Many government controls on the digital economy are justified by national security claims. Too often, these controls are motivated not by sound cybersecurity principles, but by an archaic economic nationalism. The prevailing idea in the U.S. Defense Department, for example, seems to be that something “made in the USA” is inherently more secure than something imported, and that centralized, bureaucratic reviews of dynamic technologies will make them more secure. 

In reality, national security concerns can lead to major sacrifices of efficiency and functionality without improving real-world security. And economic nationalism often deprives the country of the best and most efficient products, undermining our objectives. These conclusions were brought home by a recent report from the Wall Street Journal about the poor performance of American-made drones in Ukraine. This report should be taken seriously as a major warning sign of a failed approach to industrial and national security policy.

A U.S. Defense Department program to subsidize and encourage start-ups in the drone market has backfired. According to the Journal, “In the first war to feature small drones prominently, …made-in-America drones tend to be expensive, glitchy and hard to repair, said drone company executives, Ukrainians on the front lines, Ukrainian government officials and former U.S. defense officials.”  

Even though China is considered an adversary, and Chinese electronics companies are deemed “untrustworthy” if not agents of the Communist Party, it turns out that an open market for Chinese-made electronics serves U.S. and Ukrainian foreign policy interests.  As the report notes, “Ukraine has found ways to get tens of thousands of drones as well as drone parts from China. The military is using off-the-shelf Chinese drones, primarily from SZ DJI Technology.” Furthermore, the Chinese drones are cheaper: “Ukrainian forces are burning through about 10,000 drones a month, which they couldn’t afford if they had to buy expensive U.S. drones.”  Will American economic nationalists complain that these lower costs come from Chinese subsidies? If China is an adversary that subordinates all its private companies to CCP objectives, as the China hawks claim, why would China be subsidizing Ukraine’s defense? As it happens, Ukraine is getting most of its effective drones from a Chinese company the U.S. has called an arm of the Chinese military and a surveillance tool for Beijing. The irony is stunning. 

And it turns out that one of the main reasons U.S. drones are not competitive or functional in combat are the supply chain constraints and software update approvals required by the U.S. Defense Department. The news report says: 

“The shortcomings of U.S. drone makers are partly the result of the U.S. government’s policy response to China. … The Defense Department has imposed strict requirements on drone manufacturers, including a ban of Chinese components, which has made it more expensive and harder to build small drones.” 

Thanks for that trustworthy supply chain, Uncle Sam. Worse, a 2020 Defense Department program to help startup companies sell drones to the U.S. military doesn’t allow drone makers to update their software without government approval. According to the sources cited in the report, “this requirement can leave the drones made according to U.S. regulations vulnerable to evolving methods of cyberattacks and electronic warfare.” This bureaucratic review process is simply not viable in a dynamic digital environment where vulnerabilities and capabilities can change frequently. 

The U.S. government has also been restricting exports of drones since 2015, rendering US producers less competitive in global markets.  

IGP has been warning about the irrationality of digital neo-mercantilism for some years. The Ukraine drone story is a complete and decisive refutation of the neo-mercantilist rationale behind digital technology restrictions. It shows how misguided economic nationalism is depriving us of products that serve our own interests, and how ham-handed attempts to impose centralized security requirements can be counterproductive. Will we learn the obvious lessons?  

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