Abbey Baker, Christian Contardo and Doreen Edelman
Hypersonics — the science behind missiles that travel in excess of Mach 5 and can quickly change trajectory mid-flight — illustrate the challenges faced by U.S. companies working on emerging technologies.
Contractors engaged in these areas must be vigilant about their supply chain vulnerabilities. They also need to be aware of the regulatory risks posed by foreign investment, including review and potential intervention by the Committee on Foreign Investment in the United States (CFIUS).
Because hypersonic weapons are an emerging critical technology vital to future warfighting capabilities, nation-states are aggressively pursuing them. Several countries, including U.S. allies and competitors, are independently developing hypersonic technologies.
This competition has led some to fear a coming arms race. Notably, both China and Russia have been touting their growing hypersonic capabilities. The U.S. government worries that these countries may take advantage of “a lull in U.S. modernization” to improve their capabilities in this area, including through surreptitious means.
The international market for hypersonic technology is expected to grow at a compound annual rate of over 7 percent over the next five years.
The increase in demand for hypersonic technology components does not come only from abroad. According to a May 2020 article in Design and Development Today, as recently as 2017 the Pentagon spent about $800 million on hypersonic weapons programs, rising to $3.4 billion in 2020. The administration’s 2021 budget request seeks $3.6 billion.
While most investment in hypersonic technology is defense-related, venture capital investment has exceeded $300 million over the past five years, including support for commercial ventures.
Despite the market demand, smaller suppliers of defense technology are struggling to keep up as their supply chains are impacted by the COVID-19 pandemic and an increasingly tense U.S.-China trade war. Large industrial providers and small research-and-development operations alike have had to face stay-at-home orders, travel restrictions and delivery delays. This issue has been especially acute for hypersonics. Many of the companies involved in this technology tend to be smaller, and those conducting R&D work could be more vulnerable to the economic effects of the pandemic and trade restrictions.
The effects of the pandemic and trade conflict with China come on the heels of increasing U.S. government restrictions on the use of Chinese products, based on concerns that China could infiltrate the U.S. defense industry by embedding its technology in weapon systems. As a result, the Pentagon is increasingly focused on the origin of components used in weapons systems.
Many defense contracting supply chains are global and have deep roots in China. Defense officials have highlighted the need to ensure that foreign nations cannot cut off U.S. companies’ access to vital materials or buy their way into the defense-industrial base.
As part of this effort, agencies have increased their scrutiny of the supply chain to include even small companies developing components that could be incorporated into hypersonic technologies.