Biden’s favorite new industrial policy tool is unfunded

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President Biden relies heavily on the Defense Production Act, a provision aimed at increasing national defense procurement that has its roots in the war powers laws of World War II.

As fuel prices rose earlier this year, the White House announced it would use the DPA to speed up the production of ores for car batteries. In response to a nationwide shortage of infant formula, Biden invoked the DPA and asked baby food producers to prioritize key ingredients. The president even called for the measure to send pipes to the US Forest Service to fight forest fires.

This week, amid an ongoing trade dispute over solar power manufacturing, Biden invoked the DPA to revive domestic manufacturing of green technologies, including solar panel parts, heat pumps and fuel cells. He also moved to fast-track solar installations that have been blocked by a Commerce Department investigation, announcing a two-year waiver of new tariffs on modules from four Southeast Asian countries.

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The idea is to circumvent Commerce’s investigation and resume importing solar panels for the next 24 months as a bridge, while rapidly increasing domestic production capacity for the future. He has managed to anger both sides of the trade dispute, including critics of China’s solar industry, who say he is giving the green light to years of Chinese solar panel dumping under dubious legal authorityand solar industry representativeswho say that movement is above all a signal.

Industrial policy supporters, who argue the government should take a more active role in mitigating supply chain inflationary shocks and promoting 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 a few weeks ago, was particularly enthusiastic.

But several cited a big problem with what is quickly emerging as Biden’s go-to authority: It’s barely funded, and it may not be an all-weather tool.

THE PENTAGON IS THE BEST USER of the DPA, which it regularly invokes to expedite the supply of critical industrial items, emitting approximately 300,000 priority orders each year for purchases. In a recent Industrial Capabilities Reportthe DOD praised Biden for asking no more DPA funding and detailed his plans for using the tool to speed up production of everything from radiation-hardened electronics to rare-earth elements.

The DPA gives the government sweeping powers, from granting loans and outright purchases to installing equipment at private industrial facilities. Some of these powers are virtually free. For example, to increase formula production, the White House used DPA authorities to instruct producers of formula ingredients to prioritize formula manufacturers over other customers.

“Credits don’t need to be central to how this tool, especially under Section 303, is used,” said Todd Tucker, director of industrial and trade policy at the Institute. Roosevelt, who argued for expanded use of the DPA in a recent report. Section 303 includes authorizations such as government purchase commitments and private use of government equipment.

But other DPA initiatives require large injections of capital. And although the fund sits in the Treasury Department, it is largely controlled by the Department of Defense. “They’re fussy about what they approve of,” Tucker said. “The DOD had a de facto political veto.”

The DPA gives the government sweeping powers, from granting loans and outright purchases to installing equipment at private industrial facilities.

The Department of Defense’s hold on DPA spending is not lost on the White House. Last year, Biden bypassed defense officials and created a $10 billion fund in the Department of Health and Human Services to carry out DPA priorities such as vaccine production. However, this fund is earmarked for health care spending, and with the White House relying more generously on the DPA for non-military purposes, funding for other priorities is scarce.

About $434 million is currently available in the DPA fund, according to Bloomberg. The government was authorized to spend an additional $111 million, and a Ministry of Energy Press release refers to Congressional appropriations. But these might be difficult to secure.

Representative Ro Khanna (D-CA) pushed to increase DPA funds since 2020, when he feuded with Sen. Bernie Sanders (I-VT) over $75 billion in funding for medical supplies to fight the COVID pandemic. In an interview, he told the Perspective the DPA is still not funded at an adequate level.

“I appreciate the president’s decision to have the government play a decisive role in reindustrialization,” Khanna said, “but it needs ten times the scale and urgency.”

A invoice by Representatives Cori Bush (D-MO) and Jason Crow (D-CO), along with Sanders, would provide $100 billion in DPA funding for clean energy and set standards, including labor provisions. But the bill faces many of the same hurdles as the old Build Back Better legislation, which failed to secure funding for similar priorities.

“Of course there’s opposition to that, because it involves the oil and gas industry, and they don’t want to see investment in anything that’s going to undermine their industry,” Crow told the Perspective. He added, “The oil and gas industry has long enjoyed enormous corporate welfare.”

Lawmakers are using inflation as yet another reason to delay spending, even on domestic production that could ease supply chain spasms. Given this political environment, any increase in DPA funding may have to come through defense spending. Khanna, who sits on the House Armed Services Committee, has pledged to push for manufacturing-related DPA funding in this year’s National Defense Authorization Act (NDAA).

“Obviously I’m already concerned about the number of toplines. But if we can reallocate some of that to defense production and reindustrialization, that’s something I’ll pursue,” Khanna told the Perspective. Crow agreed and added that new opportunities to pass the bill may appear in additional emergency funding bills in the coming months.

However, NDAA funding for the DPA would not come until the end of this year. And even if lawmakers included DPA funding, that money would still have to go through appropriations. Moreover, DOD spending on the DPA is notoriously opaque: Tucker’s Roosevelt Report details “utter confusion” among government agencies over the use of DPA funds.

In 2009, Congress created the Defense Production Act Committee, a group to report on DPA spending, but no executive director was ever appointed and its oversight was minimal. In fact, the report notes, “the committee’s Internet URL (dpacommittee.com) has apparently lost US government ownership and is currently cybersquatted by a Chinese company.

The lack of transparency in DPA spending has had concrete effects. After Congress allocated the Pentagon $1 billion under the DPA to purchase medical equipment, The Washington Post reported, it was redirected to defense contractors. $183 million went to companies like Rolls-Royce for the shipbuilding industry; Another $2 million was paid for fabric for army uniforms.

Despite the dismal oversight of Pentagon funds, Tucker told the Perspective he welcomes Biden’s emboldened use of the DPA. Although more funding and transparency are needed, he said, authorities could help relocate manufacturing, even without congressional appropriations.

“If you act quickly on some of these things, you can change the economics of the industry over the next two years so that if the Democrats lost control of the White House, the industry would just be on the way. of green power generation,” Tucker said. “We have seen this with automobiles. Trump tried to roll back some regulations, and the auto industry said, no thanks.

Perhaps the most powerful free tool in Biden’s use of executive authorities to advance industrial policy is the widespread use of federal purchasing power or ensuring that the government will provide a market for domestic technology. In his solar executive order, Biden enabled that by requiring solar panels to meet the national content standards of the Buy American Act, which creates a market for production in the United States.

A comprehensive industrial policy would likely go beyond the DPA and rely on more agencies for funding. New Deal-inspired proposals for a more comprehensive industrial policy abound, such as Delaware Senator Chris Coons’ proposal for a Industrial finance companyand that of law professor Saule Omarova National Investment Authority. Khanna, for his part, said he was working with Sen. Marco Rubio (R-FL) on expanding the authority of the Federal Financing Bank, a branch of the Treasury aimed at lowering the cost of borrowing.

For now, however, some proponents of state manufacturing incentives are disappointed with Biden’s reliance on a single tool.

“The overreliance on the DPA is the clearest evidence that our industrial policy toolkit is sterile,” said Hassan Khan, an expert on semiconductor supply chains. wrote on Twitter. “You can’t just let industries languish on the vine for decades as international competitors gobble up market share and then relaunch it overnight with the DPA. It will not work for PPE, infant formula, or solar panels. »

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