Introduction & Recommendations
The Defense Production Act (DPA) is a source of unilateral authority that the president can access in times of true crisis in order to ensure national security. However, recent and novel expansions of the interpretation of this authority should give Congress pause on reauthorizing these vast powers without serious consideration of targeted reforms. While the DPA can be useful in addressing critical national security needs in a timely manner, overuse or overexpansion of this authority jeopardizes its legitimate use in legitimate crises. The legislative history and past reauthorizations demonstrate that Congress has always been wary of giving the President unchecked authority over free enterprise, even in the midst of the Cold War. As former Senate Banking Committee Chairman Phil Gramm (R-TX) once said during DPA reauthorization after President Clinton’s use of the DPA arguably bankrupted natural gas suppliers in the California energy crisis; “the Defense Production Act is the most powerful and potentially dangerous American law, in my opinion.”
A similar corollary could be the Authorization for the Use of Military Force (AUMF) granted to the president by Congress in 2001 to broadly use force to wage what became the War on Terror. While NTU does not weigh in on foreign policy matters as a rule, overall the debate over the 2001 AUMF certainly demonstrates that Congress should be extremely careful when granting open-ended authorities to the president.
In the 1950s when the DPA was enacted, it's almost certain that Congress did not intend to give the President control or licensing power over nascent technologies like artificial intelligence or carte blanche to centrally dictate pharmaceutical manufacturing nationwide. The slow but steady growth of the executive branch’s interpretation of these legal authorities, particularly under President Biden, should give Congress ample reason to reexamine the statute’s unilateral nature and place more restrictions on its definitions.
As President Biden increases utilization of the DPA, it is likely only a matter of time before this authority becomes a hamper on domestic investment in manufacturing capabilities because companies may rightly view its overuse as a major risk in building new technology or production capabilities in the United States. If the president can unilaterally decide to place restrictions on new technology or decide that any given industry is tangentially related to national defense, and therefore subject to central planning, that presents a serious risk on any investment horizon.
Several reforms could help restore Congressional oversight of this authority.
More narrowly define applicable use cases for this authority.
Require congressional approval for new interpretations of this authority in a timely manner.
Separate a narrow set of directly national defense related cases from newer and more nebulous applications of the law and continue the unilateral capability for those narrower needs while either placing a shot clock on expiry or requiring additional action from Congress on newer interpretations.
Defense Production Act Background
The DPA is a federal law that gives the president of the United States the authority to direct the domestic production and distribution of essential goods and services for national defense purposes. The origins of this legislation stem from the example set by wartime authorities granted to the president under the First and Second War Powers Acts of 1941 and 1942. The DPA was enacted in 1950 in response to the Korean War, and has been amended and reauthorized several times since then. DPA authorities are supposed to be directly tied to national defense.
However, this definition has evolved over time; currently being defined as:
“[P]rograms for military and energy production or construction, military or critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity. Such term includes emergency preparedness activities conducted pursuant to title VI of The Robert T. Stafford Disaster Relief and Emergency Assistance Act [42 U.S.C. §§5195 et seq.] and critical infrastructure protection and restoration.”
Some authorities granted under the DPA allow the president, on a nearly unilateral basis, to:
Require private companies to prioritize and accept government contracts for materials and services deemed necessary for national defense.
Allocate materials, services, and facilities to promote national defense.
Control or encourage elements of the civilian economy to ensure the availability of critical materials and goods for national defense. This can be facilitated with loans, loan guarantees, purchases/commitments, and the ability to procure and install equipment in private sector property.
Establish voluntary agreements with private industry to coordinate production and distribution of defense-related goods and services.
Block foreign mergers, acquisitions, or takeovers of U.S. companies that pose a threat to national security.
The DPA has been used by various administrations to address different challenges, such as natural disasters, energy crises, terrorism, and pandemics. However, the recent applications of the DPA by President Biden to address artificial intelligence (AI) and drug shortages should raise concerns about the scope and limits of the DPA, and the potential consequences of its misuse.
Recent DPA Overreaches in AI & Drug Manufacturing
One of the recent DPA actions taken by President Biden is Executive Order 14110 on “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence” signed on October 30, 2023. While mostly directing the federal government to take action on various aspects of AI use and analyzing its applicability, of concern to innovators should be the DPA segment. The order invokes the DPA to require leading AI developers to share test results and other information with the government, and to create standards to ensure AI tools are “safe and reliable” before public release.
As written, this is clearly an overreach of the DPA authority and a violation of the privacy and property rights of AI developers. On its face, this interpretation is already extremely sweeping - artificial intelligence has not been proven as of yet to be vital to the national defense. While the recent interpretation of the DPA to include presidential preferences on renewable energy was questionable, at least energy security is definitely related to national security. The executive order (EO) stretches the imagination by justifying its DPA authorities under the following; “to ensure and verify the continuous availability of safe, reliable, and effective AI [...]” Unlike missile parts or ventilators, or even infant formula, there is an incredibly limited provable nexus of national defense and artificial intelligence. It’s arguably unknown whether the risks cited (biological warfare/hacking/replication) are even feasible with the most experimental and advanced models out there. To this point, there is currently a $5 million prize available for an AI model to perform at an equivalent level to a Math Olympiad gold medalist. It’s a far road from the Math Olympiad to designing weapons of mass destruction. It’s also quite a stretch for the DPA to be applied for “safe, reliable, and effective” AI when there’s limited consensus within the industry on standards and even less from Congress on these definitions. As it stands, this EO will simply empower the executive branch to act as a gatekeeper for AI and presents security risks for sensitive data - all while forcing AI companies to take their cues on what constitutes “safe, reliable, and effective” AI from unelected bureaucrats under wartime authorities designed in the 1950s.
This interpretation of the DPA gives the government too much power and discretion to interfere with the AI industry, and creates unnecessary burdens and risks for AI innovation. For instance, cloud AI models using partitioned access to processing power could face joint scrutiny or increased oversight on front end innovators. This backdoor licensing regime could stifle critical early competition, discourage investment, and hamper American leadership in AI.
Another controversial action taken by President Biden under the DPA is the recent expansion of Title III DPA authority to pharmaceutical manufacturing. The order also directs the use of the DPA to increase the domestic production and stockpiling of critical drugs and active pharmaceutical ingredients, and to incentivize the development of advanced manufacturing technologies and capabilities.
While the order claims to address the public health and economic challenges posed by the COVID-19 pandemic and other factors, this is yet another central planning action thinly veiled under the guise of national defense. This action imposes excessive and arbitrary government intervention in the drug supply chain, and creates uncertainty and inefficiency for drug manufacturers and distributors. Given the complexity and diversity of the drug supply chain, and the existing mechanisms and initiatives (including some from Congress) to prevent and mitigate drug shortages, this is certainly a grave overreach. This use of the DPA could have far reaching unanticipated impacts on the supply chain, increase the production costs and prices of drugs, and undermine national competitiveness and innovation in the pharmaceutical sector. Drug companies could choose to contract or offshore production to avoid DPA implementation, thereby exacerbating this problem.
Potential Negative Impacts of DPA Expansion
This free flowing use of DPA authorities could come to haunt President Biden in the implementation of the CHIPS Act of 2022. This act provides roughly $280 billion in new funding to boost domestic research and manufacturing of semiconductors in the U.S. It also includes billions in subsidies and tax credits for domestic manufacturing. The legislation also prohibits funding recipients from expanding semiconductor manufacturing in China and other countries defined by U.S. law as posing a national security threat to the U.S.
While NTU has warned of market distortionary effects and that it could provoke trade wars and retaliation, chip manufacturers may rightly see U.S. investment as potentially risky as DPA use escalates. Developing an extremely expensive and complex factory for AI chips for instance, could become less profitable due to presidential action to either direct, hamper, or limit production capabilities. The current or a future administration may also see fit to place further restrictions on AI models, AI cloud computing, or chip manufacturers as they see fit based on their ideological or policy preferences.
The recent applications of the DPA by President Biden to address AI and drug shortages are overreaches of the DPA authority and set a dangerous precedent for centralized industrial management in the U.S., which could spread into additional sectors that have nothing to do with national security. The DPA was intended to be a temporary and emergency measure to mobilize the domestic resources and capabilities for national defense purposes, not a permanent and expansive tool to micromanage the domestic economy and industry for political and ideological purposes. The DPA should be used with caution and restraint, and with respect for the rights and interests of the private sector and the public. Congress should examine methods of curbing this runaway authority particularly in light of its upcoming reauthorization. The DPA should also be complemented by other policies and strategies that foster a more balanced and sustainable approach to enhancing the resilience and security of the U.S. supply chains and critical infrastructure, such as broad tax provisions that encourage research and development and economy-wide investment.