During a Senate Armed Services Committee hearing last week, Sen. Ted Budd (R-NC) questioned Michael P. Cadenazzi Jr., nominee to be Assistant Secretary of Defense for Industrial Base Policy, about foreign investment in the U.S. defense industrial base.
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00:00Senator Budd. Thank you, Chairman. Thank you both for being here. Thanks to your families as well
00:04for your long service and your willing to continue in service in these unique and important roles.
00:11Mr. Cadnazzi, and we'll just go with sir, right, for you, right, since we've had all the challenges
00:17of pronunciation. On April 4th of this year, China's Ministry of Commerce, they imposed
00:24export restrictions on seven rare earth elements and magnets. So giving our ongoing heavy reliance
00:30on China for many of these rare earths, there's an increasingly unacceptable level of risk to our
00:37ability to produce everything from planes to munitions. The United States should have created
00:43a rare earth supply chain independent of China a decade ago. Companies like Vulcan Elements, which
00:49is a rare earth magnet manufacturer that's fully decoupled from China and is based in North
00:54Carolina. They're attempting to do just that, but efforts need to accelerate and accelerate
01:00at scale. So in your advanced policy questions, you discussed your intent to leverage the DPA
01:07or the Defense Production Act, as well as the Industrial Base Analysis and Sustainment or the
01:12IBAS to support private sector investment in our defense industrial base. So if you're
01:19confirmed, how will you leverage these authorities to end our reliance on China for rare earths?
01:25Senator, this is a critical opportunity for the country to go ahead and increase its ability
01:31to develop domestic resources and decrease our reliance on China within the industrial base.
01:37If confirmed, I'm eager to work with this committee with you on the issues associated with the application
01:42of DPA and IBAS as direct opportunities to increase our investment into the domestic mineral production
01:48chain. I believe DPA and IBAS collectively invested over $540 million into these resource developments
01:55ever so the past few years. We can continue that, we should. There are other additional capabilities
02:00we should explore, partnership with allies to go ahead and secure additional resources and
02:05increase production capabilities, recycling. There's numerous strategies which are available
02:09to us to go ahead and take advantage of this time in this window where there's some sense
02:13of urgency about it. Before we lose that sense of urgency I believe we need to make real initiatives
02:18and real effort to go ahead and close the gap. So if confirmed, Senator, it's an exciting opportunity
02:22and time for us to help on that. Thank you for that answer. So if confirmed, will you commit
02:27to working with not only this committee but also the banking committee to make improvements
02:31to the DPA? Absolutely, Senator. Thank you. The Committee on Foreign Investment in the U.S.,
02:37or Civius is also primarily within the banking jurisdiction but the Department of Defense and
02:43the Industrial Based Policy Office in particular play an important role in reviews conducted by the
02:47committee. I frequently hear folks from North Carolina including those that are military installations
02:52in North Carolina with concerns about foreign investments specifically from China near military
02:58installations. So do you see a need for the DOD to improve engagement on the topic of foreign investment
03:04risk to national security? Senator, thank you for the question. This is a critical topic and one that's
03:10at the top of the list for the Industrial Based Policy Office currently. The Civius Office, the
03:15Associated Authorities around identification of adversarial capital and adversarial companies,
03:21Chinese companies, working in the defense industrial base is a top priority for the office.
03:26All those issues around purchasing of land and those sort of things around military installations.
03:31This is something that I think requires additional resourcing to look at. I believe that those
03:35issues are understaffed relative to the demand to look at all the transactions that are potentially
03:40high risk. If confirmed, I'm eager to work with you and the committee to understand the other committees
03:44to understand what can be done to bring additional scrutiny to bear on this topic and what we can do to
03:49resource the analysis that's required. Thank you. You mentioned additional resources. I think that's important. Do you see
03:54bottlenecks of the DOD's engagement on this issue? Senator, I'm not aware of any particular bottlenecks
04:01that currently exist. I'm aware that there's a significant number of transactions that have been
04:06looked at and there is a belief generally that there's a need for more. However, I can't comment
04:11specifically on what the scale of that gap is and if confirmed, I'm eager to understand and work with
04:15you to understand what is additional resources would be required to close any gap relative to
04:20the risk exposure we're willing to tolerate. Thank you for that. Admiral, a question, this is different
04:26than SMRs which are often talked about, but what are your views on using modular micro reactors as an
04:32expeditionary power source and how do you balance their adoption with security and the concern about
04:38proliferation? Thank you, Senator. If confirmed, obviously there's significant potential with
04:46micro reactors and what we could do with those either in civilian or military application. Certainly,
04:50if confirmed, I will work with the NNSA Administrator and the Secretary of Energy to make sure that we are,
04:55you know, properly monitoring and overseeing what we would do with those micro reactors to make sure
04:59we don't have a non-proliferation condition. Thank you both for your time, Chairman.