What Is the Defense Production Act (DPA)?
The Defense Production Act (DPA) is a law that gives the U.S. president the power to order companies to produce goods and supply services to support national defense. Originally passed in 1950, the law was first used during the Korean War. The law has been adapted over the past seven decades to respond to challenges beyond war preparations, having been enlisted to help the country recover from natural disasters, energy security, public health, and to protect against terrorism.
- The Defense Production Act (DPA) is the main tool at the U.S. president’s disposal to shift economic activity toward national defense priorities.
- First used during the Korean War, the law has evolved to address a wider range of issues related to national security, including natural disasters, energy security, infrastructure, and public health.
- During the COVID-19 pandemic, the DPA has been a key part of government efforts to ensure domestic production and distribution of medical equipment and vaccines.
Understanding the Defense Production Act (DPA)
When the DPA was passed in 1950 to support U.S. efforts in the Korean War, the legislation was modeled after the War Powers Act that helped mobilize the economy during World War II. The core powers of the DPA allow the president and certain cabinet members to require companies to prioritize activities and accept contracts deemed necessary to support national defense. The legislation also allows the president to use loans and other financial incentives to boost production capacity and allocate goods, services, and facilities as needed. Meanwhile, initial measures allowing for the rationing of consumer goods, capping of prices and wages, and imposition of labor dispute settlements lapsed when the original legislation expired in 1953.
The DPA has been reauthorized by Congress 53 times, most recently in 2018, and is scheduled to expire in 2025. Over the years, the biggest change in the law has been an expansion in the definition of “national defense” to encompass energy production, critical infrastructure development, emergency preparedness and recovery, counterterrorism activities, and public health actions, as well as measures to ensure the continuity of government.
Perhaps not surprisingly, the Department of Defense is the most active user of priority orders under the act, placing some 300,000 contracts each year. By comparison, the Department of Homeland Security secured fewer than 400 orders in 2019, the last year the data was made available, with 60% of those supporting preparedness for hurricanes and other disasters. Meanwhile—until the COVID-19 pandemic led to an executive order by President Donald Trump on March 23, 2020, to prevent price gouging and hoarding of medical supplies—the allocation power provided by the law hadn’t been exercised since the end of the Cold War.
How the Defense Production Act (DPA) Works
Though the key power of requiring companies to prioritize contracts—along with the seldom-used ability to allocate resources—was initially granted to the president, Congress has since delegated those authorities to six cabinet officials. In addition to the secretary of defense, the other department heads with prioritization authority involving their relevant portfolios include the secretaries of agriculture, energy, health and human services, transportation, and commerce.
For example, the U.S. Census Bureau, as part of the Department of Commerce, placed seven priority contracts worth $14 million in fiscal year 2019 for network servers and other equipment to support the collection of the 2020 national census. Priority orders can also be placed on behalf of foreign governments if they’re considered critical to national defense. For example, the Defense Department helped expedite the refurbishment of atmospheric controls for a naval vessel for a U.S. ally during fiscal year 2012.
The DPA also allows the government to provide incentives to the private sector to expand production capacity in the name of national defense, using tools ranging from loans, loan guarantees, and subsidies to the outright purchasing and installing of production equipment in factories. Though the government hasn’t engaged in any lending under the act in more than three decades, the use of subsidies and direct purchases has been leveraged to help develop innovative new technologies. The law requires the president to declare that there’s a “shortfall” in domestic capacity before the incentives can be applied.
Though the Defense Department has been the most active in using these provisions, the Energy Department provided $135 million in incentives between fiscal years 2014 and 2016 to promote the development of hydrocarbon biofuels. The funding for incentives comes from the DPA Fund, which is appropriated $133 million each year. The projects tend to be relatively modest, getting about $25 million in funding on average.
Expansion Due to National Security Concerns
One major expansion of the DPA,—the establishment of the Committee on Foreign Investment in the United States (CFIUS) in 1975—gives the president the authority to put the merger or acquisition of a U.S. company by a foreign company under review due to national security concerns. An amendment to the DPA in 1988 codified the review process and gave the committee significant authority to analyze potential mergers and recommend whether the president should block them or not. A revision in 2018 further widened the scope of transactions that could fall under national security review, including those involving a foreigner taking a noncontrolling stake in a U.S. company.
In fiscal year 2019, 231 potential transactions came under national security review, more than double the annual figures of a decade earlier, with about half of them prompting a CFIUS investigation. President Trump ended up rejecting only one, following the committee’s review: the attempted acquisition of hotel software developer StayNTouch by a Chinese company.
How the DPA Has Helped Combat COVID-19
The DPA has played a role in the U.S. government’s response to COVID-19 from early on in the pandemic. President Trump declared a national emergency in March 2020, making the pandemic eligible for government action under DPA. However, he used the DPA sparingly, issuing six executive orders and four memoranda that resulted in the prioritization of orders for personal protective equipment, financial incentives to increase the domestic production of medical equipment, and anti-gouging measures. White House trade advisor Peter Navarro insisted to the press that the threat of the DPA could be used to incite voluntary action without needing to actually implement it.
The departments of Homeland Security and Defense had announced plans to put about $1.5 billion in CARES Act funding toward boosting the production of medical supplies. By September 2020, the agencies had provided nearly $640 million for 18 projects, including for ventilators, respirators, and materials for COVID-19 tests and vaccine delivery, according to the U.S. Government Accountability Office, which has been tasked with tracking CARES Act funding. The government also placed 43 priority orders valued at nearly $4 billion for medical supplies, including about 181,000 ventilators and 166.5 million respirators.
Since taking office President Biden has continued to leverage the powers of DPA to address the pandemic, shifting in part to focus on distributing the vaccine. In January 2021, the president issued a series of executive orders in regard to COVID-19, including one that established a COVID-19 coordinator in the White House to manage agency-wide response and delegate authority to relevant cabinet members to use DPA as needed. Resulting actions under the law included prioritizing orders of the Pfizer vaccine, increasing production of more than 60 million COVID-19 tests by various suppliers, and creating new domestic capacity to produce personal protective equipment.
The Bottom Line
The DPA has been used by presidents for decades to enlist the private sector to support national defense. As the country faces new threats, whether from foreign nations or natural emergencies, the law has evolved to help meet the challenge.