US Struggles to Counter China’s Industrial Push in Indo-Pacific

TRADEPOINT ATLANTIC, MARYLAND, INDO-PACIFIC, 13 OCTOBER 2026 —

The United States has spent years warning about China’s growing military power.

In a prolonged conflict, that difference could become as important as the capabilities of the weapons themselves. The United States would need to replace damaged equipment, replenish munitions, repair ships and aircraft, and keep production running under wartime conditions. Its allies in the Indo-Pacific would face similar demands. Washington is increasingly aware of the problem and is trying to bring new companies, private investment, and manufacturing methods into the defense sector.

The Navy’s recently announced Arsenal-2 project with Anduril Industries is one example. Announced October 6, Arsenal-2 is a planned $6.6 billion manufacturing facility at Tradepoint Atlantic in Maryland. Anduril plans to invest $3.7 billion of private capital, while the Navy could provide up to $2.9 billion. The facility is intended to manufacture components and large assemblies for Virginia-class submarines, initially including torpedo tubes and potentially expanding to larger sections of the boats.

The project addresses a genuine weakness in the American defense-industrial base: the Navy needs more production capacity, particularly as it tries to expand the submarine fleet. The difficulty is that Arsenal-2 will not be operational tomorrow. Initial operations are not expected until 2030, and the manufacturing methods that will underpin the facility still have to be developed and validated.

Anduril will have to establish the workforce, suppliers, quality systems, and production processes needed to meet the demanding requirements of the submarine industry. That raises a broader question for Washington as it tries to rebuild the defense-industrial base: how quickly can the United States create industrial capacity that can actually be relied upon in times of crisis? The question is particularly important in the Indo-Pacific.

A conflict with China would place enormous demands on American production while US forces were operating thousands of miles from the continental United States. Ships would require repairs, missiles and drones would need to be replaced, and munitions stocks would have to be replenished. The United States would also be relying on its allies.

Japan, Australia, South Korea, the Philippines, and other partners are increasing their defense capabilities, but American credibility in the region depends partly on whether Washington can continue supplying and supporting those forces during a prolonged crisis. A military that can deploy advanced systems but cannot replace them at the required rate has a very different deterrent value from one that can sustain production. China's advantage is not limited to the size of its military.

Its civilian manufacturing base supports military production in ways that are difficult for the United States to replicate quickly. China is already a major producer of ships, electronics, machinery, industrial components, and many of the materials and products that underpin modern manufacturing. The United States, by contrast, is trying to rebuild capacity that has contracted over decades.

This is why the defense-industrial debate should be viewed as part of the broader strategic competition with Beijing rather than simply as a question of Pentagon procurement. That effort will require private capital and new companies capable of challenging established defense contractors. It will also require the government to create sufficient and predictable demand for companies to invest in factories, equipment, workers, and supply chains.

The traditional defense industry cannot simply be expected to expand on its own after years of consolidation. At the same time, Washington cannot assume that every new company or manufacturing concept will succeed merely because it offers a different approach. The Pentagon has considerable experience with the consequences of moving production ahead of development and testing. The F-35 is the most prominent example, while the Littoral Combat Ship provides another.

The issue is not that these programs were necessarily wrong to pursue, but that the government has repeatedly faced substantial costs when production proceeds before key technologies and capabilities have been sufficiently demonstrated. A 2013 GAO review found that the F-35’s concurrent acquisition strategy had led to substantial rework costs as deficiencies were discovered in testing. A later GAO review found continuing delivery delays and recommended that the program better align incentives with production outcomes.

The LCS program likewise faced significant operational and testing problems, including delays in developing mission modules. Arsenal-2 presents a related question at the industrial level. The United States is investing in a new production facility while the manufacturing processes behind it are still being developed and validated. That does not mean Arsenal-2 should be delayed or that Anduril should not receive the opportunity to build it.

The more useful question is how Washington structures the relationship. What production targets will the Navy require? How quickly must the facility reach them? Who will independently verify performance? What happens if production falls short? And can procurement shift toward other suppliers if a new approach does not deliver?

Those are basic questions for any major defense investment, particularly when the United States is trying to rebuild capacity under pressure from a much larger industrial competitor. There is a strong argument for taking risks on new defense companies. The existing defense-industrial base has its own shortcomings, and established contractors have not always been able to deliver new capabilities quickly or at the required scale.

Private investors should be able to back companies they believe can change that, and Washington should encourage competition rather than protecting incumbents. But government support should not become a substitute for performance. Companies should have the opportunity to demonstrate that they can deliver, and successful performance should lead to greater opportunities. If a project fails to meet its targets, the government needs to retain the ability to limit further exposure and turn to alternatives.

There are precedents for Washington taking early risks on companies that had not yet demonstrated their full capabilities.

Related: Anduril Industries