A military cargo plane lands filled with vitally needed baby formula to be greeted by a top government official. A relief flight to a developing world country? A ray of hope for a war-ravaged Ukraine? A blockade broken? No, America in the year 2022.
Simultaneously, the president invoked the Defense Production Act to force American companies to produce more baby formula. Our response to a problem caused by domestic regulation and protectionism has been to militarize it.
I’m sorry, Mr. President, but this solution is infantile.
America is unique in having this problem because its regulatory state caused it. The proximate cause of the shortage was the February recall of products made at America’s largest manufacturer of baby formula, Abbott Labs’ facility in Michigan. The Food and Drug Administration was concerned about outbreaks of death and illness among infants fed with the formula but was slow to inspect the facility. Abbott has indeed announced that it will reopen the facility, as the FDA found no evidence of contamination. As 40% of America’s supply comes from that facility, the shortfall hit supplies hard.
Ordinarily, however, the market would respond to such a shock by two means – raising prices to signal a shortage and importing substitutes from abroad. However, regulation precludes those two responses. Much of the American market depends on price agreements with the country’s welfare agencies, which are there to stop poor mothers from having to face difficult choices for their pocketbooks. Higher prices could lead to mothers choosing to limit formula use, with nutritional detriments to the baby.
While understandable, any economist knows that limiting prices will affect supply. However, the aforementioned possibility of import could act as a safety valve in the event of a supply shock. Yet the FDA prevents the import of baby formula from comparatively developed countries such as Japan, the UK, Australia, and the European Union. It does this through extensive labeling requirements that those countries’ products do not follow, as they follow their own countries’ labeling rules (mostly in their own language).
When it comes to the actual nutritional value of the formula, studies have found that most European baby formula products meet FDA requirements. The problem the FDA wants to stop is that American consumers might not be able to understand the instructions on imported products, which is why just a year ago it was boasting that it had seized 600 cases of “unapproved” baby formula imported from Germany and the Netherlands — the same sort of formula the military is now flying in.
If translation is an issue, it is triflingly easy to translate labels – the researchers in the study mentioned above used Google Translate. Importers could bear the costs of printing out translated instructions and attaching them to the containers. None of these steps should be a real barrier to the provision of formula that meets the intent, but not the letter, of FDA rules.
The president’s military-based response is actually an attempt to temporarily assuage the shortage while retaining these rules in the long term. Yet, not only does the action stretch the definition of “defense” way beyond breaking point, it does nothing to fix the underlying problems.
Rather than insisting on keeping these non-tariff barriers to trade in place, streamlined however they may be, the administration should instead unilaterally recognize that any formula manufactured in comparatively developed countries that pass those countries’ safety requirements should be allowed into the U.S. market.
Indeed, Utah Senator Mike Lee has drafted a bill, cleverly called the Fixing Our Regulatory Mistakes Upsetting Little Americans (FORMULA) Act, that would do just this for six months, allowing in products from Australia, Israel, Japan, New Zealand, Switzerland, South Africa, the United Kingdom, members of the European Union, and member countries of the European Economic Area.
Six months, however, is not enough. The current crisis shows that autarkic attempts to ensure domestic supply chains can worsen or even create domestic supply crises that harm the poor and the youngest most of all.
Simple principles of international trade like mutual recognition can solve artificially-created crises like this one in a far more sustainable way than sending in the troops.
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