Defense Production Act Failures Illustrate the Folly of Industrial Policy

“History shows again and again
How nature points up the folly of man.”
-- Buck Dharma


A growing number of alleged experts have been calling for the United States to implement a federal industrial policy. Placing the federal government in charge of complicated, fast-paced business decisions has always been a horrible concept, but the government’s response to the COVID-19 pandemic further illustrates the folly of this idea.

Soon after the pandemic hit, a chorus of voices demanded that President Trump use the Defense Production Act (DPA) to provide a centrally planned national economic response. For example, in April Sen. Chuck Schumer (D-NY) argued: “We need the president to invoke the Defense Production Act. It dates from the Korean War, President Truman. And the DPA allows a military leader, the military, to take over the factories and supply chains and then the same person can distribute the materials, the PPEs, the ventilators, the masks…”

To its credit, the Trump administration largely resisted demands for a takeover of American factories and supply chains, along with other calls to invoke the DPA in a more limited capacity. However, in areas where it did use the DPA to intervene in the economy, the results were predictably disastrous.

On April 2, President Trump released the following statement: “Today, I have issued an order under the Defense Production Act to more fully ensure that domestic manufacturers can produce ventilators needed to save American lives.” Peter Navarro, the Defense Production Act coordinator, added: “We are moving swiftly in Trump Time to address a significant shortage of these lifesavers.”

Fast forward to these August headlines:

The Washington Post: “The U.S. forced major manufacturers to build ventilators. Now they’re piling up unused in a strategic reserve.” 

ProPublica: “The White House Paid Up to $500 Million Too Much for These Ventilators, Congressional Investigators Say.”

In April, the Trump administration also invoked the Defense Production Act to ban exports of N95 respirator masks manufactured by 3M to customers Canada and Latin America.

Fast forward again to August: “The federal and Ontario governments have convinced manufacturing giant 3M to start making N95 respirator masks at its plant in Brockville, Ont., a move that will give Canada a domestic supply of critical personal protective equipment, CBC News has learned.”

Instead of depending on increasingly unreliable trading partners like the United States to provide N95 masks made by American workers, Canada will now be making its own.

The Trump administration made headlines when it used the DPA to provide a $765 million loan to launch Kodak pharmaceuticals. The project quickly blew up. As reported by The Wall Street Journal, “Trump trade adviser Peter Navarro called the Kodak project a ‘great win for the American people’ in late July, but two weeks later he was characterizing executives at the legendary photography company as having undertaken ‘probably the dumbest decisions made by executives in corporate history.’”

While it’s tempting to place all of the blame on Peter Navarro for misusing $3 billion to secure ventilators that we no longer need, or for banning PPE exports, or for loaning hundreds of millions of taxpayer dollars to “stupid” executives, the reality is that no federal employee has the knowledge needed to micromanage private economic activities. These recent DPA failures illustrate not just the poor judgement of Navarro, but more importantly, the inherent folly of industrial policy.