DP17388 COVID-19 vaccine supply chains and the Defense Production Act

Author(s): Chad P. Bown
Publication Date: June 2022
Keyword(s): advance market commitments, COVID-19 vaccines, Defense Production Act, input shortages, Manufacturing, priority-rated contracts
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17388

In response to the COVID-19 pandemic, the US government used novel policies to accelerate research, development, and production of a diversified portfolio of new vaccines. This paper begins by describing the Defense Production Act (DPA) of 1950 and the initial "priority-rated" contracts agreed to under Operation Warp Speed in 2020 to expedite manufacturing and achieve scale, which succeeded in producing hundreds of millions of doses of COVID-19 vaccines by early 2021. However, a puzzle soon emerged, as the scale of US vaccine production was shortly thereafter overtaken by plants in the European Union and India. The paper investigates the tradeoffs US policymakers faced in early 2021 - once much of the initial uncertainty about the safety and effectiveness of many COVID-19 vaccines had been resolved - about whether to recalibrate contracts to expand production capacity to help meet global, instead of US, vaccine demand. It also examines the emergence of input shortages and assesses whether both the price constraints implicit in the 2020 DPA contracts and business decisions made to quicken the process of bringing new vaccine plants online globally inadvertently exacerbated them. It also explores the potential need for complementary, input capacity-enhancing policies in the face of highly fragmented, cross-border COVID-19 vaccine supply chains.