Century National Defense Industrial Base Revitalization Strategy

Key Chapter Title List

1. Current Policy: National Defense Industrial Strategy
2. Increasing Production Capacity
3. Implementing a Grant Program Based on Capacity Output
4. Expanding the Use of Bulk and Multi-Year Procurement
5. Implementing Full and Immediate Expensing for Capital Expenditures
6. Allowing Defense Industrial Base Producers to Fully Expense Interest Costs
7. Repealing the Davis-Bacon Act
8. Implementing Permitting Reform
9. Providing Underutilized Department of Defense Land for Industrial Use
10. Increasing the Ratio of Procurement Spending to RDT&E Spending in the Budget
11. Increasing Foreign Military Sales through International Traffic in Arms Regulations Reform
12. Enhancing Innovation

Document Introduction

This report, released by The Heritage Foundation in April 2025, aims to address the severe challenges currently facing the U.S. defense industrial base. The report points out that the production capacity of the U.S. defense industrial base has severely atrophied, unable to meet its own peacetime needs, let alone cope with potential conflicts with near-peer adversaries like China and Russia. Compared to the glory of the "Arsenal of Democracy" during World War II, the annual production of key weapon systems today is extremely low; for example, the maximum annual production capacity for the F-35 fighter jet is only about 150 aircraft. This degradation stems from policies and processes that create uncertainty for industry, drive up costs, dampen investment incentives, shrink the labor pool, hinder innovation, and weaken supply chains.

The report systematically proposes a set of revitalization strategies, centered around three core pillars: increasing production capacity, encouraging innovation, and ensuring supply chain security. Regarding increasing capacity, the report advocates for policy reforms to create stable, predictable demand signals and reduce production and investment costs. Specific policy recommendations include: establishing a targeted grant program based on capacity goals to smooth procurement cycle fluctuations and ensure the maintenance of idle capacity needed for wartime; promoting bulk procurement and multi-year contracts to reduce uncertainty and achieve economies of scale; implementing permanent, full, and immediate tax expensing for capital expenditures and interest costs to eliminate double taxation on capital formation; repealing the labor-market-distorting Davis-Bacon Act; reforming lengthy federal permitting processes; providing underutilized Department of Defense land to industry on favorable terms; adjusting the defense budget structure to increase procurement spending relative to R&D spending; and reforming the International Traffic in Arms Regulations to simplify weapons export processes to key allies, thereby expanding foreign military sales and creating additional demand.

The report specifically analyzes pathways to expand the relevant labor pool through education policy. Suggestions include: decoupling federal education funding from the current accreditation system, allowing students to use federal funds for more flexible vocational skills training; allowing the use of 529 college savings plans to pay for professional certificates and apprenticeship programs; expanding Pell Grant coverage to vocational and technical training programs; reinstating the canceled "Industry-Recognized Apprenticeship Program" model; encouraging state schools to adopt funding models based on graduate employment outcomes; and improving the "SkillBridge" program to facilitate the transition of service members into the defense industrial sector.

Regarding encouraging innovation, the report identifies the prevailing cost-plus contracting system as a major obstacle, as it discourages contractors from controlling costs and innovating in manufacturing processes. The report advocates for making fixed-price contracts the default mechanism and significantly reducing the excessive design and micromanagement requirements imposed by the Department of Defense in contracts, granting contractors greater autonomy to achieve mission objectives. Simultaneously, the report notes that excessive consolidation within the defense industrial base and high compliance costs hinder new entrants, necessitating increased competition through simplified procurement processes and a shift in the internal culture of the Department of Defense.

The core of ensuring supply chain security lies in reducing dependence on adversary nations, particularly China, for critical components and minerals. The report emphasizes the need to strengthen the focus on sourcing key components and minerals domestically or from friendly nations ("friend-shoring") and to increase the utilization of dual-use technologies. Leveraging dual-use technologies can rapidly enhance defense production capacity, reduce reliance on single suppliers, and strengthen supply chain resilience.

Finally, the report acknowledges that revitalizing the U.S. defense industrial base will take time and therefore proposes international cooperative production as a transitional measure. Key focuses include strengthening cooperative production with Indo-Pacific allies like Japan, South Korea, and Australia in areas such as precision-guided munitions; expanding joint development and production with European allies in areas like air defense missiles; deepening cooperation with Finland and Canada in the field of icebreakers; and continuing joint development with Israel on missile defense systems. These measures can address critical capability gaps in the short term and enhance interoperability among allies.

The report's conclusion warns that the decline of the U.S. defense industrial base poses a direct threat to the very foundation of national security. Policymakers, the Department of Defense, and industry must act immediately to implement comprehensive policies aimed at increasing capital inflow, reducing production costs, expanding the labor pool, stabilizing demand signals, reforming procurement models, and strengthening supply chains, or they will face irreversible security risks.