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How prepared is America for war?
With war in Europe and a potential conflict with China looming over Taiwan it's worth taking a moment to consider American hegemony and the defense companies working to protect Americans.
Recently I read through America’s Future is at Sea inThe Atlantic written by a retired Navy Captain. The gist of the article is that the American economy we know and love is wholly dependent on America’s command and control of the world’s oceans. Chain stores like WalMart, Target and predatory Dollar stores wouldn’t be able to run their businesses without discounted imports from around the globe that require maritime commerce secured by the U.S. Navy. The author draws on history and modern experience to argue America is a sea power state and always has been.
A different article came out in the New York Times stating the war in Ukraine has showed a “worrisome lack of production capacity in the United States” where the U.S. will run out of crucial supplies like long-range anti-ship missiles within about a week if a large scale war breaks out with China.
As if to respond Xi Jinping announced he’s preparing China for war with the United States. In this newsletter I’d like to look at how prepared America is for a two front war with China and Russia and what some of the current bottlenecks are.
Some issues are:
Economic concentration of foreign owned global shippers that the American economy relies on.
America’s lack of productive capacity, especially in shipbuilding.
Concentration within the defense industry.
A lot of people think a war with China will never happen because of how intertwined our economies are. That’s definitely a possibility but I invite you to consider that a non-nuclear war with China is also possible. A Chinese invasion of Taiwan could start a global war. With America’s globalized economy dependent on Asia and strong alliances with Japan, South Korea and Australia isolationism, never much of an American strong suit would be difficult to maintain. As one of the Joint Chiefs of Staff recently said though, war with China and Russia is not inevitable.
The General argues, the United States must remain the most powerful nation on Earth if peace is to continue between the U.S., China and Russia. Elbridge Colby elaborates on this point and the strategy of deterrence more on his Twitter account and in his book Strategy of Denial. The gist of the argument is that there’s a moral imperative to be strong in order to avoid war.
Without further ado let’s get into it..
Concentration in global container shipping
The existing economic order has warped in recent decades to rely on more and more on the U.S. Navy’s protection of a few major shipping companies. Shipping firms have merged into larger and larger conglomerates to the point where nine non-American container shipping companies control 82% of global container shipping. These ships are protected directly and indirectly by the U.S. Navy; the only American shipping company that makes the list of top thirty is Matson, coming in with 29 ships and 0.3% of global market share. Further concentrating the market is that the largest nine container shipping companies work together in massive “alliances”, removing the benefits from competition. The three major shipping alliances rely on large, slow ships that can only unload at specific ports equipped with deep water and equipment to handle the size. This concentration has led to diseconomies of scale, ships too big to fit through canals and shocks to the supply chain.
Below is the Herfindahl–Hirschman Index, a commonly accepted measure of market concentration for the container shipping industry over a twenty year period.
Though we as Americans depend on free seas our sea-based supply chains are concentrated in the hands of a few foreign conglomerates that operate large, slow ships that can only dock in certain ports leading to backup and a brittle supply chains. Large ships can lead to some efficiencies at the cost of resiliency. As ships have gotten bigger and bigger with the shipping industry getting more concentrated diseconomies of scale have kicked in.
America isn’t as capable of building as it used to be
When I was a kid I remember going to the Bay Model in Sausalito and seeing a video of how the Liberty Ships were built in Sausalito. As one ship was launching a keel for the new ship would be swinging in. New ships were built in 46 days and thousands were launched. This maritime industrial base stands in stark contrast to the tourist traps and fancy restaurants that make up Sausalito’s economic base today.
Even by the late 1970’s American shipbuilders produced more than 1 million gross tons of merchant ships. By 2005, that number had fallen to 300,000 and today it’s restricted to some government ships that travel between U.S. ports.
The inability to build ships has led to a reduction in U.S. Naval power.
The size of the American Navy has been shrinking. In the 1960s America had about 1,000 active warships and then began to decline. By 1980 it dropped to about 520 ships until President Reagan went on a building spree, enlarging the Navy up to 590 ships to control global waters. Today the Navy only has 251 active ships.
Meanwhile the secretary of the Navy remarked recently that China has a larger Navy, greater ship building capacity and “consistently attempts to violate the maritime sovereignty and economic well-being of other nations”. Russia has modernized it’s nuclear submarine fleet in recent years and is able to patrol the Pacific and Atlantic with the dangerous Yasen class submarine. China and Russia are both extending their territorial claims into international waters. A Chinese invasion of Taiwan would accelerate this trend, block major shipping channels to Japan and Korea plus give unfettered access to deep waters off Taiwan’s east coast.
Concentration within the defense industrial base
Throughout the American military there’s been a concentration of firms bidding on military projects. This graph from 2003 shows the scale of the concentration that’s happened. Lockheed, Boeing, Raytheon, Northrop Grumman and General Dynamics are hardly even companies they’re mergers of mergers of mergers.
This merger boom was a deliberate choice under the Clinton administration, as Captain Jerry Hendrix notes in The Atlantic article:
In 1993, Deputy Secretary of Defense William Perry invited the executives of leading defense contractors to a dinner in Washington—a meal that would enter national-security lore as the “Last Supper.” Perry spelled out projected cuts in defense spending. His message was clear: If the American defense industrial base was going to survive, then mergers would be required. Soon after, the Northrop Corporation acquired the Grumman Corporation to form Northrop Grumman. The Lockheed Corporation and Martin Marietta became Lockheed Martin. A few years later, Boeing combined with McDonnell Douglas, itself the product of a previous merger. Among the shipbuilders, General Dynamics, which manufactures submarines through its Electric Boat subsidiary, bought Bath Iron Works, a naval shipyard, and the National Steel and Shipbuilding Company.
These mergers reduced American industrial capacity and made the American defense system less resilient to shocks. When there are only five suppliers to the military if one or more of those companies are hacked or compromised the whole system is at risk.
Fortunately, some politicians recognize the problems with too much concentration in the American military supply chain. Here’s Senator Elizabeth Warren calling for a return to a more decentralized procurement process:
Clearly there’s a political element here to fix the military’s procurement process and political will to build a military capable of defending our country from authoritarian regimes. There are lots of private defense contractors and defense companies working everyday to keep the military equipped and Americans safe. You can browse lists of these companies for free by clicking the links below.
List of American defense tech companies
At Employbl my co-founder and I are building a huge open dataset of tech companies and startups. We’ve compiled a list here of Defense Tech Companies that are building tech solutions for the Department of Defense and American military.
List of American military contractors
For a more extensive list we’ve also been creating a company collection of American military contractors. This builds off preexisting public lists of the largest U.S. defense contractors from Wikipedia, Bloomberg and Defense & Security Monitor. There are hundreds more military contractors that we may add as time goes on but the top ones are there.
List of American defense companies
Putting it all together is the combined list of defense tech companies and military contractors. Full list of American defense companies: