United States / Coronavirus Insights
Industry Implications of the Defense Production Act

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Jeremy Moses, Lead Industry Research Analyst
Apr 14 2020

In order to ensure sufficient stockpiles of medical supplies for the ongoing COVID-19 (coronavirus) pandemic, President Trump has invoked the Defense Protection Act (DPA), which allows the president to compel companies to manufacture necessary equipment for national emergencies. As of now, the Trump administration has compelled a group of large companies to manufacture ventilators, personal protective equipment, hospital beds and other equipment necessary to the response to this ongoing health crisis.

By being compelled to prioritize federal government orders, companies are prevented from selling materials to the highest bidder, which may dampen the potential revenue and profit gains these companies would otherwise be able to accrue. This may dampen a potential rise in revenue and profit for affected industries, such as the Medical Device Manufacturing industry (IBISWorld report 33451b). With that said, if the use of the DPA reduces the negative impact of the coronavirus pandemic, it will likely benefit revenue and profit for these industries in the long-term. Furthermore, Title III of the DPA authorizes the use of financial incentives, such as loans and purchase commitments, to reduce any potential financial strain from fulfilling these mandatory orders, which may benefit these affected industries.

 

 

Beyond these directly impacted industries, the priority given to manufacturing this equipment would come at the expense of capacity for other products, potentially dampening revenue for those industries. For example, General Motors is planning to build 10,000 Ventec Life Systems ventilators a month at its plant in Indiana, capacity which the company will be unable to devote to producing its automobiles. Other companies in the Car & Automobile Manufacturing industry (33611a), such as Ford, are also redirecting capacity to manufacture ventilators, which may reduce revenue in this industry for 2020.

However, General Motors has already reported a decline in automobile sales in the first quarter of 2020, a trend that is likely to continue in line with an expected decline in consumer spending in 2020. As a result, the impact of less capacity available for the automobile manufacturing industry may not be felt to the same extent as it would be in a healthier economy, as demand is likely to decline in line with this reduction in supply.

Additionally, industries that manufacture essential medical equipment for the coronavirus response, such as the Surgical Apparel Manufacturing industry (OD4110) may experience a shift in their international trade conditions. The Trump administration has blocked exports from 3M, a major manufacturer of face masks, that were destined for Canada and Latin America. As a result, exports may decline in these industries as the administration requests a higher proportion of industry products for domestic use.