Sending in the cavalry: How the Defense Production Act can assist during the COVID-19 crisis
President Trump invoked the Defense Production Act (DPA) yesterday to help address the COVID-19 crisis. This is exactly the situation for which the DPA was created, but what exactly does it mean? I oversaw the DPA when I served in the Department of Defense, and it matters because it harnesses the power of the federal government to prioritize contracts, make grants or loans, review foreign direct investment and even nationalize specific industries that could be marshaled to help fight COVID-19.
The Defense Production Act was first signed into law in 1950 and last renewed in 2018. The DPA was originally conceived and passed at the beginning of the Cold War and shortly after North Korea’s invasion of the South, driving President Harry Truman to realize the need for broader executive power concerning national defense. The law gives the president broad authority to ensure the timely availability of essential domestic industrial resources to support defense and homeland security requirements.
President Trump invoked the DPA yesterday to prioritize contracts and orders to meet national defense and emergency preparedness program requirements, specifically in the “areas of health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators…” according to the Executive Order he signed.
This order essentially gives the Department of Health and Human Services the ability to prioritize contracts so that U.S. government orders of surgical masks, disinfectants and other medical products are filled before any commercial or other orders. This will be a helpful tool as U.S. officials frantically work to ensure that the necessary medical equipment gets to where it is needed most in this crisis.
In extreme situations, this authority can also be employed to allocate or control the distribution of materials in specific industries. This provision has always been controversial and rarely invoked, however.
President Truman attempted to utilize Title I to seize control of steel plants during the 1952 steel strike, but his actions were ruled unconstitutional by the Supreme Court. This provision even supports the Civilian Reserve Air Fleet (CRAF) program, which allows DoD to nationalize civilian aircraft during national crises. President Trump hinted at the use of this authority in a tweet today. It could also be appropriate at some point to even nationalize specific industries to enhance the response to COVID-19, but such a step would require extremely close coordination between the White House and Congress.
Another provision of the DPA allows the president to “create, maintain, protect, expand, or restore industrial base capabilities essential for national defense” through grants, loans, purchases and purchase commitments. This authority has been used, for example, to create a domestic production facility for beryllium, to modify the only domestic facility with the capability to produce the large, complex forgings required for U.S. Navy Submarine and Aircraft Carrier Programs and, more recently, to rebuild the domestic separation and refinement of rare earth elements and the subsequent production of rare earth magnets critical to many defense systems.
The use of this DPA authority has accelerated in recent years because it is a powerful tool to help address critical defense industrial base weaknesses, such as Chinese sole source providers of rare earths and specialty chemicals, which have likely been crippled in recent months by COVID-19. If used effectively, this DPA authority could be a useful tool to help rebuild domestic capacity, for example, in parts of the pharmaceutical supply chain where we are currently reliant on Chinese providers.
Finally, the DPA also authorizes the Committee on Foreign Investment in the United States (CFIUS) to review business transactions for national security concerns, such as the impact a specific transaction would have on the U.S.’s ability to tackle COVID-19. Fortunately, significant bipartisan concern over the past five years about increased foreign direct investment from countries like China in areas such as health care, advanced robotics and microelectronics led to a landmark change with the 2018 passage of the Foreign Investment Risk Review Modernization Act (FIRRMA). FIRRMA greatly strengthened the ability of CFIUS to address national security concerns in its reviews of foreign investment, giving the president another important tool for today and the future.
COVID-19 is a rapidly evolving threat to our nation’s economic and national security. The Defense Production Act is an important tool and exactly what we need as we seek to develop additional short- and medium-term responses to this unprecedented impact on our domestic industrial base. Depending on how the Trump administration utilizes the DPA, this could be a big step forward in combatting the pandemic.
Jerry McGinn is the executive director of the Center for Government Contracting in the School of Business at George Mason University.
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