Biden Administration Considers Defense Production Act
If you have been in the trucking industry for as long as we have, you are aware that prices on trucks, new and used, are going through the roof. Skyrocketing prices are attributed to global shortages of various components such as rubber and aluminum, but most notably the semiconductor (chip) shortage. In the 21st century, almost everything uses chips. To combat the shortage, the Biden Administration may have to flex some of its power.
Defense Production Act
Gina Raimondo, Secretary of Commerce, had a meeting with various corporate representatives from companies ranging from Apple to General Motors on September 23rd.
In the meeting, Raimondo said that she is asking companies to nicely provide the government with their chip use information, but may have to use the Defense Production Act of 1950 to force companies to do it.
The Defense Production Act is a law that says Congress grants the president many different opportunities to influence the economy in the name of national defense. The section that applies most here is the ability of the administration to determine certain items to be protected from hoarding or price gouging. While the law and its use primarily lean towards the allocation of chips for defensive purposes (the military always wants new fighter jets), the ban on hoarding will reverberate to other sections of the economy as well. If Apple has 90 billion chips in shortage and must get rid of 80 billion, there may be a surplus after the Department of Defense gets its fill.
Right now providing data on chip storage and use is voluntary, but Raimondo said that may change in the future if not enough companies partake in the program.
Conclusion
To address the elephant in the room, the shortages are due in no short part to everyone’s favorite virus, COVID-19. We wrote earlier that the Biden Administration, compared to Trump, would have the economy play second fiddle to battling the pandemic. It is fair to say that these shortages are some of the results of this policy.
As new variants appear to be less virulent, we predict this administration will do a one-eighty as prices spiral out of control.
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