Susan Walsh/AP Photo
President Biden meets virtually with infant formula manufacturers, from the South Court Auditorium on the White House complex, June 1, 2022, as his administration works to ease nationwide shortages.
President Biden is leaning heavily on the Defense Production Act, a provision to boost supplies for national defense with its roots in the War Powers Acts of World War II.
As fuel prices rose earlier this year, the White House announced it would use the DPA to ramp up production of minerals for car batteries. In response to a national shortage of infant formula, Biden invoked the DPA and instructed producers of baby food inputs to prioritize key ingredients. The president even called on the measure to send hoses to the U.S. Forest Service to fight wildfires.
This week, amid an ongoing trade dispute over solar energy manufacturing, Biden invoked the DPA to kick-start domestic manufacturing of green technology, including solar panel parts, heat pumps, and fuel cells. He also moved to speed up solar installations that have been stalled by a Commerce Department probe, announcing a two-year waiver of new tariffs on modules from four countries in Southeast Asia.
The idea is to sidestep Commerce’s investigation and resume importing solar panels for the next 24 months as a bridge, while rapidly scaling up domestic production capacity for the future. It has managed to anger both sides of the trade spat, including critics of the Chinese solar industry, who say it green-lights years of Chinese solar panel dumping under dubious legal authority, and solar industry representatives, who say the move is mostly signaling.
Industrial-policy supporters, who argue that the government should take a more active role in alleviating inflationary supply chain shocks and fostering young industries, have mostly welcomed the president’s aggressive use of this executive muscle. Environmentalist Bill McKibben, who popularized the idea of a DPA for heat pumps several weeks ago, was particularly enthused.
But several cited a big problem with what is rapidly emerging as Biden’s go-to authority: It’s hardly funded, and it may not be an all-weather tool.
THE PENTAGON IS THE TOP USER of the DPA, which it routinely invokes to expedite sourcing of critical industrial items, issuing around 300,000 priority orders each year for procurement. In a recent Industrial Capabilities Report, the DOD praised Biden for requesting more DPA funding and detailed its plans to use the tool to ramp up production of everything from radiation-hardened electronics to rare earth elements.
The DPA gives the government wide-ranging authorities, from making loans and direct purchases to installing equipment in private industrial facilities. Some of those powers are virtually cost-free. For instance, to increase production of baby formula, the White House used DPA authorities to instruct producers of ingredients in baby formula to prioritize formula makers over other clients.
“Appropriations need not be super central to how this tool, especially under Section 303, gets used,” said Todd Tucker, director of industrial policy and trade at the Roosevelt Institute, who argued for expanded use of the DPA in a recent report. Section 303 includes authorities like government purchasing commitments and the private use of government equipment.
But other DPA initiatives require major capital infusions. And although the fund sits at the Treasury Department, it is largely controlled by the Defense Department. “They are sticklers for what they approve,” Tucker said. “DOD has had a de facto policy veto.”
The DPA gives the government wide-ranging authorities, from making loans and direct purchases to installing equipment in private industrial facilities.
The Defense Department’s grip on DPA spending is not lost on the White House. Last year, Biden bypassed defense officials and created a $10 billion fund at the Department of Health and Human Services to carry out DPA priorities such as vaccine production. That fund is set aside for health spending, however, and with the White House drawing more liberally on the DPA for non-military uses, financing for other priorities is in short supply.
Around $434 million is available in the DPA fund right now, according to Bloomberg. The government has been authorized to spend a further $111 million, and a Department of Energy press release refers to congressional appropriations. But those could be difficult to secure.
Rep. Ro Khanna (D-CA) has pushed to increase DPA funds since 2020, when he argued with Sen. Bernie Sanders (I-VT) for $75 billion in funding for medical supplies to fight the COVID pandemic. In an interview, he told the Prospect the DPA is still not funded at anywhere near an adequate level.
“I appreciate the president’s move in the direction of having government play a decisive role in reindustrialization,” Khanna said, “but he needs ten times the scale and urgency.”
A bill by Reps. Cori Bush (D-MO) and Jason Crow (D-CO), as well as Sanders, would provide $100 billion in DPA funding for clean energy, and sets standards, including labor provisions. But the bill faces many of the same obstacles as defunct Build Back Better legislation, which failed to win funding for similar priorities.
“Of course there’s opposition to it, because it involves the oil and gas industry, and they don’t want to see investments in anything that’s going to undermine their industry,” Crow told the Prospect. He added, “The oil and gas industry has received tremendous corporate welfare for a long time.”
Lawmakers are using inflation as a further reason to delay spending—even on domestic production that could ease supply chain spasms. Given that political environment, any uptick in DPA funding may have to come through defense spending. Khanna, who sits on the House Armed Services Committee, committed to pushing for manufacturing-related DPA funding in this year’s National Defense Authorization Act (NDAA).
“Obviously I’m concerned with the topline number already. But if we can reallocate some of that to defense production and reindustrialization, that’s something I will pursue,” Khanna told the Prospect. Crow agreed, and added that further opportunities to pass the bill could emerge in emergency supplemental funding bills in the coming months.
NDAA funding for the DPA would not come through until the end of this year, however. And even if lawmakers include DPA funding, that money would still have to go through appropriations. Furthermore, DOD spending on the DPA is notoriously opaque: Tucker’s Roosevelt report details the “total confusion” among government agencies over the use of DPA funds.
In 2009, Congress created the Defense Production Act Committee, a panel set up to report on DPA spending, but no executive director was ever appointed, and its oversight has been minimal. In fact, the report notes, “the Internet url for the committee (dpacommittee.com) has apparently lapsed from US government ownership and is currently being cybersquatted by a Chinese company.”
The lack of transparency in DPA spending has had real-world effects. After Congress allocated the Pentagon $1 billion under the DPA to buy medical equipment, The Washington Post reported, it was rerouted to defense contractors. $183 million went to firms like Rolls-Royce for the shipbuilding industry; another $2 million paid for Army dress uniform fabric.
Notwithstanding the dismal oversight for Pentagon funds, Tucker told the Prospect he welcomes Biden’s emboldened use of the DPA. While greater funding and transparency is needed, he said, the authorities could help reshore manufacturing, even without congressional appropriations.
“If you move quickly on some of these things, you can change the economics of the industry over the next two years, such that if Democrats were to lose control of the White House, the industry would just be on a trajectory towards producing green energy,” Tucker said. “We saw that with autos. Trump tried to roll back some of the regulations, and the auto industry was like, no thanks.”
Perhaps the most powerful cost-free tool in Biden’s use of executive authorities to advance industrial policy is the sweeping use of federal procurement power, or guarantees that the government will provide a market for domestic technology. In his solar executive order, Biden activated this by requiring that solar panels comply with the domestic content standards of the Buy American Act, which creates a market for stateside production.
A full-stack industrial policy would likely go beyond the DPA and rely on more agencies for financing. New Deal–inspired proposals for more comprehensive industrial policy abound, such as Delaware Sen. Chris Coons’s proposal for an Industrial Finance Corporation, and law professor Saule Omarova’s National Investment Authority. Khanna, for his part, said he is working with Sen. Marco Rubio (R-FL) on expanding the authority of the Federal Financing Bank, an arm of the Treasury aimed at reducing the cost of borrowing.
For now, however, some boosters of state incentives for manufacturing are disappointed at Biden’s dependence on a single tool.
“Over-reliance on DPA is the clearest evidence that our industrial policy toolkit is barren,” Hassan Khan, an expert on semiconductor supply chains, wrote on Twitter. “You can’t simply let industries wither on the vine for decades as international competitors gobble up market share and then revive them overnight with the DPA. It won’t work for PPE, baby formula, or solar panels.”
