The Political Reality of Protectionism
The baby formula crisis is a reminder that consumer and trade protections almost always serve the interests of large producers and lobbyist.
Does anyone remember the baby formula crisis that happened early last year, when the temporary shutdown of one factory entirely derailed the American industry and left parents everywhere struggling to make it through the subsequent shortages? It is a tall order to ask the American public to remember issues that do not directly affect them; as far as they know, the problems at the root of the crisis have been solved. However, it is not too much to ask our elected officials to have a vision beyond the immediate crisis and not repeat the same mistakes that caused the problems, but that is precisely what they are doing now.
Congress took action during the shortage by temporarily suspending tariffs on importing baby formula, which helped alleviate the crisis. While this was only a temporary solution, the optimistic among us hoped this was a bandaid to buy time for lasting reform in the market. That reform has not happened, though, and the tariffs are coming back to the applaud of the dairy industry, which wrote a letter to the Biden administration urging them not to extend the suspension.
The shortsighted solutions of our government would be more forgivable, if not depressing, if the market were returning to the fragile status quo of before the crisis, but it is not. The shortages, which began in April, have persisted to a lesser extent since the actions taken by Congress. According to U.S. census data, up to one-third of American households still struggle to find enough formula. The formula imports into the U.S. are still up by roughly 6 million pounds from April last year, indicating that retailers still find foreign products easier to acquire than domestic ones.
Given that the formula crisis has yet to resolve fully and long-term reforms to the market failed to materialize, why would the elected officials and lobbyists allegedly concerned with the well-being of the working class push for the reinstatement of protections that saw American families struggling to find formula in an already inflationary environment?
That is because protecting consumers and middle-class families was never the point of the central planning in the dairy industry. The point was and still is promoting corporate interests at the expense tax payers’ wallets.
The dairy industry has successfully protected itself from completion domestically and abroad by lobbying for stringent FDA regulations, trade barriers, and regulations that raise the cost of entry into the market. They can get away with this because the costs of this cronyism are shared by a large population that cannot reasonably be expected to know the complexities of economic theory. Those that should and do know better receive the benefits of concentrated profits while wrapping their opportunistic greed in a veil of concern for ordinary people.
They do all this while a class of well-meaning but economically illiterate political activists buy into the lie that it is radical libertarianism that has produced these conditions. Those that support market reforms that would prevent future crises are called enemies of consumer safety for pointing out that the FDA prevents the entry of European formulas into the market, even though European formulas are often held to a higher standard than American-produced ones or are accused of being indifferent to the struggles of the working class because they defend the price lowering competition of free trade.
All of the name-calling and grandstanding does not change the truth of what happened and is still happening in the dairy market. The market concentration made baby formula production dependent on a few companies free from the competition inherent in free markets, which would lower prices and build durable supply chains. The cause of the concentration was not the result of free exchange independent from central planners dedicated to the nation's common good. On the contrary, central planning protected corporate interests and weakened supply chains.
Suppose the Biden administration and Congress care about the well-being of American families. In that case, they will stop listening to lobbyists seeking to make a profit at the expense of America and end the tariffs and regulations that caused this crisis. In the words of Milton Friedman, they will stop judging policies by their intentions and look at the outcomes they produce.