Economics

America's Trade and Regulatory Policies Have Contributed to the Baby Formula Shortage

Why do we have tariffs on imported formula in the middle of a shortage?

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As the COVID-19 pandemic rattled global supply chains, each of the two most recent presidential administrations stressed the importance of limiting America's supposed reliance on imported goods and boosting domestic supply chains. Now, a national shortage of baby formula is testing that theory—and the results don't look 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 news of the shortage spreads, fears of panic-buying that could further deplete supply lines are causing some stores and pharmacies to limit how many units consumers can buy, The New York Times reports.

Much of the current shortage is rooted in a February recall of formula after a suspected bacterial outbreak at an Abbott Nutrition plant in Michigan. The recall affected three major brands of powdered baby formula, and the plant was subsequently closed as the Food and Drug Administration (FDA) inspected it. 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, America's demand for baby formula has outpaced domestic supply. It's exactly the type of situation where imports would help alleviate the domestic supply crunch and make 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 the supplies that are now desperately needed. Sometimes those imports aren't allowed at all, for reasons that have nothing to do with health and safety.

"Surely, protectionism isn't the only reason for the current formula crisis," Scott Lincicome, director of general economics and trade for the Cato Institute, a libertarian think tank, tells Reason, "but it's just-as-surely making things worse."

As Lincicome has noted on Twitter, imports of infant formula are subject to tariff-rate quotas of 17.5 percent after certain thresholds are met. As the name suggests, tariff-rate quotas are meant to be set high enough that they effectively block additional imports by making it unprofitable to pay 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 higher costs right now, they might be prohibited from having that choice. 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 wasn't a health or safety risk to babies but merely failed to meet the FDA's labeling standards. In this case, the products were banned for not informing parents that they contained less than 1 milligram of iron per 100 calories.

In a separate incident last year, Customs and Border Patrol (CBP) bragged in a press release about seizing 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 isn't a shortage of formula in the market, consumers should be given the choice to buy perfectly safe products that are approved by regulators in Europe even if they fail to meet the FDA's standards. Now, especially, many parents would probably prefer to feed their infants formula imported from Europe instead of not having access to any formula at all. Economic protectionism and unnecessary regulation are the reasons why that's not a viable solution right now.

But rather than moving toward allowing greater trade, the U.S. has recently adopted policies making it more difficult to import infant formula. The United States-Mexico-Canada Agreement (USMCA), the 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 to the United States, but anywhere else in the world too.

As the CBC reported in 2018, that 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 between the dairy special interests on both sides of the border.

But the new "export fees" included in the USMCA likely make it more costly and difficult for America to import extra supplies of formula from its northern neighbor. Chalk it up to another self-inflicted wound of the trade war with China.

While each of these specific trade and regulatory policies has contributed to the infant formula shortage in small ways, the bigger picture should raise some difficult questions for the economic nationalists who believe that foreign trade is a vulnerability for America's economy. Sen. Josh Hawley (R–Mo.), for example, has suggested tightening 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 largely dependent on only domestic suppliers for infant formula: America exports far more than it imports every year.

That's exactly the situation the economic nationalist want in all industries—and we're now seeing exactly how that can go wrong. Cutting off foreign trade and protecting domestic suppliers can make a country more vulnerable to unexpected supply problems, not more resilient.

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  1. I haven't looked, but I know in my heart that someone, somewhere, is blaming this shortage on Dobbs.

    1. As well they should. With the literal BAN on abortions across the country the overflow of the borned fetuses is exhausting the supply of available formula. With potential chest feeders inadvertently amputating access via trans medical care, who will be left to feed the starving and fully matured zygotes. Where are the Handmaidens!!

  2. This is why abortion is more important than ever. WE HAVE TO PROTECT THE FORUMULA SUPPLY, PEOPLE!

  3. As the COVID-19 pandemic rattled global supply chains

    Did it?

    1. I'm betting ten years from now COVID will still get blamed for any shortage we ever feel.

      1. They still blame Prop 13 for all kinds of crap here that's completely irrelevant, and that was passed 45 years ago.

        Covid is the excuse that keeps on giving when it comes to political stupid shit.

      2. In conversations with people I try to make a clear distinction between problems caused by the virus and problems caused by governments' reactions to the virus. For most people it's a distinction without a difference. Like trying to point out that government does not run society or that money is not wealth. Their reaction is often to call me stupid, as if their inability to understand is due to a deficiency in my intellect. See that a lot around here as well.

    2. Amazing how Boehm continues to ignore a realized risk of manufacturers exporting all production overseas as a primary cause of these issues. This isn't saying for government to fund America First but pointing out supply chain offshoring has always carried production risk shortages and it is now just finally realized.

      1. Well one of the issues is the over-regulation from the FDA and from states. It keeps prices too artificially high and concentrates domestic production in too few sources. When there's a domestic set back, there's not enough competition to ramp up production to fill the gaps and exploit the marketplace.

        The reason a lot of production gets shipped overseas is because minimum wage laws prevent American labor from competing on the free market. American resources also don't compete on the free market thanks to the FDA and other environmental agencies.

        I'm fine with globalized supply chains. In many ways they've been forced by the domestic barriers we've put in place limiting actual market competition. If you want to bring things back to the domestic side, however, you can't throw up more barriers in the form of tariffs that simply raise costs, you have to eliminate the barriers keeping Americans from competing.

    3. Evaporated milk, karo syrup and water. Shake it all together and heat the bottle in hot water.

      1. Old school.

        1. Also breast feeding works well. Older school.

  4. How long until the Dems tie this to Roe v Wade?

    1. That was exactly what I thought about when seeing this. I'd remembered there had been a huge scandal about baby formula in China. So bad that even the chinese won't buy it anymore.

  5. Sure, let's get rid of tariffs so we can import Chinese "drywall" baby formula. That's the ticket.

    1. Actual parent here. We do not want the Chinese formula; even Chinese people don’t want Chinese formula. We want the superior Dutch and German formula, which has better ingredients and formula but is technically banned. You can still get it in the formula underground (lol).

  6. This article is an example of why I find Boehm the Birdbrain amusing....

    Who the fuck wants to feed their baby Chinese made baby formula? You know, the same people who gave us tainted dog food to kill off Fido, and of course, the fucking China virus (Kung Flu).

    1. More to the point, from a libertarian (or at least capitalist) point of view, a lack of said formula is a strong incentive to ramp up local production.

      The reason there's a shortage is reliance on slave or cheap labor and currency manipulation from overseas competitors making local competition unprofitable. If the Yuan floated on the open market I'd be less averse to globalist arguments, but for now it has just skewed the market, and things are fucked up because of it. If you fuck things up, when something goes wrong you don't say "It's because we're not fucking it up even more!"

      1. What is meant by the highest employment rates in decades, followed by the lowest productivity rates since the 1940s.

        Isn’t it crazy to believe an economy needs to produce things or services people want to buy or hire.

        If y’all really want a good laugh go on vanity fair. The madness of TDS and public charge immigration lives on.

        1. Where are you getting your productivity numbers from? I'm legitimately curious because the BLS says productivity has never been higher.

  7. Obviously what we need to import are wet nurses.

    1. Yeah where is the call for open borders to bring in wet nurses?

      1. I mean they believe open borders will solve every other problem.

    2. I’ll sponsor one from the Ukraine, maybe two. I’m thinking early 20’s, big tits, small waist, hot.

  8. Alas, no. The reason there is a shortage is that producers or wholesalers are not allowed to raise prices by State anti-gouging laws. Get no stuff at a low price instead of less stuff at a high price.

    Tariffs raise price; they do not cause shortages.

    1. Scalpers don't increase the amount of an item that exists. Having people go to stores, buy all the available formula and sell it on ebay doesn't help anyone

      1. Umm, maybe the people buying it?

  9. moms literally supplied with answer to supply chain problem.

  10. Why do we have tariffs on imported formula in the middle of a shortage?

    I don't think us lifting tariffs means that Winnie the Pooh will lift his lockdown on the hub of China's largest manufacturing region.

    1. No, US tariffs shifting or vanishing means that Chinese production ramps up, and that the greatly increased time for sea freight from China will magically go away. /sarc

  11. Ya know, there is a way to feed a baby with no formula at all.
    So suck it.

    1. Seems as though most of the commentators didn't actually read the article. The USA exports far more formula than it imports. The key idea, at least to me, is trade regulations have unintended consequences and, of course, hurt consumers here and abroad.

  12. Clearly we need the Uber for titty milk. All of those unfortunate women forced to have babies without access to abortions can hire themselves out as nurse maids to strangers using an app. The sharing economy solves everything, right?

    1. Stop using such oppressive words! "Baby" makes all suckling-prone individuals sad. And "milk" can be threatening to the lactose-intolerant. Please make sure your program provides chest beverage equity.

      1. My bad.

        "Chest beverage dispensers" and "Chest beverage consumers".

  13. As someone who works in retail, it's incredibly common to see baby formula bought by Indians in mass quantities to send back home to India, because the quality is much better than what is available there.

    If anything, the problem is we don't have enough plants in the US producing it, not that we don't import enough low quality Chinese stuff

    And seeing what is going on in Europe, does it really make sense to give China more leverage over us when the inevitable happens and they invade Taiwan?

    1. RTFA. China isn't the only country exporting baby formula. Germany and other EU nations produce formula as high quality as the USA, if not better - but it can't be imported because getting FDA approval is too difficult.

  14. Why not allow people to import baby formula from Bumfuckistan, India or whatever third-world race-to-the-bottom third-world shithole you think will solve this problem that democratically-elected government? Because it'll be shittier and filled with more heavy metals than baby formula manufactured in regulated and inspected AMERICAN fucking factories AND YOU KNOW IT, YOU GLIBERTARIAN FUCKS.

    1. Don't be ridiculous. If that were true, China wouldn't have become a liberal democracy as a result of American trade.

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