US IMPORT DEPENDENCE AND NATIONAL SECURITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00423R000400450006-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: April 3, 2009
• Sequence Number: 6
• Publication Date: August 30, 1984
• Content Type: MEMO

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The Director of Central Intelligence
Washington, D.C. 20505
NIC #05011-84
30 August 1984
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
FROM: Maurice C. Ernst
National Intelligence Officer for Economics
SUBJECT: US Import Dependence and National Security
REFERENCE: Your Memo dtd 26 July 1984, Subject: Industrial
Mobilization Capability
l.` You have expressed on several occasions your concern about the
impact on our national security of an increasing dependence on imports,
especially of high technology industrial products. I have tried to
become informed on what is known and not known about this issue so that
we could better focus our efforts. I have concentrated on the impact of
import dependence on US weapons production, especially in wartime,
rather than on our ability to control the transfer of technology to
other countries.
2. At this point, not many firm conclusions can be drawn about this
issue. There are basically four questions:
(1) Is import dependence a problem in weapons production under
current or plausible peacetime conditions? -- The answer
is almost certainly no.
(2) Is it likely to be a problem under plausible wartime
conditions? -- The answer is probably no, except perhaps
some very narrowly defined and specialized products.
(3) Is it likely to become a wartime problem, if recent trends
in the industries continue? -- The answer is, probably in
some industries, but there has been too little work done
to give any definitive answers.
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(4) Is it, or is it likely to become, a constraint on US
military R&D, that is, on our ability to produce
state-of-the art military equipment? -- We have no
evidence that this is the case now and do not know whether
it may become a problem.
There are several reasons why we cannot answer these questions
adequately. All of them reflect a fundamental flaw in the way the US
Government is organized to address wartime mobilization issues.
o DoD does riot collect much data on the use of imports by
military contractors, subcontractors, and their suppliers.
o Work on economic mobilization in the US Government is
unfocused, duplicative, and disorganized.
o Until this work becomes better organized, CIA work on
foreign industrial capabilities will be less useful than
it should be.
3. Although the US collects relatively detailed data on imports,
there is virtually no information on which imports are used for military
purposes. Data collected by DoD cover only direct contractors. There
is very little direct military procurement from overseas, and the
contractors do not indicate, and sometimes their own accounts do not
show, the source (whether domestic or foreign) of their own purchases.
Estimates of current, projected, or hypothetical direct and indirect
import requirements for defense are based on coefficients, derived from
input/output tables which were constructed in peacetime for relatively
broad industrial categories. They may give reasonable ballpark results
for basic inputs, such as strategic minerals, but are wholly inadequate
as a basis for determining whether or not a problem exists for
specialized manufactures and equipment.
4. The US Government does a substantial amount of work on a variety
of aspects of wartime mobilization and import requirements.
o Periodic analysis of requirements for strategic minerals
is mandated by Congress. It is centered in FEMA, but also
involves most other departments and agencies, notably DoD,
Conunerce, CEA, and OMB.
o DoD studies the ability of US industry to meet peacetime
and potential wartime requirements for weapons, military
manpower, etc. Different parts of DoD work on the issue
from different perspectives, including Defense Research
and Engineering, Systems Analysis, and Policy. Estimates
of industrial requirements are becoming more detailed and
sophisticated, but do not provide much
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information on imports. Occasional special studies
provide specific insights on potential mobilization
problems, but these are sporadic and limited.
o The Department of Commerce has a program under Lionel
Olmer to assess the capabilities of 40 critical industries
to meet military requirements. Apart from a special
machine tool study, the program is just getting under
way. The unit responsible for it has three analysts, and
their ability to task the experts in Commerce, FEMA, and
DoD, and to collect new information from the private
sector, is uncertain. Moreover, I understand that DoD and
FEMA are studying some of the same industries separately.
5. These efforts not only are inadequate, but also are poorly
coordinated with each other. There is no lead agency with the
capability and the clout to put these bits and pieces together. In
principle, FEMA should play that role, but it appears to lack the
authority, credibility, and capability to do the job. For example, the
lead role in the current strategic stockpile study was taken from FEMA
by the NSC and OMB, but neither are staffed to do the job properly and
on a continuing basis. Although useful work is being done on specific
military requirements, on the state of and trends in key industries and
the role of imports therein, and on what kinds of war the US should be
prepared to fight, no one is putting all this together and I know of no
plans to do so.
6. Commerce's study of the machine tool industry, in response to
that industry's claim for import protection on national security grounds
(Section 232 of the Trade Expansion Act of 1962), is an example of how
inadequate data and organization can hinder the analysis of what may be
a very serious problem.
o Commerce produced what appears to be a competent study of
the characteristics and trends of the US machine tool
industry, and the growing import dependence of several
segments of that industry. In order to determine whether
these trends constituted a national security problem,
Commerce asked FEMA last year for estimates of the demand
for machine tools under conditions of a major war. FEMA
obtained a three-year war scenario from DoD, and
calculated the demand for machine tools using the
Wharton/DRI input/output table and its own estimates of
productive capacity. The analysis showed that productive
capacity for machine tools would be seriously inadequate
to accommodate the increased demand. Commerce then
drafted recommendations to give limited protection to the
industry based on these findings.
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o The analysis, however, was severely criticized by the NSC,"
OMB, and CEA not only because they disliked the
conclusions, but also because of some of the assumptions
FEMA had made. The analysis was then rerun, using the war
scenario and methodology employed in the current stockpile
study to estimate machine tool demand. I understand that
this analysis showed that there would be no problem.
o Although the matter is complex and a lot of heat is being
generated over discussions of fine points in methodology,
.the explanation of the difference seems to be basically
very simple--military expenditures projected in the new
study are about one-half of what they were in the other
one. There are other differences, but I do not believe
them to be important. Leaving aside the politics of
whether or not to base a decision to give an industry
import protection on such easily shiftable grounds, it is
obvious that any serious assessment of the issue must be
broadly based, and not heavily dependent on specific war
scenarios that individually have a low probability and
that many people believe to be wholly unrealistic. The
main point is that key actors in several agencies are
talking past each other and are ignoring the fundamental
problem--lack of a serious, integrated look at the issue.
o My own suspicion is that there would be a serious problem
of machine tool capacity if we got into a big war,
whatever the length of the war might turn out to be,
because we would be trying to raise our military
production as rapidly as possible at a very early stage of
the war, or even in a pre-war mobilization period. There
are many war scenarios that could create such a
situation. What needs to be studied is the demand for
specialized machine tools, production capacity in the
industry, the possibilities for shifting machine tools
from civilian to military purposes, and the time periods
required to increase capacity or make other adjustments.
Little of this work has been done.
7. The analytic problem is not as bad for estimates of demand for
strategic minerals because it is much more easily substitutable among
uses, and less front-loaded in a mobilization period. Nevertheless,
these estimates too are extremely scenario-dependent and the war
scenarios are of dubious usefulness at best. What is needed at a
minimum is an attempt to identify thresholds of military requirements
within the entire range of wartime possibilities. This has not been
done, nor to my knowledge, is there any plan to do so. I have been
representing you on the interagency committee dealing with the strategic
minerals problem and have provided an Intelligence Community
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contribution to the study on the security of foreign supplies of such
minerals. But as I have indicated to you before, I have always had
fundamental problems with the basic assumptions end methodology of the
study.
8. CIA's main contribution on this general issue is to assess the
past and likely future development of key foreign industr'
hi h technolo y industries. As you know, this effort, by
OGI, has been well received, especially by ommerce.
Unfortunately, it is difficult to link this work to analysis of US
mobilization problems or weapons R&D possibilities. OGI is reworking
paper will touch on some of these issues. However, the effectiveness of
the CIA effort would be greatly enhanced if it could link in to
systematic studies of both US industrial trends and mobilization
requirements.
9. US policy activity on these issues will be on hold until after
the November election. Even the stockpile study, which earlier in the
year was put on a fast track, has been shifted to a slow track, if not a
siding. Beyond November, I believe that a serious effort should be
launched to study wartime mobilization issues in a systematic,
integrated and well-focused way. This will take both money and
competent central leadership with clout. Until this is done, I fear we
will be unable to give reliable answers to the questions you and others
have raised about how serious our growing import dependence may become.
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NIC #05011-84
30 August 1984
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Executive fiegiatry
64-So f0
26 July 1984
MEh10RANDUM FOR: National. Intelligence Officer for Economics
FROM: Director of Central Intelligence
SUBJECT: Industrial Mobilization Capability
1. Lionel Olmer expressed to me the other day his great concern
about the steady impairment of our industrial mobilization capability
and his frustration that nobody in town seems to be addressing it. He
mentioned Dick Levine, working under Roger Robinson at the NSC staff,
who has some responsibility in that area, but I don't remember in h
connecti n e was mentioned. He did say tha
on his staff, is the most knowledgeable person a out the
sa state of our industrial base in mobilization terms.
2. This is something I want to look at in foreign intelligence
terms. What capabilities are being shifted offshore? What are the
motivitations? What are the implications? Pursuant to my conversation
with Lionel Olmer, DuBois has called over to say he is ready to provide
a briefing. I would like you to get in touch with him (telephone: [phone]),
receive the briefing and then tell me what role we can play in providing
information that the policymakers would need to address the problem.
William J. Casey