Bipartisan Failure On Baby Formula Shortage

“But Starship captains succeed or die, and they’ll promote me if I fail”

What inspired me to write that couplet in Starfleet Program Manager? Things like what we saw in Congress last week.

In response to the government-imposed baby formula shortage, Democrats and Republicans came together to ignore the causes completely while retreating to their separate political safe spaces. Meanwhile, the very agency that has been unable to address the problem could still end up being rewarded for it with more taxpayer money.

The causes of the current shortage in baby formula are few and not really complex. It begins, as Scott Lincicome notes, with onerous restrictions on imports.

… U.S. policy has exacerbated the nation’s infant formula problem by depressing potential supply. First, as my Cato colleague Gabby Beaumont-Smith just documented, the United States maintains high tariff barriers to imports of formula from other nations—all part of our government’s longstanding subsidization and protection of the politically powerful U.S. dairy industry. Imports of formula from most places, such as the European Union, are subject to a complex system of “tariff rate quotas,” under which already-high tariffs (usually 17.5 percent, but it depends on the product) increase even further once a certain quantity threshold is hit.

We even restrict imports of formula from most “free trade” (scare quotes intended!) agreement partners, including major dairy producing nations like Canada. In fact, a key provision of the renegotiated NAFTA—the U.S.-Mexico-Canada Agreement (USMCA)—actually tightened restrictions on Canadian baby formula…

If tariffs were the only problem here, then high prices in the United States right now might induce alternative supplies from overseas producers looking for new customers and profits. Unfortunately, however, the United States also imposes significant “non-tariff barriers” on all imports of infant formula. Most notable are strict FDA labeling and nutritional standards that any formula producer wishing to sell here must meet.

The labeling standards are so restrictive that even formula from the European Union, which actually meets the nutritional requirements, can’t get in.

As per usual in a market where imports are blocked, American consumers became dependent upon a few oligopolist producers of formula. American families suffered the resulting de facto tax largely in silence, but when one of the oligopolists had to shut down (in part because the FDA didn’t react to a whistleblower report quickly enough), well, stuff got real. So, in typical Washington fashion, the FDA is slated to get another $28 million, even after still being unable to figure out what went wrong.

This is a typical reaction for Democrats. The party has a history of throwing money at the problem and hoping it goes away. On the other side, however, the GOP would normally be happy to take aim at the protectionism that caused this. That, however, would involve crossing Donald Trump, who grafted his protectionism on the party and made things worse with USMCA.

The solution – loosening the non-tariff barriers and lowering tariffs – remains out there. Unfortunately, it appears to be too far outside the box for both my previous party and my current one.

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