July 4, 2011

When the Lender and Supplier Is Another Nation

Justin Katz

Now, this is a curious development:

Last year, the U.S. Navy bought 59,000 microchips for use in everything from missiles to transponders and all of them turned out to be counterfeits from China.

Wired reports the chips weren't only low-quality fakes, they had been made with a "back-door" and could have been remotely shut down at any time.

If left undiscovered the result could have rendered useless U.S. missiles and killed the signal from aircraft that tells everyone whether it's friend or foe.

I'm a free-trade kind of guy, but sometimes, you have to wonder whether we forget that nations are still independent and self-interested entities. We wouldn't send our most top-secret documents off to a Chinese plant for copying and binding, would we? (Would we?)

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I bet I can guess why this sort of thing happens. Company A submits a bid for these microchips and they make them at a factory in Davenport, Iowa and charge $15 each. Company B is owned by John Smith of Brooklyn, NY. Claims to have a great American-owned company and offers the chips for $11 each. So of course, they go with the American company for $11. Except no one thought to ask this company where their manufacturer is. Turns out it's in Craphole City, China and the guy imports them for $2 each.

I've heard that even reputable Chinese people and companies are starting to get irritated about the copies and counterfeits and absolutely no respect for IP. Sometimes, new products are copied and put out to market before even the original can get there, severely harming profitability of new ideas.

Posted by: Patrick at July 4, 2011 5:05 PM

The USA is finding out that in too many cases the price of cheap is failure. I work with tools... hand power,etc. You can get a cheap Chinese drill, vise lock pliers,etc. They look like the real deal but they just don't function and break easily. The Chinese have targeted us for failure. They'll try to undermine the country without first firing any shots. Hopefully their bullets and missiles will misfire.........oh wait....we gave them the technology and they are giving us the shaft.

Posted by: ANTHONY at July 4, 2011 6:51 PM

Patrick, I don't think there is any AMerican made preference in defense spending.

My father was in the missle guidance business, I remember him commenting that our missles couldn't fly without Taiwanese chips, earlier transistors. That was back in the 80's. Unless they have been modernized very recently, the Navy's AEGIS system missles are controlled with 1980's desk tops; Macs I think. Of course, we went to the moon in 1969, with less computer power than that.

I went to the Bristol Parade today. The Coast Guard had a float with one of their fast boats, I moticed it was powered by Honda outboards.

Posted by: Warrington Faust at July 4, 2011 7:25 PM

Patrick and Anthony, contractors cheating the military is as American as apple pie. I remember learning in grade school about the "feather merchants" weighting the feathers sold to the military in the Revolutionary period. In our Civil War (Pardon me, "War of Northern Aggression") there was a much publicized incident of contractors selling "wool blankets" to the North. They had a large cotton content. I wonder if that stuff is still taught in grade school history.

I forget the figure, but it is large, spend on watching contractors. At one time it was about 20% of the Defense Departments budget. I have personal knowledge of Naval "Compliance Officers" receiving "gratuities" from contractors. My father offered to steer me into one of those jobs. I am sure it still goes on.

To be fair, sometimes the "mil specs" in government contracts are impossibly expensive to achieve, sometimes they are just the pipe dream of a Defense Dept (prior to 1947 the "War Dept") without relation to actual needs.

Posted by: Warrington Faust at July 4, 2011 7:52 PM

What I really 'enjoy' are the hacking episodes on US interests that clearly originate from Chinese military sources and incidents like this where 'back doors' are inserted into military-destined hardware supplies. Do we directly confront the Chinese? No. We blame it on hackers or irresponsible counterfeit hardware companies. Where exactly does the line between 'friendly spying' end and 'outright espionage' begin?

I'm not calling for aggression here, but I don't think it's absurd to start 'hardening' our supply chain, we're likely only seeing the tip of the iceberg.

It's my understanding that even the PCs purchased for top people run off-the-shelf firmware, which could be riddled with backdoors. Imagine what would happen if China could eavesdrop or halt these laptops: cdn2.digitaltrends.com/wp-content/uploads/2011/05/Obama-Osama-bin-Laden-situation-room-650x433.jpg

Posted by: mangeek at July 5, 2011 7:51 AM

In the early 19th century, one of the scandals in the Royal Navy was the 'Forty Thieves'. The Thieves were forty ships, many made of such substandard wood that they were rotting on the ways before they were launched. Procurement scandals have probably been around longer than that. The scandal here is that by outsourcing design and production, we no longer have the homegrown ability to do it right even if the supplier has the best of intentions.

Posted by: chuckR at July 5, 2011 9:20 AM


RE: cdn2.digitaltrends.com/wp-content/uploads/2011/05/Obama-Osama-bin-Laden-situation-room-650x433.jpg

That is one of many political photos which are staged. As I recall, that photo was taken about 4 hours after the actual event.

It is amazing the actions taken to benefit the media. I was reading an article where it is usual, in press conferences, for the same question to be asked 3, or 4, times; by different "reporters". The idea is that each station can show their man "asking the tough questions".

Posted by: Warrington Faust at July 5, 2011 11:44 AM

I believe that the Chinese government is waging an undeclared war against us and is using every available tactic to undermine the US. It would be an appalling attitude fail if the DoD did not require domestic, or at least provably friendly and secure, sourcing of critical military equipment.

Of course, our tax policies and failure to educate the workforce, which have driven high-tech manufacturers overseas, share a lot of the blame. Making semiconductors is not a high labor component process, so the wage differential cannot be meaningful. But taxing capital investment the way we do is shooting ourselves in the foot - in this case, still figuratively but uncomfortably close to "literally."

Posted by: BobN at July 5, 2011 12:06 PM

"Patrick and Anthony, contractors cheating the military is as American as apple pie."

Warrington I'm not talking about cheating. I'm talking Chinese sabotage where the military is concerned.

Posted by: ANTHONY at July 5, 2011 6:02 PM
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