(Bloomberg) -- As hospitals, health-care staff and governors clamor for ventilators, intensive-care beds, and protective gear, President Donald Trump and the U.S. Chamber of Commerce are opposing the one thing many say would do the most good in the fight against the runaway coronavirus pandemic: Activate the Defense Production Act to coordinate a war-like effort to ramp up the manufacture and distribution of critical supplies.
More than 100 former national security officials urged Trump in a letter Wednesday to use the act’s authority, saying it was necessary that government coordinate the effort and assign priorities to confront the crisis. Trade groups, governors, attorneys general and Democratic senators are lodging similar calls.
While the $2 trillion package of spending and tax breaks to bolster the hobbled U.S. economy would provide about $144 billion to hospitals and other health-care providers and $150 billion for state and local governments, the measure does little to address broken supply chains, require manufacturers to coordinate production of equipment and therapeutics in short supply, or ensure that masks and ventilators are distributed to where they’re most needed.
A Korean War–era law, the Defense Production Act of 1950 gives the president the power to try to fix all that. Its original aim was making sure the U.S. had the materials to make weapons and fight wars, but Congress expanded it to address other contingencies, such as dangers to public health.
It requires businesses to prioritize or accept contracts to promote the national defense, fight terrorism, and provide assistance after natural disasters and other emergencies. In some circumstances, it permits the U.S. to waive antitrust laws so that competing companies can work together.
It also allows the president to incentivize expanded production through “loans, loan guarantees, direct purchases and purchase commitments, and the authority to procure and install equipment in private industrial facilities,” according to a March 2 report from the nonpartisan Congressional Research Service. It’s been used to address energy shortages in California in 2001 and to respond to damage caused by Hurricane Maria in Puerto Rico in 2017, the report said.
Trump on March 18 issued an executive order essentially declaring he is prepared to use the law, but has repeatedly refused to act on it. He has suggested that the government is coordinating with companies that have voluntarily offered to manufacture medical equipment and has compared using the act to “nationalizing our business” like Venezuela.
“We’re seeing the greatest mobilization in the industrial base since World War Two,” but on a voluntary basis, Trump said Sunday at the White House. “We’re getting what we need without putting the heavy hand of government down.”
The White House said in a statement Thursday that the response “has been overwhelming, fulfilling government-identified needs faster than anyone thought possible.”
That argument is similar to the U.S. Chamber’s. Companies are voluntarily “doing everything that the government is asking for them to do,” said the Chamber’s chief policy officer, Neil Bradley, in an interview. He confirmed the group had lobbied the White House not to use the Defense Production Act.
Companies that have come forward to help meet the need for health care supplies include Ford Motor Co., which is collaborating with 3M Co. and GE Healthcare to increase the production of ventilators, respirators, and plastic face shields. But they are having trouble getting some parts, especially chips and other components for ventilators, delivery of which could take months.
Experts pushed back on the notion that voluntary efforts can suffice, or that the act results in government takeovers of companies. They said the act would be most helpful for complex goods such as ventilators, which are assembled from hundreds of individual parts. The government could help find domestic substitutes that individual firms may not be able to locate on their own under the measure.
The act also allows the government to direct goods to where they’re most needed, which companies might not know, and to tell firms to prioritize those orders above the less urgent standing contracts they’d otherwise have to fulfill, said Steven Grundman, a senior fellow at the Atlantic Council, a Washington-based think tank. “The market is not responding fast enough to the change in demand and the change in value that these products create,” said Grundman, who formerly oversaw the DPA as a deputy undersecretary of defense for industrial affairs. “A company that is working as hard as it can on three shifts to produce as much as it can doesn’t know where to send them.”
The administration’s reluctance to cite the Defense Production Act was underscored on Tuesday when Peter Gaynor, the head of the Federal Emergency Management Agency, said he would use the law to obtain 60,000 virus test kits. But 12 hours later, after Trump reiterated that the administration hadn’t needed to use its powers under the law, a spokesperson said FEMA was “able to procure the test kits from the private market without evoking the DPA.” Even so, 60,000 tests are a mere fraction of the tens of millions the U.S. needs.
Ventilators are even scarcer. New York Governor Andrew Cuomo, whose state is the epicenter of the virus in the U.S. with almost 37,258 residents out of about 69,000 Americans who had tested positive as of Wednesday morning, has not been shy about showing his anger at the White House’s refusal to use its authority to send ventilators to New York.
Cuomo, a Democrat, on Tuesday said that New York needed 30,000 ventilators and that the only way to get them is by the U.S. deploying the Defense Production Act to force manufacturers to make more. Cuomo said the state had received only 400 ventilators from the federal government. “You want a pat on the back for sending 400 ventilators?” Cuomo said. “What are we going to do with 400 ventilators when we need 30,000 ventilators? You’re missing the magnitude of the problem.”
Vice President Mike Pence later said 4,000 ventilators would be released from a U.S. stockpile to New York.
Last week, Trump said the states should obtain ventilators and other equipment on the open market. That forced states desperate for supplies to compete against each other -- and also drove up manufacturers’ prices. Illinois Governor J.B. Pritzker, a Democrat, said Wednesday Trump’s dictum meant “we’re out there competing against each other -- it shouldn’t work that way.”
Scarcity and intense demand have taken a toll. Face masks for front-line staff, normally about 58 cents each, have been quoted by sellers at $7.50, according to Cuomo’s office. Thermometers are going for twice their usual price, latex gloves triple. Portable X-ray machines that help diagnose the virus cost as much as 20 times what they were selling for before the emergency. “Price gouging is a tremendous problem, and it’s only getting worse,” Cuomo told a Monday press briefing.
On Tuesday, 16 state attorneys general sent Trump a letter urging him to immediately use his DPA powers. Six Democratic senators, led by Elizabeth Warren, slammed the U.S. Chamber, a Republican-allied trade group, calling its lobbying of the White House to not use the law “shameful.” In a March 23 letter, the senators said it placed “the short-term desires of its members above the economic and public health needs of hundreds of millions of American families.”
The letter asks the Chamber to say on whose behalf it was lobbying, but Warren’s office on Wednesday said it hadn’t received an answer.
Top health trade groups, including the American Hospital Association, the American Medical Association, America’s Health Insurance Plans and the Pharmaceutical Research and Manufacturers of America, urged the administration and Congress in a March 18 letter “to expeditiously move to spur massive, increased production, distribution, and access to gowns, masks, gloves, testing kits, testing swabs, and respiratory machines.” A spokeswoman for AHIP, which organized the letter, said the groups hadn’t taken a position on the DPA.
Little of that seems to have persuaded Trump. “Companies are doing as we asked, and companies are even better than that -- they’re coming through and they’re calling us,” he told reporters Tuesday.
The comments echoed the position of the Chamber. “The Defense Production Act was designed for defense industry products with a single supplier, often with purely domestic production chains,” Bradley said in a statement, without addressing Warren’s letter.
William Galston, a senior fellow at the Brookings Institution, said the assumption by Trump and the Chamber that the private sector could meet U.S. needs might prove true -- but not on the urgent timescale needed amid the crisis.
He compared the situation to an emergency responder riding a bicycle to an accident and reassuring the family of an injured person that he’d meet them at the hospital. “Wouldn’t an ambulance be better?”
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