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An Arms Dealer, an Ex-N.F.L. Player and Huge Federal Contracts for Medical Gowns

The Defense Department distributed more than $1 billion in federal contracts last month to companies for disposable medical gowns to protect those on the front lines of the coronavirus pandemic.

More than 100 large and midsize companies, many with track records of successfully completing federal procurement contracts, bid for the work. But the majority of the awards ultimately went to a handful of unexpected and inexperienced companies that now find themselves on the hook to produce hundreds of millions of gowns in a matter of months.

One deal, for $323 million, went to JL Kaya, whose only prior federal contracting work was a $7,296 project to make gauze.

A batch of contracts worth $194 million went to Health Supply US, a company founded this year by a former Trump administration official.

And an $88 million contract for gowns went to Maddox Defense, which says it has done government subcontracting work but has never managed a major contract of its own.

Two of those companies have been working with a retired National Football League player and, in one case, a former arms dealer who was barred from government contracting and was the inspiration for the film “War Dogs.”

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Credit…Warner Bros.

The contracts for the disposable gowns were announced last month by the Defense Logistics Agency, a Pentagon division that is working on behalf of the Department of Health and Human Services to replenish the government’s stockpile of protective gear and other emergency supplies. The contracts — awarded to a handful of companies, almost all of them small businesses — require the companies to deliver as many as 260 million gowns by early next year.

The contracts went to the companies that offered to produce gowns at the lowest price. Jordan Gillis, the assistant secretary of defense for sustainment, said in a statement that in awarding the contracts, the Defense Department had considered the “financial capability, production capability, past performance and verified references” of bidders.

Mr. Gillis said bidders had “provided sourcing locations and production facility information to demonstrate their ability to comply with” the contract requirements. Since the contracts were awarded, he added, the Defense Department has met with the companies and “implemented robust contract oversight measures,” including visiting production facilities.

But the administration’s selection of inexperienced companies for a crucial job has raised questions across Washington.

At a Capitol Hill hearing last week, two senators expressed concerns that the contracts went to unqualified companies. In phone calls and letters, trade groups for major garment manufacturers have lodged complaints with the Defense Logistics Agency. And at least one company filed a complaint about the gowns contracts with the Government Accountability Office, which investigates federal spending.

“These are large and urgent contracts,” said Charles Tiefer, a former member of the federal Commission on Wartime Contracting in Iraq and Afghanistan and a professor at the University of Baltimore School of Law. “You would expect them to be buying from major contractors they had gone to before, not from unknown contractors, not from unknown entities.”

The federal government’s effort to procure personal protective equipment during the pandemic has been deeply troubled. This spring, a task force led by President Trump’s son-in-law and adviser, Jared Kushner, struggled to obtain masks as health care workers reused respirators and nurses wore garbage bags when they ran out of gowns. Mr. Kushner’s team favored leads about available equipment that came from Mr. Trump’s political allies and personal acquaintances, The New York Times has reported.

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Credit…Doug Mills/The New York Times

Many states and hospitals were left to fend for themselves. They have had to sort through a sea of scammers that have sent prices soaring. In one instance, New York State awarded an $86 million contract for ventilators to a man who had never sold one before. The deal quickly unraveled.

JL Kaya won the largest award for disposable medical gowns: up to 85 million in the next several months. The company is run by Jose Lagardera, who on LinkedIn said his company’s founding philosophy was to “deliver quality, innovation and service in all of our dealings with our customers, and suppliers.” While the company has done federal subcontracting work before, its only previous contract with the U.S. government was in 2016, when it won a small deal to provide surgical gauze to the Army, according to public records.

It is not clear how JL Kaya plans to quickly produce tens of millions of medical-grade gowns. The company did not reply to numerous requests for comment. The email address on its website did not work.

Mr. Lagardera has teamed up with Bront Bird, who was a linebacker for the San Diego Chargers from 2011 through 2013 and is now a businessman. Mr. Bird posted a YouTube video on Sept. 25 in which he and Mr. Lagardera are in what appears to be a factory where workers are making gowns. Mr. Bird describes himself as an “agent and technical adviser” to JL Kaya. Mr. Lagardera appears in the background but does not speak.

With the camera on a man modeling a shiny blue gown, Mr. Bird said in the video that he was seeking approval to modify the design of the JL Kaya gowns to include thumb straps, among other features.

Mr. Lagardera and Mr. Bird did not reply to multiple requests for comment.

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Credit…Ben Margot/Associated Press

Since leaving football, Mr. Bird has pursued a variety of careers. He tried to win government work to rebuild the Puerto Rican electrical grid after Hurricane Maria in 2017 when he was chief executive of Foreman Electric, a services company in Mr. Bird’s hometown, Odessa, Texas. He later founded Karla Mae Capital, whose website says it provides companies with financing.

In recent months, Mr. Bird has turned his attention to the expanding market for personal protective gear. He has been working with Efraim Diveroli, the arms dealer portrayed by Jonah Hill in “War Dogs,” who is co-owner of a company called Medlink.

JL Kaya subcontracted some work on the federal award to Medlink, according to the Defense Department and Mr. Diveroli’s lawyer.

Mr. Diveroli is not supposed to be working on projects for the U.S. government. In 2009, he pleaded guilty to selling prohibited Chinese ammunition to the Pentagon and was later sentenced to four years in prison. He was barred from federal contracting, according to a March 2011 debarment order.

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Credit…Miami-Dade County Corrections Department

Mr. Diveroli declined an interview request through his lawyer, Eric Montalvo. Mr. Montalvo said the ban on his client’s involvement with federal contracts included an exemption that permitted him to work on commercially available products.

A spokesman for the Defense Department, Charles L. Prichard, said the Defense Logistics Agency had not been aware of Mr. Diveroli’s involvement with JL Kaya when it awarded the company a $323 million contract. After receiving an inquiry from The Times, the agency contacted JL Kaya, which disclosed the subcontract with Medlink.

Mr. Prichard said Medlink had “assisted JL Kaya with locating and vetting locations for production,” but had “no role” in making the gowns. “JL Kaya has since disassociated itself from Medlink,” Mr. Prichard said.

A Medlink official referred The Times to Mr. Montalvo, who confirmed that Mr. Diveroli had stopped working with JL Kaya.

Experts on the garment industry said small, untested companies like JL Kaya would be hard pressed to quickly fulfill federal contracts for tens of millions of gowns.

“Given the volume of the awards, this is going to take thousands of workers to fulfill,” said Kimberly Glas, president of the National Council of Textile Organizations. The group represents some of the nation’s largest textile makers, including some that applied for but did not receive the federal contracts.

Some lawmakers are worried about the ability of companies like JL Kaya to fulfill the government’s orders.

“It’s my understanding that some of those contracts have been to companies that have very little experience producing that kind of equipment, that the standards have not always been up to par and it’s created some real challenges,” Senator Jeanne Shaheen, Democrat of New Hampshire, said during a congressional hearing last week.

Ellen Lord, the under secretary of defense for acquisition and sustainment, said during the hearing that the Defense Logistics Agency’s “very stringent criteria were met and adhered to” in awarding the contracts.

On Sept. 18, six trade associations representing American manufacturing companies wrote to the Defense Department expressing “serious concerns in relation to certain contract awardees for reusable and disposable gown procurement.” The letter said it was unclear whether the companies that won contracts could meet the government deadline and “have the technical proficiency to provide the quality of products necessary to protect health care workers.”

Among the other companies that won contracts to make gowns was Health Supply US. It was founded this year by Chris Garcia, who briefly served in the Trump administration as deputy director of the Minority Business Development Agency and was appointed to a White House advisory council in July. The company won several awards to make disposable gowns, together worth as much as $194 million.

Health Supply US plans to manufacture its gowns at several locations, including a former Brooks Brothers shirt factory in North Carolina. The company has also turned to another firm, Maddox Defense, to make as many as 11 million gowns on its behalf.

In addition to doing work for Health Supply US, Maddox Defense won a federal contract of its own worth as much as $88 million. It has set up production in Houston, where it is producing an average of 55,000 gowns per day, according to the company’s chief executive, Jason Maddox. He said the company had already produced millions of gowns for governments and hospitals.

Mr. Maddox said Mr. Bird had been working with his company as a technical adviser on the gowns. He said that Maddox Defense would be able to fulfill the federal contract and that the trade groups were simply “sore losers.”

“They’re alway going to protest,” Mr. Maddox said of his competitors. “They’re always going to try to dig up some dirt that’s just not true.”

Kitty Bennett contributed research.

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In Bid for TikTok, Microsoft Flexes Its Power in Washington

SEATTLE — Microsoft’s quiet pursuit to buy TikTok suddenly appeared dead a month ago, when President Trump said he wanted to ban the popular social media app for national security reasons. So Brad Smith, the tech giant’s president, went to work.

He called two dozen lawmakers, telling them that TikTok would be safe in Microsoft’s hands. Within 48 hours, he had what he needed.

Mr. Trump saw a tweet by Senator Lindsey Graham, a close ally of the president and one of the people Mr. Smith talked to, calling a Microsoft deal “win-win.” Soon, Satya Nadella, Microsoft’s chief executive, was on the phone with Mr. Trump, and got his blessing to proceed with acquisition talks.

It was another win for Microsoft’s quietly effective Washington influence operation.

The software giant was once a cautionary tale of an arrogant tech company caught off-guard by government scrutiny. But under the leadership of Mr. Nadella and Mr. Smith, it has built one of the most potent forces in the nation’s capital, one that could give it an advantage over the several potential bidders for TikTok if the company continues to pursue a deal.

It secured a coveted Pentagon contract widely expected to be awarded to Amazon. It has largely avoided antitrust scrutiny by Congress and federal regulators even though it is valued at more than $1.7 trillion, more than Google and Facebook, which are under investigation. And while it has disagreed publicly with the Trump administration on several issues, like immigration, it is one of the few big tech companies Mr. Trump and other politicians do not regularly denigrate.

The company does so despite spending less on lobbying than many of its peers. Last year, Microsoft spent $10.3 million on federal lobbying, several million less than Amazon, Facebook or Google, according to the Center for Responsive Politics. It currently has 100 in-house and outside federal lobbyists registered to work on its behalf.

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Credit…Kevin Lamarque/Reuters

People who have worked with Microsoft and those on the receiving end of its lobbying say it is particularly adept at employing a focused, long-game approach, building relationships with lawmakers and other Washington insiders over noncontroversial issues, like when Melania Trump visited Microsoft’s headquarters to discuss her Be Best campaign against online bullying. Its relationship with Mr. Graham extends back many years, with Microsoft supporting his push to ban forced arbitration in sexual harassment claims, and Mr. Graham backing a law granting law enforcement access to data that Microsoft had championed.

It also relies on a staff of policy experts rather than well-known public figures, contrasting with the approach taken by some of its peers. Amazon’s top policy executive is Jay Carney, a former White House press secretary, and Susan Molinari, a Republican former congresswoman from New York, ran Google’s federal lobbying for years.

“They learned their lesson,” said Jeff Hauser, the director of the Revolving Door Project, a progressive group that tracks tech’s influence. “I think they now see themselves as best served by having a permanent, discreet presence in the halls of power.”

Bill Gates, Microsoft’s co-founder, proudly eschewed Washington even as his company grew into a giant and he became the world’s richest man. The company didn’t hire an in-house lobbyist until 1995, 20 years after its founding, when it faced an antitrust inquiry from the Justice Department. The lobbyist, Jack Krumholtz, was a one-man shop, often making calls on his car phone between meetings, giving him the name “Jack in the Jeep.”

The lobbying effort grew quickly, but it did not hold the pressures at bay. Microsoft was sued by the government and pummeled in public. In 2002, a federal judge approved a five-year consent decree with the Justice Department that was extended twice.

By 2009, with its antitrust fights behind it and President Barack Obama taking office, Microsoft revamped its approach. It enlisted Fred Humphries, who had worked for Richard Gephardt, the former House majority leader, to run its Washington operations.

He pushed to open a big policy office on K Street, more than doubling the space for the same number of employees. One night it might host a fund-raiser for Senator Ted Cruz; on another, a panel for a tech industry association.

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Credit…Stephen Crowley/The New York Times

But Microsoft’s polite veneer was at times overshadowed by fights it picked with competitors, as with its aggressive campaign against Google led by the Democratic pollster Mark Penn. It dumped opposition research with journalists and lawmakers and ran alarmist ads on TV saying consumers were “Scroogled” by the search company.

Publicly, Microsoft looked petty. It also got few results. In 2013, regulators decided not to bring antitrust charges against Google after a high-profile investigation.

In 2014, Mr. Nadella took over the reins as Microsoft’s chief executive. The son of an idealist civil servant in India’s first generation after colonial rule, Mr. Nadella did not see government as something to be gamed and insisted on a more “principled” approach, Mr. Smith said.

Soon, the company’s Washington office got word that it was time to make nice. Scroogled was done. Mr. Penn left the company a year later.

Instead, the company methodically identified policies to pursue and then slowly ground through the interconnected power of lobbyists, regulators and lawmakers to make them happen. In 2015, Mr. Smith, then the general counsel, was also named Microsoft’s president, bolstering his role as the company’s chief statesman.

In 2017, Microsoft chose to push expanding broadband access in rural areas as a signature issue. The feel-good policy has business implications, since better connectivity means more cloud computing. It came with another key benefit: It had bipartisan appeal.

“One of the great things about the broadband issue is we do get to work with everybody,” Mr. Smith said.

Microsoft proposed using wireless frequencies that exist in the “white space” on unused broadcast channels. Television stations balked, saying the change would force broadcasters off the air.

Microsoft was undaunted. While initially adversarial, in early 2018 its lobbyists met with TV stations’ representatives at the National Association of Broadcasters’ Dupont Circle headquarters, hoping to find some common ground. Mr. Smith took the company’s argument to regulators. In December 2018, he visited multiple members of the Federal Communications Commission.

Many executives arrive for their meetings at the agency at the last possible minute, hoping to avoid attention. Mr. Smith instead showed up early and spent time in a waiting area schmoozing agency staff, according to two people who remembered the visit. They spoke on the condition of anonymity because they were not authorized to speak publicly about the visit.

Microsoft and the broadcasters reached an accord on several key points in 2019, and the F.C.C. has sought comment on some of Microsoft’s proposals, making it possible they could turn them into reality in the coming months.

“Over all, in the end, I think we got to a productive process,” said Patrick McFadden, deputy general counsel at the National Association of Broadcasters.

Despite its more subdued approach, the company still sometimes attacks competitors. Early in the race for a $10 billion Pentagon cloud computing contract, Microsoft joined a coalition including Oracle to oppose a technological approach widely seen as favoring Amazon. Microsoft later dropped out of the Oracle alliance, but the influence campaign helped slow the contracting process, a delay that gave Microsoft more time to improve its technology. Microsoft eventually won the contract, though the work is paused as part of Amazon’s lawsuit challenging the award.

“I’m not here to say that we’re candidates for some kind of sainthood,” Mr. Smith said. “We will stand up and take on battles.”

In July, Mr. Smith met with members of the House antitrust committee ahead of testimony from the chief executives of Amazon, Google, Facebook and Apple. Mr. Smith said he had spent most of his time telling them about Microsoft’s own experience facing antitrust scrutiny two decades earlier. But he concedes he spent “probably 10 percent of my time” with the committee saying the problems Microsoft had in the ’90s most closely resemble the way app stores today control how developers can reach customers, putting Apple in particular in its cross hairs.

In mid-August, Mr. Smith got tested for Covid-19 before flying by private jet to Washington for meetings at the White House and on Capitol Hill, trying to explain how Microsoft could address the security concerns related to TikTok’s data collection.

If the company’s bid is successful, Microsoft will face issues, like misinformation, that it has long avoided thanks to its focus on enterprise rather than consumer products.

“I think it will require the right kind of ambition,” Mr. Smith said. “But also an appreciation that if these problems were easy to solve, others already would have done so.”

Karen Weise reported from Seattle, and David McCabe from Washington.

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What’s a Palantir? The Tech Industry’s Next Big I.P.O.

About a month before he became president, Donald J. Trump met with the leaders of the country’s top technology companies at Trump Tower in Manhattan.

The meeting included the chief executives of Amazon, Apple, Google and Microsoft and other household names like Tesla and Oracle. And then there was Alex Karp, chief executive of a company called Palantir Technologies that few outside Silicon Valley and government circles had heard of.

Palantir, the only privately held company represented in the room, had become a major player among government contractors. And, indicative of its growing prominence, one of its founders, the venture capitalist Peter Thiel, had supported Mr. Trump during the 2016 election and had helped set up the meeting.

Now, as Palantir prepares to go public in what could be the largest stock market listing of a tech start-up since Uber last year, many are wondering: What exactly does this influential but little-known company do?

Offering software — and, crucially, teams of engineers that customize the software — Palantir helps organizations make sense of vast amounts of data. It helps gather information from various sources like internet traffic and cellphone records and analyzes that information. It puts those disparate pieces together into something that makes sense to its users, like a visual display.

But it can take plenty of engineers and plenty of time to make Palantir’s technology work the way customers need it to. And that mix of technology and human muscle may lead to some confusion on Wall Street about how to value the company. Is Palantir a software company, which is traditionally a very profitable business, or is it a less-profitable consulting firm. Or is it both?

“For investors, it is a bit of a Rubik’s Cube,” said Daniel Ives, managing director of equity research at Wedbush Securities.

Palantir, which was founded in 2003, has long described its technology as ideal for tracking terrorists, often embracing an unconfirmed rumor that it helped locate Osama bin Laden. The name Palantir is a nod to spherical objects used in “The Lord of the Rings” books to see other parts of fictional Middle-earth.

Funded in part by In-Q-Tel, the investment arm of the Central Intelligence Agency, the company built its flagship software technology, Gotham, with an eye toward use inside the C.I.A.

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Credit…Christophe Petit Tesson/EPA, via Shutterstock

Palantir’s technologies can also help track the spread of the coronavirus, as it is now doing for the Center for Disease Control. And they can help locate undocumented immigrants, which is how U.S. Immigration and Customs Enforcement, under orders from the White House, is using these technologies, according to recently released federal documents.

The company is deeply wedded to its work inside the government. Though some Palantir employees have protested its work with ICE and other parts of the government, it has not backed off.

In a letter to potential investors, included in a filing with the Securities and Exchange Commission on Tuesday, Mr. Karp pointedly jabbed at fellow Silicon Valley companies and said he was proud of Palantir’s work with federal agencies.

“Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments,” he wrote, adding that “software projects with our nation’s defense and intelligence agencies, whose missions are to keep us safe, have become controversial, while companies built on advertising dollars are commonplace.”

In recent years, Palantir has tried to expand its work in the private sector, serving big-name businesses like JPMorgan Chase, Airbus and Ferrari and offering new software tools that businesses can use on their own. A little more than half of Palantir’s revenue now comes from commercial businesses, according to the S.E.C. filing.

The 2,500-employee company holds about a 3 percent share of what has become a $25 billion “data analytics” market, according to PitchBook, a firm that tracks the performance of private companies. “That is a small but significant share,” said a PitchBook analyst, Brendan Burke.

Palantir has raised more than $3 billion in funding and is valued by private market investors at $20 billion, but it has not turned a profit since it was founded in 2003. In 2019, Palantir’s revenues topped $742.5 million, a nearly 25 percent increase over the previous year. But it lost more than $579 million, about the same as it lost in 2018, according to the financial documents made public on Tuesday.

The company recently announced that it was moving its headquarters to Denver, which could cut expenses.

A Palantir spokeswoman declined to comment for this article.

Though the company has won an impressive array of federal contracts — in the last four years, it landed at least $741 million in guaranteed money and potentially as much as $2.9 billion, according to the documents — it has also stoked controversy among competitors and federal employees.

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Credit…Shannon Stapleton/Reuters

In 2016, the company sued the Army over the procurement process for a new version of an intelligence analysis system, claiming the process was unlawful and wasteful. Palantir ended up winning the contract, which accounts for $1.7 billion of the $2.9 billion in potential federal contract money it has won since 2016.

In April, an anonymous government official sent a lengthy memo to Joseph D. Kernan, the under secretary of defense for intelligence, describing the inner workings of a flagship Pentagon operation called Project Maven.

An effort to remake American military technology through artificial intelligence, Project Maven has drawn on the expertise of more than 20 American companies, including Palantir.

The project points to how Palantir works with customers. It often deploys specialists, called “forward deployed engineers,” who spend weeks, months or years customizing and expanding its software for the task at hand. The company builds whatever data software that needs building — databases and software connections and on-screen visual displays that help people get their work done.

The details of Palantir projects can vary. It usually connects different sources of data and provides a way for everyday employees to search through it. But in Project Maven, it is offering tools that help seasoned, artificial intelligence specialists build complex mathematical systems, called deep neural networks, that can recognize objects in images.

Inside Project Maven, Palantir provides software that holds enormous amounts of video footage captured by flying drones operated by the Army and the Air Force. A.I. specialists then use this software to build systems that can automatically identify buildings, vehicles and people in the footage.

The memo, obtained by The New York Times, said that although Palantir had come late to Maven, the company had grown to “touch almost every aspect” of the project through contracts worth approximately $40 million a year. The document accused Maven leadership of skirting Pentagon rules and ethics in giving preferential treatment to the start-up, whose employees had developed unusually close relationships with their partners inside the military.

The memo and related emails showed the company’s considerable influence inside the government.

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Credit…Andrew White for The New York Times

Among other complaints, the memo to Mr. Kernan claimed that a Palantir employee had sat in on a meeting where government officials — some of whom did not know the Palantir employee was in the room — discussed future contracts and their dollar amounts, which could give the company an “astounding” advantage when bidding for new work.

After the memo, the Defense Department began a formal inquiry into Project Maven, according to two people familiar with the matter who were not allowed to speak about it publicly. The outcome is not yet known. A Defense Department spokesman for Project Maven declined to comment.

Palantir’s unusual business model is not always a perfect fit for military contracts. Though Palantir sells a combination of software and consulting services, all costs are folded into a single software license negotiated with the customer. In other words, the consulting work done by its engineers is layered into the software licensing fees, according to company financial documents. Typically, the government pays for consulting work separately from software licenses.

This means customers often pay for technology that is not yet built. “It is very unusual,” said Jeff Peters, head of global business development at Esri, a longtime government contractor that competes with Palantir. “The business model is different from almost any other technology company.”

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Credit…Peter DaSilva for The New York Times

VMware Pivotal Labs, a division of Dell, has adopted a similar model to Palantir, saying that it helps customers produce software that actually does what it is supposed to do.

This unusual business model has led to complaints, including in the memo to Mr. Kernan, that Palantir locks customers into its technology. Though the company is in ways building custom software, that software is still owned by Palantir because it is sold under a commercial software license. That means Palantir can sell that customized software to other clients.

All this hangs over the company as it prepares to go public. If Palantir stumbles, many competitors are poised to build similar technology for the government, including traditional government contractors like Oracle as well as Amazon, Microsoft and a growing number of other tech companies.

“There has been an assumption that Palantir is the only major player in this space,” said Jack Poulson, executive director of Tech Inquiry, which tracks the government work of tech companies. “But it is clear that is not the case.”

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Pentagon Asks to Reconsider Awarding Huge Cloud Contract to Amazon

SAN FRANCISCO — The Defense Department said on Thursday that it would re-evaluate the awarding of a $10 billion cloud computing contract to Microsoft after sustained protest from Amazon, which had contended that it lost the deal because of potential interference from President Trump.In a legal brief filed to the Court …

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Coronavirus Spurs U.S. Efforts to End China’s Chokehold on Drugs

WASHINGTON — The global spread of the coronavirus is reigniting efforts by the Trump administration to encourage more American manufacturing of pharmaceuticals and reduce dependence on China for the drugs and medical products that fuel the federal health care system.The effort includes a push by the White House trade adviser …

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