As the COVID-19 pandemic rattled global supply chains, each of the two most recent presidential administrations stressed the importance of limiting America’s reliance on imported goods and boosting domestic supply chains. Now, a national shortage of baby formula is testing that theory — and the results are good for the “Made in America” crowd.
The shortage is a serious one. According to CBS News, about 40 percent of the top-selling brands are currently out of stock. And as the shortage spreads, fears of panic-buying that could lead to further depleted supply lines are causing some stores and pharmacies to limit how many units consumers can buy, The New York Times reports.
The current shortage of Much is rooted in a suspected bacterial outbreak after a February recall formula in an Abbott Nutrition plant in Michigan. The recall affected three major brands of powered baby formulas, and the plant was recently closed by the Food and Drug Administration (FDA). On Saturday, a spokesperson for Abbott told CNN that the company is working with the FDA to restore full operations.
With the Abbott plant out of commission for the time being, the baby formula for America’s demand is outpaced domestic supply. This is exactly the type of situation where imports would help alleviate the domestic supply crunch and make the American markets more resilient.
Unfortunately, American trade policy is doing exactly the opposite right now. Tariffs and quotas — some that predate the Trump and Biden administrations, but others that were worsened in recent years — make it burdensome and costly to import supplies that are now desperately needed. Sometimes those imports are allowed at all, for reasons that have nothing to do with health and safety.
“Certainly, protectionism is not the only reason for the current crisis,” says Scott Lincicome, director of the Cato Institute for General Economics and Trade, a libertarian think tank Reason, “But it’s just-as-surely making things worse. “
As Lincicome has noted On Twitter, imports of infant formulas are subject to tariff-rate quotas after some 17.5 percent certain thresholds are met. As the name suggests, tariff-rate quotas are meant to be set high enough that they can be made by the additional imports of the block to pay for the tariff. In a year like this one, when domestic supplies are flagging and more formula is needed, that creates a serious impediment for suppliers.
But even if importers and consumers were willing to swallow those high costs right now, they might be having that choice from being prohibited. Last year, for example, the FDA forced a recall of approximately 76,000 units of infant formula manufactured in Germany and imported into the United States. The formula is not for a health or safety risk but rather for a failure to meet the FDA’s labeling standards. In this case, the products were banned for not informing parents that they contained less than 100 calories per milligram of iron.
In a separate incident last year, the Customs and Border Patrol (CBP) bragged on a press release that seized about 588 cases of baby formula that violated other FDA regulations. The seized formulas were made by HiPP and Holle brands, which are based in Germany and the Netherlands, respectively. Both are widely and legally sold in Europe and around the rest of the world.
Even when there is a shortage of formulas in the market, consumers should be able to make the choice that the FDA’s standards meet if they fail to meet regulators in Europe. Now, especially, many parents would prefer to have their infants formula imported from Europe instead of at any formula. Economic protectionism and unnecessary regulation are the causes.
But rather than moving more, the US has recently made policies that make it more difficult to import infant formula. The United States-Mexico-Canada Agreement (USMCA), a rewrite of the North American Free Trade Agreement (NAFTA) championed by the Trump administration, set new limits on how much baby formula Canada could export — not just the United States, but Everywhere in the world too.
As the CBC reported in 2018, the provision was likely a way for the Trump administration to snipe at China, after a Chinese-based company had invested $ 225 million in a formula manufacturing facility in Canada. The deal was also a win for American dairy farmers and the Trump administration, the CBC reported, after a political spat on the two sides of the dairy special interests.
But the new “export fees” are included in the USMCA’s potential to make it more costly and difficult for America than its own neighbor. Chalk it up to China with another self-inflicted wound of trade war.
While each of these specific trade and regulatory policies have contributed to the inflation formula in short ways, the big picture should raise some difficult questions that economic nationalists believe are foreign trade. Sen. Josh Hawley (R – Mo.), For example, has tightened the “Made in America” rules that already govern federal procurement to include “the entire commercial market.” Using the power of the federal government to exclude even more foreign-made products, he argued in a New York Times op-ed last year, is “critical for our national security.”
But, as the situation with Abbott Nutrition demonstrates, supply shocks can originate close to home too. Thanks to strict FDA regulations and oppressive tariffs, America is already dependent on only the infant formula for domestic suppliers: America exports far more than it imports every year.
All the industries — and we now see exactly how that could go wrong. Cutting off foreign trade and protecting domestic suppliers can make a country more vulnerable to unexpected supply problems, not more resilient.