sending production offshore; executives, investment bankers, fund managers and traders. But the country as a whole suffered through a loss of fundamental capabilities. As I’ve shown, the U.S. lacks industrial ability to produce a range of vital items.

If you keep history in mind, the U.S. won World War II as much through the ingenuity and creativity of our industrial base as it did through the bravery and valor of the fighting forces.

But we couldn’t do it again. Not the way things are now.

It’s time for capital to flow back into supporting the national interest; into preparedness.

ship building

Could we do this again? Hmm…

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

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