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The U.S. and other governments have taken a number of actions that are affecting production, trade, and supply chains. This regular update will keep you posted on these actions, and help you separate reality from rumor.

  1. President Trump invokes Defense Production Act (DPA). On March 18, President Trump invoked the 1950 wartime law to expand the production of hospital masks and protective gear to help fight the coronavirus. The act will be administered by the Commerce Department and will allow the government to require contractors to switch their production lines to manufacture needed medical supplies and other necessary goods.

    Importantly, companies will not be held liable for taking any action “resulting directly or indirectly from compliance with a rule, regulation, or order issued pursuant to” the DPA.

    DPA allows the federal government to compel companies through loans, loan guarantees, purchases and purchase commitments to prioritize and expedite development of supplies and resources to support national defense. It has three main sections:
    • Companies are required to accept and prioritize contracts from the government and to prioritize “materials, services, and facilities to promote the national defense or to maximize domestic energy supplies.” This provision has historically been used to ramp up military production, but will now be used for medical supplies.
    • The Act provides for financial measures, such as loans, loan guarantees, purchases, and purchase commitments, to speed up the production of materials “needed to support national defense and homeland security procurement requirements.”
    • The act also allows the government to approve voluntary agreements between business competitors to work together to plan and coordinate measures to increase the supply of materials.
  2. U.S. and Canada temporarily restrict non-essential travel. On March 18, the U.S. and Canada jointly announced a temporary restriction on non-essential travel, such as recreational and tourism. This does not extend to supply chains, such as trucking.
  3. No Executive Order yet to “Buy American.” There are some reports that the Administration is considering an executive order for government agencies such as Health and Human Services and Veteran Affairs to buy pharmaceuticals and medical supplies from U.S. companies. Some industry groups are advising against the move.
  4. Medical products receive tariff exemptions, but nothing widespread. Key Chinese-origin products including latex gloves, face masks, sanitizing wipes and antimicrobial products commonly seen in medical exam rooms, such as scrub shirts and pants, received exemptions from the Section 301 Chinese tariffs. So far, the Administration has rejected calls to remove all 301 tariffs.
  5. EU invokes export restrictions. The European Commission took measures on March 15 to protect the availability of supplies of personal protective equipment (PPE), including masks, gloves and protection garments, requiring that exports of such equipment outside of the European Union are subject to an export authorization. Under this authorization, such items can only be sold to non-EU countries with the explicit authorization of the EU governments.
  6. U.S.-imposed travel bans do not extend to trade but likely will impact pricing. The U.S. is currently banning travel from Europe, Ireland and the U.K. While the ban is limited to travel, it is estimated to increase air cargo pricing as an estimated 60% of goods from Europe are transported in bellies of passenger planes.
  7. USMCA still planned to go into effect June 1, for now. The Administration still plans for the USMCA to go into effect June 1. The U.S. automobile industry is expressing concern that there is not enough time to implement the new rules, especially given the disruption to supply chains caused by the coronavirus.

Our team will continue to share the latest developments and provide insights on the spread of coronavirus and its impact across sectors.