Nearly one in 10 ‘Tier 1’ subcontractors to defense primes are Chinese firms: Report

A worker in a factory working on a traditional milling machine (Getty images)

WASHINGTON — Despite a bipartisan push to disentangle the US economy from China, the military-industrial base still relies heavily on Chinese suppliers, a new study from analysis software firm Govini warns. And, the company’s leader says, that’s not the only weak link.

“Defense supply chains today are incredibly brittle. They’re not resilient. They’re very, very intricately tied to foreign suppliers,” Govini CEO Tara Murphy Dougherty told reporters Thursday. “We try to quantify that.”

Bottom line up front, Western defense firms have struggled just to meet the intense surge of demand from years of large-scale combat in Ukraine. A war with China would be much worse — and Dougherty doesn’t think that US defense production, stockpiles and supply chains are up to the task.

“The data is unequivocal: The United States is not prepared for the war that we may have to enter if China said, ‘today is the day,’” she said. “It’s not that I think we would automatically lose — by no means do I think that’s the case — but I do not believe that the industrial base is prepared to support the material demands of the Department of Defense.”

Drawing on its proprietary database of Defense Department spending and using its flagship analytics toolkit, Ark, Govini recently published its annual “National Security Scorecard.” The study looks at the previous year’s data on not only DoD’s prime contractors — which, Dougherty notes, remain a small and exclusive group despite ambitious startups like Anduril and Palantir knocking on the door — but also on their principal subcontractors, known as “Tier 1 suppliers.”

Chinese firms make up over 9% of the major subcontractors (“Tier 1 Suppliers”) on Defense Department contracts. (Breaking Defense analysis of Govini data)

This year Govini breaks out the data into nine critical missions, ranging from aviation to missile defense to the nuclear arsenal. In each of those nine areas, the majority of Tier 1 suppliers are foreign firms, and no country is home to more Tier 1 suppliers than China.

The exact percentage of Chinese suppliers varies somewhat from sector to sector. In the 2024 figures used for this report, nuclear deterrent modernization — highly sensitive even by Pentagon standards — is the area most dominated by domestic firms. Forty-five percent of Tier 1 nuclear suppliers are US-based; almost 30 percent are from various allied nations, led by Great Britain (5 percent of suppliers) and Japan (3 percent); 17 percent are from neutral or non-aligned nations, led by India (4 percent); and a relatively modest 9 percent are from “adversarial” nations, almost all of those being from China (just under 8 percent).

Every other mission area has a higher percentage of Chinese firms among its Tier 1 suppliers, ranging from 8 percent for space to 11.1 percent in missile defense. While Govini doesn’t provide an overall figure for the Defense Department supply base as a whole, Breaking Defense’s analysis of the numbers in the report suggest that, summing up all nine mission areas together, 9.3 percent of Tier One suppliers are Chinese firms. One percent of suppliers come from other adversarial nations like Russia, 17.9 percent are neutral (principally Indian), 35.1 percent from allied nations, and 36.7 percent US-are based.

China will probably always play some role in the Pentagon’s supply chain, Dougherty said.

“I’m not even sure that eradicating China from the supply chain is the right goal,” she said. “I think it’s about dissecting these platforms into what’s critical and what’s not” — a far more complex and detailed analysis than this particular study undertakes.

Depending on the specific mission area, Chinese firms make up 7.8% to 11.1% of the major subcontractors (“Tier 1 Suppliers”) on Defense Department contracts. (Breaking Defense analysis of Govini data; “C4I” stands for “Command, Control, Communications, Computers, & Intelligence”).

The Govini report emphasizes dependency on China in other ways as well. For example, for each mission area, it counts how many weapons systems depend on various critical minerals that are mostly mined in China, and it looks at the relative numbers of US versus Chinese patents issued in that area. But it goes into a host of other industrial base ailments as well.

For example, Dougherty noted, the same elite group of prime contractors get the lion’s share in each of the nine mission areas. “We are very, very reliant on a small number of companies at the prime level,” she said.

“We are talking in this space so much about new entrants and challenging defense primes and all of that, [but] the reality is that vendor concentration in the defense market is incredibly high, and essentially your top 10 companies in defense still carry the day,” she said.

While some start-ups have scored high-profile wins, such as Anduril being picked as a finalist for the unmanned Cooperative Combat Aircraft competition, those are largely R&D awards or demonstrations, Dougherty said, not major prime contracts.

Conversely, below the big primes is a large number of small suppliers, many of which are in a vulnerable position, Dougherty said. In all too many cases, a critical part is made by a single small shop with obsolete technology, an aging workforce, and wafer-thin profit margins.

So, in one of their more complex and arcane analyses, Govini assessed various risk factors for spare parts, from potential inability to restock reliance on foreign suppliers.

All told, Dougherty said, “roughly half the parts have at least one major risk factor.” And since a complex military “platform” like a warship, aircraft, or ground combat vehicle has hundreds or thousands of parts, it’s almost certain that any given platform has multiple such at-risk parts.