1. What is the Defense Production Act?
It’s a U.S. law enacted under President Harry Truman in 1950 to help with the Korean War. It granted broad authority to the executive branch to intervene in private industry by demanding that manufacturers give priority to military-related orders, a power still used “routinely” by the Department of Defense, according to the Congressional Research Service. Congress over the years expanded the law’s scope so that it can be used in support of critical infrastructure, homeland security, national emergencies and space programs. Under the law, the government can provide loans or waive antitrust restrictions to encourage industry cooperation, control the use of scarce resources and bar hoarding and price gouging.
2. Is the law being used to help fight the coronavirus?
Yes. Trump used his power under the law to order General Motors Co. to accept and prioritize ventilator contracts from the Department of Health and Human Services. He also directed HHS to help companies building respirators -- including General Electric Co., Hill-Rom Holdings Inc. and Medtronic Plc -- gain access to necessary materials. The Trump administration banned hoarding and price-gouging of N95 respirator masks, ventilators and personal protective equipment used by doctors and nurses. It used the law to seize 192,000 masks, almost 600,000 gloves, and other critical supplies, which were then distributed to health-care workers in New York and New Jersey. In a July 28 fact sheet, the Trump administration said it had taken 33 actions under the Defense Production Act “to provide critical support for essential medical resources and our defense industrial base.”
3. Then what’s the issue?
Trump’s presumptive Democratic challenger on the Nov. 3 ballot, former Vice President Joe Biden, says on his campaign website that the administration “is still dragging its feet on using the DPA to produce urgently needed supplies to combat the COVID-19 pandemic, and has fallen far short of the domestic mobilization we need,” specifically regarding filling the demand for N95 masks. Biden said he would use the law “to its fullest extent” to boost domestic manufacturing capacity. In addition, Democrats in the House of Representatives have proposed legislation that would designate Covid-19 tests, personal protective equipment, ventilators and drugs as scarce and critical materials under the law.
4. Who is right?
Overall, the administration’s use of the law has been “sporadic and relatively narrow,” focused mostly on the defense industrial base with inconsistent use to expedite personal protective equipment contracts, the Congressional Research Service said in a July 28 report that apparently relied in part on a July 22 New York Times story. Trump has acknowledged mixed feelings about using the law, comparing it to “nationalizing” businesses the way a socialist country like Venezuela might do. (In fact, the law doesn’t mean the government taking ownership of any companies, which is what nationalization implies.) The U.S. Chamber of Commerce supported Trump’s resistance to fully deploy his powers under the DPA. Trump has said companies are stepping up voluntarily. For instance, 3M is using “surge capacity“ to ramp up production of N95 masks, and distilleries and breweries are making hand sanitizer.
5. What use of the law is being investigated?
In May, Trump authorized the U.S. International Development Finance Corporation to issue loans to boost the domestic production of medical supplies under the Defense Production Act. On July 28, that agency announced it would provide a $765 million loan to Eastman Kodak Co. to produce ingredients for generic drugs -- including hydroxychloroquine, the antimalarial drug touted by Trump and his supporters -- that could be used to treat Covid-19. Kodak’s stock rallied, climbing more than 2,000% at one point. That surge helped trigger a U.S. Securities and Exchange Commission investigation into potential securities law violations and stock options granted to Kodak’s executives days before the announcement. The Kodak loan was put on hold pending the probe. Democratic lawmakers have also questioned why the Trump administration would support a company that filed for bankruptcy in 2012 and has limited experience with pharmaceuticals.
For more articles like this, please visit us at bloomberg.com
©2020 Bloomberg L.P.