President Trump’s decision to invoke the Defense Production Act (DPA) and also support a nearly $1 trillion stimulus package to combat the economic downturn caused by the coronavirus emergency, might not only expedite production of medical supplies but could also create new jobs and economic development in other sectors of the U.S. economy.
While the Administration’s top priority is increased manufacturing of desperately needed medical supplies, DPA could also be used to support long-neglected investments in U.S. infrastructure, transportation, manufacturing and renewable energy creating, thousands of new American jobs.
The American Society of Civil Engineers says long-delayed spending on infrastructure will require $2 trillion to fix: “Even though the U.S. Congress and some states have recently made efforts to invest more in infrastructure, these efforts do not come close to the $2.0 trillion in needs. The good news is closing America’s infrastructure gap is possible if Congress, states, infrastructure owners, and voters commit to increasing our investment. To raise the overall infrastructure grade and maintain our global competitiveness, Congress and the states must invest an additional $206 billion each year to prevent the economic consequences to families, business, and the economy.”
Such a massive national investment would generate hope for the American people. New jobs can be created to replace those lost during the current downturn. This situation is made worse by stay at home self-quarantine restrictions that have shut down many businesses and caused many Americans to lose their jobs. These restrictions could last months as Americans wait in confinement hoping the virus burns out or is stopped by a vaccine that could be a year away.
DPA Has Wide Legal Authority to Rebuild the U.S. Economy
The potential for economic investment and development possibilities is described in a Congressional Research Service (CRS) analysis dated March 2, 2020 which outlines DPA’s legal authority:
- The Defense Production Act (DPA) of 1950… “confers upon the President a broad set of authorities to influence domestic industry in the interest of national defense.”
- The authorities can be used across the federal government “to shape the domestic industrial base so that, when called upon, it is capable of providing essential materials and goods needed for the national defense.”
- Congress “has expanded the term national defense… the scope of DPA authorities now extends beyond shaping U.S. military preparedness and capabilities, as the authorities may also be used to enhance and support domestic preparedness, response, and recovery from natural hazards, terrorist attacks, and other national emergencies.”
- Title I of the Act “allows the President to require persons (including businesses and corporations) to prioritize and accept contracts for materials and services as necessary to promote the national defense. “
- Title III “allows the President to incentivize the domestic industrial base to expand the production and supply of critical materials and goods. “
DPA Can Support Federal Investments in Infrastructure, Transportation and Renewable Energy
The CRS reports goes on to describe examples of industrial sectors and products that could be stimulated by DPA authorized investments. These investments could be funded by some of the $1 trillion stimulus proposed to blunt the effects of the economic downturn caused by the virus. The CRS analysis goes on to say:
“Further reference can be made to Title VI of the Stafford Act for a definition of ‘emergency preparedness’ activities. It states that emergency preparedness: means all those activities and measures designed or undertaken to prepare for or minimize the effects of a hazard upon the civilian population, to deal with the immediate emergency conditions which would be created by the hazard, and to effectuate emergency repairs…” Medical supplies are obviously the most pressing priority.
“Critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity. Such term includes emergency preparedness activities…. and critical infrastructure protection and restoration.” Clearly shortages in ventilators, masks, drugs need to be addressed first. New investments could also include roads, bridges, highways, waterways and ports.
“To further assure the adequate maintenance of the domestic industrial base, to the maximum extent possible, domestic energy supplies should be augmented through reliance on renewable energy sources (including solar, geothermal, wind, and biomass sources), more efficient energy storage and distribution technologies, and energy conservation measures.”
“Title I also allows the President to allocate or control the general distribution of materials, services, and facilities. Allocation authority relates historically to the controlled materials programs of World War II, when the distribution of critical materials and resources had to be managed to maximize the production of goods needed in the war effort…” This would help target production of shortages such as medical equipment currently made in China, where production was interrupted by the Coronavirus outbreak there. Other critical components which could be produced in the United States include batteries, solar panels and wind turbines.
“Title I also contains several provisions related to domestic energy: Section 101(c) specifically authorizes the President to allocate and prioritize contracts relating to materials, equipment, and services to maximize domestic energy supplies in certain circumstances… the Secretary of Energy makes determinations related to energy production and construction, distribution and use, and directly related activities; and the Secretary of Homeland Security makes determinations related to all other national defense programs, including civil defense and continuity of government.”
“While the priorities authority is used far less frequently by other departments and agencies, it has been used for both the prevention of terrorism and natural disaster preparedness. For example, the Federal Bureau of Investigation has prioritized contracts in support of the Terrorist Screening Center program and the U.S. Army Corps of Engineers prioritized contracts in support of the Greater New Orleans Hurricane and Storm Damage Risk Reduction System program… The Federal Emergency Management Agency used the authority extensively during the 2017 disaster season, including prioritizing contracts for manufactured housing units, food and bottled water, and the restoration of electrical transmission and distribution systems in Puerto Rico.” This provision would support increased investment in the U.S. Army Corps of Engineers budget to upgrade long-neglected locks and dams on the Mississippi and other rivers as well as in highways roads and bridges.
“Title III authorities are intended to help ensure that the nation has an adequate supply of, or the ability to produce, essential materials and goods necessary for the national defense. Using Title III authorities, the President may provide appropriate financial incentives to develop, maintain, modernize, restore, and expand the production capacity of domestic sources for critical components, critical technology items, materials, and industrial resources essential for the execution of the national security strategy of the United States.” A number of critical components in cellular phones, computers and other electronics rely on foreign suppliers and U.S. companies have experienced disruptions due to manufacturing shut downs in China related to the Coronavirus.
Loan Guarantees and Direct Loans: “Sections 301 and 302 of Title III of the DPA authorize the President to issue loan guarantees and direct loans to reduce current or projected shortfalls of industrial resources, critical technology items, or essential materials needed for national defense purposes… Loan guarantees and direct loans can be issued to private businesses to help them create, maintain, expedite, expand, protect, or restore production and deliveries or services essential to the national defense. A direct loan is a loan from the federal government to another government or private sector borrower that requires repayment, with or without interest. A loan guarantee allows the federal government to guarantee a loan made by a nonfederal lender to a nonfederal borrower, either by pledging to pay back all or part of the loan in cases when the borrower is unable to do so. These authorities, for instance, could be used to provide a loan, or to guarantee a loan, to a defense contractor that is responsible for the provision of critical services essential to the national defense when credit is otherwise unavailable in the private market.” The loan guarantee can also increase the scope of federal investment. For example, if the federal government provided a 10% loan loss reserve for guarantees, this would mean that allocating $100 million loan loss reserve could be used to guarantee $1,000 million in loans ($100 million x 10 = $1,000 million). Such a program exists for financing the construction of new U.S. ships. The expansion of such a program could create a new fleet or modern, fuel-efficient and low emission container ships. These vessels would be required to be built at U.S. shipyards and manned by U.S. mariners as per the Jones Act. New ships and new tug/barges can augment waterborne transportation in U.S. waters and relieve truck congestion on freeway corridors.
Purchase Commitments, and Installation of Equipment: “Section 303 of Title III grants the President an array of authorities to create, maintain, protect, expand, or restore domestic industrial base capabilities essential to the national defense. These authorities include, but are not limited to: 1) purchasing or making purchase commitments of industrial resources or critical technology items. 2) making subsidy payments for domestically produced materials; and 3) installing and purchasing equipment for government and privately owned industrial facilities to expand their productive capacity.”
The economic fallout from the Coronavirus crisis is likely to decimate major sectors of the U.S. economy including industries supporting services, airlines, hotels, restaurants, casinos and sports. The $1 trillion stimulus could be channeled by the Defense Production Act to give President Trump the means to make good on his promise to upgrade U.S. infrastructure. At the same time the United States can be expediting production of vital medical equipment that can save thousands of lives while a vaccine to the Coronavirus is developed.
