1. The Impact of COVID-19 on the U.S. Defense Industrial Base
- Author:
- Nayantara D. Hensel
- Publication Date:
- 01-2022
- Content Type:
- Journal Article
- Journal:
- PRISM
- Institution:
- Institute for National Strategic Studies (INSS), National Defense University
- Abstract:
- The COVID-19 pandemic has imposed a number of challenges on countries and industries, some of which have been partially mitigated by government efforts, medical developments, and corporate strategies. Nevertheless, COVID-19, which, in March 2020, was identified as a pandemic by the World Health Organization and was declared by the U.S. government as a national emergency,1 will likely continue to have after-effects in the coming years. The defense sector, as has been the case with many other sectors, has faced challenges in declining production at manufacturing plants, difficulties with key inputs from sole source suppliers, concerns regarding the financial viability of small businesses within the supply chains, and the impact of different variants of COVID-19 within the global supply chains. Companies which had diversified between commercial and military clients often faced a greater negative impact on their financial strength than companies with largely defense-focused products. This was partially due to the decline in demand within the commercial aerospace sector as a result of COVID-19. The financial health of companies across industries suffered due to COVID-19; indeed, this was reflected in the almost 30 percent increase in commercial chapter 11 filings in 2020 compared to 2019, with bankruptcies reaching their highest levels since 2012.2 The sectors with the greatest number of bankruptcies in 2020 were real estate, oil and gas, restaurants, entertainment, and retail.3 While bankruptcies were lower among firms in the defense sector due to stability in multi-year contracts with the government, as well as support of smaller suppliers by larger suppliers and by the government, defense firms with a greater focus on commercial clients suffered more. Consequently, although funding from the federal government under the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, as well as funding from the Department of Defense (DOD), provided support for companies within the defense sector and other sectors, defense firms continue to face challenges in the short-term and, potentially, in the longer-term. Moreover, the impact of COVID-19 relief funding could have long-term effects on government deficits and debt, which may reduce defense spending in future years. Indeed, the potential atrophy in the defense industrial base due to the impact of COVID-19 on the financial health of defense companies and on future government spending could lead to national security risks. Production of key defense products—aircraft, ships, tanks, cybersecurity technology, etc.—is vital in supporting national security strategies in various regions and through various types of warfare.
- Topic:
- Economy, Manufacturing, Pandemic, Industry, Defense Industry, and COVID-19
- Political Geography:
- North America and United States of America