China Sole Manufacturer of Material for U.S. Missiles (More crap of which we were unaware?)

It was in his 2003 State of the Union Address that President George W. Bush expressed his administration’s objective to “strengthen global treaties banning the production and shipment of missile technologies.” It was thereafter, between 2003 and 2004, in which the Committee on Foreign Investments in the United States (CFIUS) allowed the last manufacturer in the U.S. that provided a key element instrumental in cruise missile guidance, to be relocated to the Peoples’ Republic of China. During this week’s U.S. visit of China President, Hu Jintao, and his meetings with President Bush and his advisors, it would be apropos to revisit a strategic corporate deal which occurred over a period of several years. With its finality in 2004, the U.S. now remains totally dependent upon China for key rare earth metals and their production necessary in the manufacture of the most crucial of U.S. military warfare.

The CFIUS decision in January 2006, regarding the approval of the Dubai Ports World Company, to take over port operations of the six largest East Coast ports in the U.S., not only raised many U.S. Congressional eyebrows but set off a strew of newly proposed legislation, to include more transparency between CFIUS and the U.S. Congress. But CFIUS has long had a precedent of approving such business transactions, and the ports deal was only the latest of such. As the deal approval became known to the public via AP reporter, Ted Bridis, in February 2006, apparently even he was more in the loop than the lawmakers on Capitol Hill. However, there have been close to 2,000 other deals approved by CFIUS since its inception in 1988, many of which should have involved and concerned the U.S. Congress much sooner.

It is the lack of accountability of the secret CFIUS committee, presided over by the Secretary of the Treasury, which has only of late concerned the U.S. Congress, and with its machinations just recently disclosed to the public. And it was the Dubai Ports deal which exposed the seemingly arbitrary fashion, and unanswerability to any other branch of government which was disturbing. For the decisions CFIUS makes ultimately becomes the responsibility of the U.S. federal government, while possibly compromising its best interests, including U.S. national security.

As it is, the Department of Defense has problems procuring necessary equipment and manufacture of parts from foreign entities, where national security must be weighed over acquisition of parts from offshore. Yet at the same time, the U.S. government has pushed the concept of global trade, often in direct conflict with the protection and national security of the U.S.

Producing powdered neodymium-iron-boron permanent magnets is critical to enabling control of aircraft and more specifically cruise missiles guidance systems as well as the Joint Direct Attack Munition or JDAM bomb, used prominently in the 2003 bombing of Baghdad, which preceded arrival of U.S. ground troops there. Magnequench UG, although still headquartered in Indianapolis, IN, is the sole provider of specialized magnets for military aircraft systems. But it closed down its manufacturing arm permanently in 2004 and finished relocating operations to China at that time, with its operations now solely controlled by Chinese companies with direct ties to the Chinese government.

Magnequench magnets are produced from a unique patented process of sintering specialty metals. They are used by various electronics and aviation companies, but Magnequench’s primary client is the Pentagon, leaving the U.S. in a rather precarious position with China. Enjoying 85% ownership of the world’s market of rare earth metals, required for its magnet production, Magnequench’s factories are now located in Batou, China. It is there that the world’s only operating rare earth mine exists. Thus, China now owns a monopoly on the manufacture of missile magnets which the U.S. military is dependent upon for its most sophisticated technology and weaponry.

Magnequench’s relocation culminated following several years of what started out as a General Motors subsidiary company in 1986. General Motors was responsible for the development of the manufacture of a permanent magnet material in the early 1980’s and began its production in 1987. In 1995, Magnequench’s majority interest was purchased from General Motors by the Sextant Group, which was comprised of two Chinese companies, San Huan New Material and the China National Non-Ferrous Metals Import and Export Corporation. It is reported that few in the industry or in the federal government knew which companies formed Sextant at that time.

Three years later, after commitment from Magnequench CEO, Archibald Cox, Jr., that its two Indiana-based plants would not be shuttered, its assembly line for magnets in Anderson, IN was shipped to China. In 2000, GA Powders, a subsidiary of Magnequench, originally a Department of Energy project, was relocated from Idaho Falls, ID to Tianjin, China. And in 2004 Magnequench’s other Indiana plant in Valparaiso, IN, responsible for production of elements of the JDAM bomb was shut down and shipped to China. Although there was an “agreement with GM” from Cox that the plant would remain in Anderson, IN according to Clyde South, a negotiator for the United Auto Workers Local 662, Magnequench proceeded to eliminate all of its domestic manufacturing jobs anyway.

Under the 1988 Exxon-Florio Amendment to the Defense Production Act, President Bush could have ordered San Huan New Materials to divest its holdings in Magnequench, as it manufactured a strategic asset. The President was pressed to do so by Congressman Even Bayh and Congressman Pete Visclosky, both of Indiana in 2003, but the President chose not to intercede. In 1990, however, President George H.W. Bush ordered China’s government-owned National Aerospace and Export Company to divest its interest in Mamco Manufacturing of Seattle, WA. At that time it was feared that China would use Mamco to acquire its jet fighter technology.

In addition to this particular example of guidance missile manufacture, the acquisition of titanium is also becoming a problem for the military in procuring spare parts and for its manufacture of its aviation vehicles. The Pentagon continues to have conflicts with the Congress on waiving the Berry Amendment. Enacted in 1941 and updated in 1972, it requires that specialty metals, including rare earth metals, titanium and super alloys, be manufactured in the U.S. for its weapons systems, unless otherwise unattainable. But as more and more American companies relocate offshore, the lines drawn become less and less clear.

And while not appropriate to put the blame of the offshoring of strategic assets on any particular President or branch of government at this time, it is appropriate, however, to see how various factions of the three branches of government, along with the loosening of corporate and industry regulations over the years, have cumulatively jeopardized the interests of the U.S. It is important that lawmakers therefore not become hawkish over the observance of our laws only when it becomes convenient to win political capital, but to how best serve the interests of the U.S. For the ramifications of business as usual when it comes to strategic assets could do irreparable future harm to America’s most vital asset, that being the American people.

I've never seen any materials come from China.

Maybe you haven't dealt with the servo-motors area much.

Parts is parts.

Your component-suppliers... likely utilize raw material (comes in a powder form) from wherever. [ Do your shippers tell you where their fuel to do the shipping comes from...? No. ]

Furthermore, the stringency you are assuming isn't real-world. Specifying 'domestic' materials is not consistent with the 50% domestic content on overall system sourcing for defense contractors. Remember when House Armed Services Committee Chairman Duncan Hunter tried to up it from 50% to 75%? The Shit Hit the Fan at the White House. The President threatened a veto...(his first and only such threat until the Dubai Ports debacle).

The DOD would not so restrict a contract on components derived from rare earths. Quite a number of materials supplies are just not in the U.S. Chromium for one example. And Titanium for another example. Remember when the SR-71 was built? We bought most of the titanium for its fuselage on the sly from the Soviet Union. I doubt they ever would have sold it if they knew what a major advantage we were realizing from their sale...

The Chinese on the other hand, know precisely how critical these super-magnets are to our aerospace, with superior power to weight ratios and vastly greater resistance to heat and vibration. The Chi-Comms have been manifesting all the classic signs of trying to monopolize the supplies of the ores. They tried to snap up UNOCAL last year. And Deng Xiou Ping openly bragged of making China the "Saudi Arabia of Super Magnets."

And a big Part of that "glut" in the market another freeper alludes to is...a product of Chinese dumping to dry up the foreign operations...drive them out of business. He also alludes to infringing on the patents...well guess who is the biggest infringer of all. Yep. China. Puts further pressure on the survival of U.S. and Western supermagnet operations...with their intellectual property interests in the dumpster.

And the U.S. government is frankly AWOL when it comes to IP enforcement against China...or protecting our defense and security industrial supply-chain.

"I've never seen any materials come from China."

Maybe you haven't dealt with the servo-motors area much. Parts is parts. Your component-suppliers... likely utilize raw material (comes in a powder form) from wherever.

Actually our company supplies it's own servo-motors, synchros, slip-rings etc etc.

So our Purchase Orders don't require anything more than general certs of conformance with each shipment. Nothing would get through inspection if we had to review the massive amount of paperwork needed to verify materials and processes for every single item that goes into something like a motor.

However we have been supplying Boeing, Lockheed Martin and the DoD for many years, and the domestic material requirments are becoming more of an issue lately.

In anycase where DFARS has been applied to our inspection process, the closest I've ever come to material from China was rejecting some alloy steel from Taiwan.

Of course there are numerous countries allowed by DFARS that are not necessarily domestic, when it comes to specialty metals, including France and Great Britain.

As it stands now, DFARS must be flowed down to every supplier.

I'm beginning to see the requirement appear on more and more Purchase Orders.

We already have suppliers of brakes, clutches, motors, synchros and resolvers meeting DFARS.

Of course there are probably 20 countries outside the US that are accepted under the DFARS requirments for specialty metals alone, so it shouldn't be very difficult to conform in this respect.

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