**Location and Context**
SIMI VALLEY, California—As the prospect of a new administration looms, uncertainty surrounds the future of defense spending. Publicly stated goals include rebuilding arsenals, curbing government expenditure, cutting taxes, and reducing federal headcount. Nevertheless, defense officials overseeing investments in dual-use technologies express optimism for their segment of the Pentagon budget.
**Key Investments**
Investments in areas such as microelectronics, additive manufacturing, and materials development are viewed as crucial by defense officials. These initiatives align with other priorities of the Trump administration, particularly in relation to competing with China and revitalizing U.S. manufacturing capabilities. This discussion took place during the Reagan National Security Forum.
**Critique of Current Procurement Processes**
Pentagon officials criticize traditional Defense Department procurement processes. They argue that requirement-driven programs often lead to cost overruns and the development of weapons that may become obsolete before they are needed. In contrast, commercial technology firms are able to produce products more quickly through rapid iteration and scaling. This sentiment was echoed by former Defense Secretary Ash Carter, who established the Defense Innovation Unit (DIU) to connect the Pentagon with commercial tech companies.
**Call for Innovation**
Doug Beck, the current head of DIU, emphasized the urgent need for innovation in defense procurement. He pointed out that the traditional five-year plans adopted by government systems mirror outdated Soviet methods. Investing in innovation is crucial to compete effectively on a global scale.
**Legislative Support**
Legislators have shown support for DIU, with the most recent draft of the National Defense Authorization Act emphasizing the need to expand the unit’s capabilities. Congress more than doubled DIU’s budget this year to $1 billion, a figure that still remains a small fraction of the Pentagon’s overall budget.
**Strategic Focus Areas**
Beck highlighted the importance of providing a consistent demand signal for critical technological areas rather than fixed programs, mentioning areas such as artificial intelligence (AI), autonomy, space, and biotechnology. Greater flexibility in altering programs is also vital.
**Accelerating Technology Deployment**
DIU’s funding allows for quicker access to new technologies for military use. Companies interested in additive manufacturing will be engaged through a new initiative called Blue Manufacturing, aimed at improving collaboration between defense contractors and suppliers.
**Challenges in Supply Chains**
Heidi Shyu, undersecretary of defense for research and development, noted issues regarding the supply chain, which have led to contractors struggling to obtain necessary parts. There is a strong push for adopting additive manufacturing to alleviate these bottlenecks.
**Financial Support for Innovation**
The Defense Department’s Office of Strategic Capital plays a critical role in aiding companies in sectors like microelectronics and additive manufacturing by offering loans. Such financing is vital for companies that need to innovate but face challenges in accessing capital.
**Domestic Manufacturing Initiatives**
Shyu emphasized efforts to secure domestic sources for essential materials, particularly rare earth elements critical to electronics, as well as accelerating domestic chip production in light of potential disruptions posed by geopolitical tensions, especially a possible Chinese invasion of Taiwan.
**Investment Challenges**
Expanding chip manufacturing is highlighted as a significant endeavor that requires substantial investment, often unattractive to private lenders. Rathje noted the industry requires eight times more investment compared to startups in fintech or cryptocurrency sectors.
**Strategic Financial Mechanisms**
The Office of Strategic Capital is considering how to provide guaranteed loans to encourage further investment in capital-intensive industries, including semiconductor fabrication and manufacturing.
**Final Thoughts on Manufacturing Goals**
These initiatives align with a broader presidential agenda aimed at revitalizing U.S. manufacturing, something previously promised by Trump but that faced challenges during his first term. The future of defense spending and related research programs remains uncertain, particularly concerning leadership in innovation-focused areas linked to dual-use technology and manufacturing. Despite uncertainties, Shyu stressed the critical need to maintain dominance in microelectronics, stating, “Why would you want to cede microelectronics to all the foundries in Asia?”
