A TENUOUS, SOBERING SITUATION: Wrapping up a two-day summit in Vancouver, Canada, Secretary of State Rex Tillerson warned North Korea, “We will never accept them as a nuclear power. And so it’s time to talk.” Tillerson, speaking at a news conference alongside his Canadian counterpart Chrystia Freeland, warned that despite the recent talks between the North and South, the situation has reached “a very tenuous stage.”

“We have to recognize that that threat is growing,” Tillerson said. “And if North Korea is not — does not choose the pathway of engagement, discussion, negotiation, then they themselves will trigger an option.” In remarks at the opening of the 20-nation summit, Tillerson rejected what many have argued would be a first step in bringing North Korea to the table: An offer to curtail U.S.-South Korean military exercises in return for a moratorium on nuclear and ballistic missile tests. “Let me be clear: We will not allow North Korea to drive a wedge through our resolve or our solidarity. We reject a ‘freeze-for-freeze’ approach in which legitimate defensive military exercises are placed on the same level of equivalency as the DPRK’s unlawful actions,” Tillerson said. He insisted the U.S.-led pressure campaign “will continue until North Korea takes decisive steps to denuclearize. This is a strategy that has and will require patience.”

MATTIS SAYS ‘THERE ARE OPTIONS’: Defense Secretary Jim Mattis said his role at the Vancouver conference was to lay out the military situation in stark terms, running down the options and then stepping back to let the diplomats do the important work of finding a peaceful alternative. “I gave them basically, the military situation and the military options, then they go to work, trying to solve this diplomatically,” Mattis told reporters traveling with him yesterday.

Monday, en route to Vancouver, Mattis called the situation “sobering,” and said his goal was to ensure that diplomatic pressure was backed by a credible threat of military force. “There are military options,” Mattis said, but described the options as designed to strengthen the diplomats' hands. “That is what we want to have come out of this, let the diplomats know that they are backed up by the force of arms,” Mattis said.

MULLEN OVER THE SITUATION: Former Joint Chiefs Chairman retired Adm. Mike Mullen, who has been notably pessimistic about the chances of stumbling into war, is cautioning against reading too much into the recent North-South talks. “I don't have any objection to the North and the South talking right now,” Mullen told the PBS NewsHour last night. “I think we shouldn't be too exuberant in terms of potential outcomes, but it is a place to start.” Mullen says so far North Korean leader Kim Jong Un has not taken any steps back from the brink. “He clearly hasn't done that,” Mullen said. “I think we have got a long way to go.”

DUCKWORTH’S TAKE: Democratic Sen. Tammy Duckworth, a combat veteran, has just returned from the region with a renewed appreciation of how deadly and destructive renewed hostilities with North Korea would be. “After visiting South Korea and Japan and meeting with many diplomats, military leaders and servicemembers, it is clear that the costs of war in the Korean Peninsula would be catastrophic and claim countless military and civilian lives,” Duckworth said in a statement. “While I am encouraged by North Korea’s return to the negotiating table, we will not compromise on denuclearization.” Duckworth will be giving a speech tomorrow night at Georgetown University to share her takeaways from her trip.

McSECRET MEETING: National security adviser Lt. Gen. H.R. McMaster reportedly spent the weekend in San Francisco attending secret meetings about North Korea. McMaster is said to have met with officials from South Korea, as well as Shotaro Yachi, director of the Japanese national security council, Axios reported Tuesday. The national security adviser was on the West Coast on Saturday and Sunday.

Good Wednesday morning and welcome to Jamie McIntyre’s Daily on Defense, compiled by Washington Examiner National Security Senior Writer Jamie McIntyre ( @jamiejmcintyre), National Security Writer Travis J. Tritten ( @travis_tritten) and Senior Editor David Brown ( @dave_brown24). Email us here for tips, suggestions, calendar items and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email and we’ll add you to our list. And be sure to follow us on Twitter @dailyondefense.

HAPPENING TODAY: With Turkey threatening to attack Kurdish forces in the border region of northwestern Syria, Tillerson is scheduled to deliver remarks on “the way forward for the United States regarding Syria” at the Hoover Institution in Stanford, Calif., at 2:30 p.m. EST. Tillerson’s speech will be live-streamed at www.state.gov.

At yesterday's State Department briefing, spokeswoman Heather Nauert skirted questions on Turkey’s intentions. “Turkey is a very important and valued NATO ally. We have a lot of interactions with the Turkish government,” Nauert said. “In terms of what is going on in Syria, the United States is in Syria to defeat ISIS. Any activities that we take part in with regard to the Syrian Democratic Forces is something that's internal only — internal only to Syria.”

GRAHAM VISITS AEI: This morning at 8:30, Sen. Lindsey Graham will be at the American Enterprise Institute to talk about national security in 2018. The hawkish Senate Armed Services member has a wide selection of threats to choose from but his office said the talk is expected to focus heavily on North Korea and its pursuit of long-range nuclear weapons.

CR VOTE SET FOR TOMORROW: With no deal on DACA and a Friday deadline looming, the House plans to vote tomorrow on a measure to temporarily extend government funding until Feb. 16 and to also reauthorize the Children's Health Insurance Program for six years.

The legislation, at this point, does not include immigration reform language or a provision to protect so-called "Dreamers" from being deported, but it does have a few "sweeteners" aimed at drawing in GOP and Democratic votes, such as more money for missile defense.

The measure is unlikely to win much Democratic support, and Republicans need 218 votes to pass the continuing resolution without the minority party. It then goes to the Senate where Democrats can block it under Senate rules.

So far Democrats are giving no ground in their demand for a DACA deal to prevent a costly and disruptive government shutdown. “A very fair, bipartisan deal remains on the table. It's the only game in town,” said Senate Minority Leader Chuck Schumer, on the floor yesterday. “We're making steady progress on building additional support in both houses of Congress. There's a deal to be had this week.”

But Senate Majority Leader Mitch McConnell argues on the floor there’s a reason the debate can’t be extended a few weeks. “With no imminent deadline on immigration and with bipartisan talks well underway, there is no reason why Congress should hold government funding hostage over the issue of illegal immigration,” he said.

THE BIG ISSUE REMAINS THE CAPS: “My hope is that House and Senate Leadership and the White House can reach consensus quickly on a budget agreement, so that essential appropriations work on all 12 government funding bills can be completed,” said Rep. Rodney Frelinghuysen, the House Appropriations chairman, in a statement yesterday. “We are now four months into the 2018 Fiscal Year, and Congress must act as soon as possible to ensure that proper, year-long funding for our national defense and other critical federal programs is enacted.”

HEDGING ON A CR: During a breakfast with defense reporters on yesterday morning, House Armed Services Chairman Rep. Mac Thornberry would not say whether he’ll support — or advise his committee members to support — another stopgap budget measure. “We’ll see what the situation is,” he said. Thornberry also played down any so-called anomalies, or added funding in a CR, for the Pentagon. “One of the points I’ve tried to make to all my colleagues is there is no number of ‘anomalies’ that can fix the damage that a CR causes. You just can’t do it,” Thornberry said. “So, the idea that you could just give us a little of this and a little of that and the CR wouldn’t be so bad is blatantly not true.” A stopgap measure last month doled out $4.7 billion to the military for ship repairs and missile defense.

THORNBERRY RIPS DEMS OVER BUDGET IMPASSE: Democrats are playing political games with immigration reform and the need for increased military funding, Thornberry said. “I am increasingly concerned on the DACA deal that some people might not want to resolve the issue. They may rather have the issue out there because they think it’s to their political advantage,” the House Armed Services chairman said. Democrats are demanding new protections for about 700,000 immigrants who were covered by the expiring Deferred Action for Childhood Arrivals policy before signing off on a deal to fund the military and the rest of the federal government. “I really think a full agreement is very possible and it is very possible in a short amount of time,” Thornberry said. “The question is, do people want an agreement or do they want to have an issue?”

The chairman said he was willing to make concessions to reach a deal on lifting defense spending caps for 2018. “Personally, I would do just about anything to fix this problem including vote for things that I might not support otherwise,” Thornberry said. Without a deal, the caps would lop off about $54 billion from Trump’s proposed defense spending and about $85 billion from the defense spending outlined in National Defense Authorization Act, which was signed into law last month.

The chairman spoke with reporters for over an hour Tuesday. Here is a roundup of the other issues he touched on:

Hawaii missile alert: The U.S. must face the possibility of a real strike following a false and harrowing alert on the island over the weekend. “It is not far-fetched that one of those missiles may be headed towards not only Hawaii but the mainland somewhere,” he said. “We need to be serious about, not panicking, but serious about that possibility.”

Low-yield nuclear weapons: Thornberry said Armed Services will be “deep in the weeds” examining U.S. nuclear weapons and delivery systems after a draft of a Defense Department review pointed to development of smaller tactical nukes. “I do think it is a good idea to say, ‘OK, does this nuclear deterrent meet the needs of the nation now?’ That may include different characteristics of various kinds. I don’t know the answer, but I think we certainly ought to ask the question,” he said.

Trump’s 2019 military buildup: The Pentagon has indicated a planned buildup may be pushed until 2020. “Of course it’s ridiculous to wait, while we are waiting sailors are dying,” Thornberry said, referring to recent Navy collisions at sea. “My hope is there can be a two-year, at least, budget cap deal that … if it’s good will have the number set for the next couple years.”

Foreign arms sales: Reports indicate the Trump administration wants to ease restrictions on the sales. “Ever since I’ve been chairman, I have had a steady stream of officials from our closest allies who complain about our bureaucratic, slow, difficult system for arms sales or other types of security assistance,” he said. “There will be a proposed sale that just hangs out there for months if not years and that is no way to treat an ally.”

FY19 NDAA preview: “We will not rebuild in a single year even with a really good cap deal, there will be more rebuilding to do,” Thornberry said. The committee will also “shine a light on some of the ways warfare is changing.”

BITCOIN’S DARK SIDE: The surging value of bitcoin cryptocurrency is not just attracting business start-ups and investors. It's also drawing the attention of terrorists and U.S. geopolitical rivals, according to analysts. “There are clear cases of designated terrorist groups trying to raise money through bitcoin” said Yaya Fanusie, the director of analysis for the Center on Sanctions and Illicit Finance at the Foundation for Defense of Democracies. Terror groups see a fundraising opportunity with the decentralized digital currency because it is used outside the traditional global banking system.

An embrace by nations such as Russia and Venezuela could be a long-term play to blunt the effects of international sanctions, Fanusie said Tuesday during a panel at the foundation in Washington, D.C. “There is an intent there that I think is being telegraphed, where the aim is not to evade sanctions tomorrow but to create a system so where there are sanctions … that the actors who are designated are resistant to it because they have an alternative means,” Fanusie said.

Meanwhile, Americans — and the U.S. regulatory and national security system — have been slow to react to the rise of the new currency. “I am severely concerned about the U.S. angle on this,” said Jamie Smith, the global chief communications officer at the Bitfury Group who served in the White House during the Obama administration. “I think we are asleep at the wheel. I think this is moving way faster than people understand … we need to learn really quickly and get ahead of this.”

SASC SCHEDULES FIRST HEARING: With no word of Sen. John McCain’s plans on returning to work in Washington, his Senate Armed Services Committee has scheduled its first hearing of 2018 for Thursday. The committee will be weighing Pentagon nominees including Michael Griffin, a former NASA administrator who could take on a new Pentagon post as it reorganizes its acquisition system, and Will Roper, the founding director of the Defense Department’s Strategic Capabilities Office who was picked to be the Air Force acquisition chief. McCain returned to Arizona for rehab as he battles an aggressive form of brain cancer and his staff did not immediately confirm whether the Armed Services chairman will be sitting out the hearing.

CRIMINAL NEGLIGENCE IN NAVY COLLISIONS: Two Navy commanders face military criminal charges after two U.S. destroyers collided with merchant ships in separate incidents last year, taking the lives of 17 sailors altogether.

Cmdr. Bryce Benson, former commander of the USS Fitzgerald, and Cmdr. Jessie Sanchez, former commander of the USS John S. McCain, are facing charges related to dereliction of duty, hazarding a vessel, and negligent homicide, the U.S. Navy announced Tuesday. The USS Fitzgerald collided with a merchant ship in June off the coast of Japan, taking the lives of seven sailors, and the USS John S. McCain collided with an oil tanker in August off the coast of Singapore, taking the lives of 10 sailors.

A Navy spokesman, Capt. Greg Hicks, said the charges, which also include dereliction of duty and endangering a ship, will be presented to what the military calls an Article 32 hearing to determine whether the accused are taken to trial in a court-martial., according to the AP. In a statement, Hicks said the announcement of charges is “not intended to and does not reflect a determination of guilt or innocence related to any offenses. All individuals alleged to have committed misconduct are entitled to a presumption of innocence.”

Meanwhile, Vice Adm. Thomas Rowden, head of Naval Surface Forces, is expected to retire this week, rather than two or three weeks from now as had been announced, Defense News reported. Adm. James Caldwell had recommended his ouster as part of a report on the collisions and the steps the Navy needs to take to prevent them.

TRANSGENDER APPLICANTS: Eight transgender people have applied to serve in the U.S. Air Force, USA Today reported yesterday. The transgender volunteers are the first known to have filled out paperwork to join the Air Force since Jan. 1.

However, the Air Force says more transgender people may have spoken to recruiters. “It’s important to recognize that the eight includes applicants who filled out some kind of paperwork at their respective recruiting stations, not necessarily all transgender applicants who have called or walked into recruiting stations, or inquired about joining the service,” said Capt. Kathleen Atanasoff, a spokeswoman for the Air Force.

FROZEN AIDE: The State Department has confirmed that President Trump has decided to freeze $65 million in aid to a United Nations agency that provides support to the Palestinian people. “It’s not being canceled, it’s just being held for future consideration,” Nauert told reporters yesterday. The Trump administration informed the United Nations Relief and Works Agency that the U.S. government will still give $60 million in aid, the first installment in a funding pattern that totaled $355 million in 2017.

VITAL SIGNS: The commander in chief passed his physical and aced his screen test for any signs of cognitive decline, according to the official White House physician. “Vitals as follows. Age 71 years and seven months at time of the exam. Height 75 inches. Weight 239 pounds. Resting heart rate 68. Blood pressure 122/74. Pulse oximetry 99 percent on room air. Temperature was 98.4,” said Rear Adm. Ronny Jackson. “The president's uncorrected visual acuity is 20/30 bilaterally, with corrected visual acuity of 20/20 bilaterally.

“All clinical data indicates that the president is currently very healthy, and that he will remain so for the duration of his presidency,” said Jackson, who said Trump could stand to lose 10-15 pounds. “We talked about diet and exercise a lot. He's more enthusiastic about the diet part than the exercise part, but we're going to do both.”

Jackson said the cognitive assessment was only done because the president requested it. “I had no intention of including a cognitive assessment in this exam, because to be honest with you, per all the guidelines that are out there, it just — it's not indicated at this time,” he said. “The fact that the president got 30 out of 30 on that exam, I think that, you know, there is no indication whatsoever that he has any cognitive issues.”

THE RUNDOWN

Washington Post: A new U.S. air blitz in Afghanistan isn’t stopping for winter. But will it stop the Taliban?

Roll Call: Podcast: Inching Toward a Spending Spree

Stars and Stripes: Afghan province awards Trump bravery medal after tough talk on Pakistan

Reuters: Ex-CIA officer arrested for retaining classified information

Defense News: Dunford: another CR could force bad decisions

Washington Post : In a rarity, the Air Force temporarily deploys three kinds of bombers to the Pacific

Politico: How Mattis softened on Iran — for now

DoD Buzz: Coast Guard Eyes Leasing Civilian Jail Ship to Hold Detainees

War on the Rocks: Why Americans Aren’t Really Worried About War With North Korea

USA Today: Japanese TV sends false alarm over North Korea missile launch

New York Times: The President, the Strongman, and the Next U.S. Headache in Afghanistan

Wall Street Journal: U.S. Plans New Nuclear Weapons

Foreign Policy: Trump Doesn’t Believe in His Own Foreign Policy. Does That Matter?

Calendar

WEDNESDAY | JAN. 17

6:30 a.m. AUSA Institute of Land Warfare breakfast with Gen. Mark Milley, Army chief of staff. ausa.org

6:45 a.m. 1800 Jefferson Davis Hwy. Special Topic Breakfast with Gloria Valdez, deputy assistant secretary of the Navy for ship programs. navyleague.org

8:30 a.m. 1789 Massachusetts Ave. NW. Congress and the 2018 national security landscape: A conversation with Sen. Lindsey Graham. aei.org

9:30 a.m. Press Briefing: Previewing the Upcoming National Defense Strategy. csis.org

9:30 a.m. 1211 Connecticut Ave. NW. Getting Ahead of the Threat Curve: Duty of Care and Organizational Accountability for Nuclear Security with Michael Chertoff, former Homeland Security secretary. stimson.org

10 a.m. Rayburn 2154. Battlefield successes and challenges with recent efforts to win the war against ISIS. oversight.house.gov

11:30 a.m. Hart 216. Open Hearing on the Nomination of Michael Atkinson to be Inspector General of the Intelligence Community and Jason Klitenic to be General Counsel of the Office of the Director of National Intelligence. intelligence.senate.gov

12 p.m. 214 Massachusetts Ave. NE. Bully of Asia: Why China’s Dream Is the New Threat to World Order. heritage.org

2 p.m. Rayburn 2172. Joint Subcommittee Hearing. More Than a Nuclear Threat: North Korea’s Chemical, Biological, and Conventional Weapons. foreignaffairs.house.gov

2 p.m. 1030 15th St. NW. NATO's maritime frontier and a view from its maritime command with Vice Adm. Clive Johnstone, Royal Navy commander Allied Maritime Command. atlanticcouncil.org

THURSDAY | JAN. 18

7:30 a.m. 300 First St. SE. AFA Breakfast Series with Matt Donovan, undersecretary of the Air Force. michelleaerospacepower.org

8 a.m. 2121 Crystal Dr. Electronics Division Meeting. ndia.org

8:45 a.m. 1616 Rhode Island Ave. NW. Defending Defense: A Conversation with House Speaker Paul Ryan on Military Readiness. csis.org

9:30 a.m. Dirksen G-50. Nominations hearing for Michael Griffin, to be undersecretary of defense for research and engineering; Phyllis Bayer, to be assistant secretary of the Navy for installations, energy and the environment; John Henderson, to be assistant secretary of the Air Force for installations, environment and energy; and Will Roper, to be assistant secretary of the Air Force for acquisition. armed-services.senate.gov

10 a.m. 1225 I St. NW. Citizen Soldiers or Warrior Caste: Who Will Serve in America’s Future Military? A discussion with Air Force Secretary Heather Wilson; Amber Smith, deputy assistant to the secretary of defense for outreach; and others. bipartisanpolicy.org

11 a.m. 214 Massachusetts Ave NE. Crashback: The Power Clash Between the U.S. and China in the Pacific. heritage.org

12 p.m. 444 North Capitol St. Press briefing and launch of the National Commission on Military, National and Public Service.

12 p.m. 1800 M St. NW. Atilla, Zarrab, and U.S.-Turkish Relations. defenddemocracy.org

12:30 p.m. 2101 Constitution Ave. NW. Air Force Science and Technology Engagement Summit with Air Force Secretary Heather Wilson. nationalacademies.org

3:30 p.m. Rayburn 2118. Surface warfare at a crossroads with Navy Secretary Richard Spencer and Adm. John Richardson, chief of naval operations. armedservices.house.gov

5 p.m. 214 Massachusetts Ave NE. The Importance of the U.S. Nuclear Deterrent. heritage.org

FRIDAY | JAN. 19

9 a.m. 1030 15th St. NW. Iran Looks East conference. atlanticcouncil.org

12:15 p.m. 740 15th St. NW. The Syrian Opposition in 2018 with Osama Abu Zayd, spokesman for the Free Syrian Army, and moderator Peter Bergen, director of the International Security Program at New America. newamerica.org

MONDAY | JAN. 22

10 a.m. 1616 Rhode Island Ave. NW. Charting a New Course for the Defense Industrial Base. csis.org

4:30 p.m. 1201 Pennsylvania Ave. NW. Book discussion of “1917: Lenin, Wilson, and the Birth of the New World Disorder” with author Arthur Herman. hudson.org

TUESDAY | JAN. 23

11 a.m. Livestream only: Intelligence beyond 2018: A conversation with CIA Director Mike Pompeo. aei.org

12 p.m. 1201 Pennsylvania Ave. NW. Turkey, the Kurds, and the Struggle for Order in the Middle East. hudson.org

12:30 p.m. 1777 F St. NW. Foreign Affairs Issue Launch with Former Vice President Joe Biden. cfr.org

WEDNESDAY | JAN. 24

2:30 p.m. 1201 Pennsylvania Ave. NW. U.S. Responses to the North Korean Threat: A Conversation with Sen. Ted Cruz. hudson.org

5:30 p.m. 1667 K St. NW. Book Talk “American Grand Strategy in the Age of Trump” with author Hal Brands. csbaonline.org