The U.S. baby formula industry is in trouble. For most of 2022, parents faced bare shelves when looking for formula. Even in the last week, 34 percent of households reported difficulty finding formula. What’s more depressing, Reckitt Benckiser, an infant formula producer, expects low supplies to persist into the spring.

While reports of problems began in August 2021, alarm bells didn’t ring until the shutdown of a major U.S. plant in early 2022. The shutdown caused a massive supply shock and by June 2022, national out-of-stock levels of infant formula exceeded 90 percent. The crisis wasn’t just bad luck but a perfect storm of supply chain disruptions and longstanding bad policy, made worse by a slow and lackluster response from policymakers.

Policymakers provided “band aid” solutions that slightly helped but conditions are far from stable. However, to make things worse, one of the more effective fixes—the suspension of prohibitive tariffs on imports of infant formula—is set to expire on December 31, 2022. Given Reckitt’s expectation that low supplies will extend into the spring, the expiration of the tariff suspension is nonsensical and problematic. Figure 1 illustrates the baby tax set to return on January 1, 2023.

Back in May, I wrote about the myriad trade restrictions that limit infant formula imports. Firstly, baby formula is subject to complex tariff-rate quotas (TRQs). The Congressional Research Service estimates that more than 80 percent of formula imports that entered the U.S. between 2012 and 2021 faced an average effective rate of 25.1 percent. In light of the crisis, Congress passed legislation suspending some tariffs on infant formula and infant formula base powder imports. Figure 2 illustrates the difference in formula imports based on those that received the tariff suspension and those that did not. As clearly illustrated, imports overall increased by almost 4‑fold between January and September 2022.

Infant formula is also subject to onerous U.S. regulatory (“non‐​tariff”) barriers. For example, the Food and Drug administration (FDA) requires specific ingredients and labeling. So, in acknowledgement of the unnecessary barriers applied to imports, the FDA began accepting applications from foreign formula producers to sell formula in the U.S. without needing to meet all the FDA’s arcane requirements. Though, while the agency reviewed dozens of applications, it only approved eight (the most approved in June). Both the tariff suspension and relaxed FDA enforcement discretion helped foreign producers access the U.S. market leading to significant leaps in import levels, and thus greater supply for parents.

But the good news ends there. Absurdly, Congress’s expiration does not match the FDA enforcement discretion expiration. The tariff suspension expires on December 31, 2022 and the FDA’s relaxed discretion expires in October 2025. As a result, these foreign companies will be subject to high tariffs come January 1, 2023. This mismatch will inevitably reduce U.S. consumption of formula from the approved eight companies as foreign formula producers will either absorb the cost or pass it on to consumers, either way, raising U.S. prices.

Those on welfare were especially vulnerable during the crisis and their future is still uncertain. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) only allows beneficiaries to buy formula in store from the company awarded the state contract for WIC sales. The U.S. Department of Agriculture (USDA) created flexibilities during the crisis so that WIC recipients could buy any formula available in store, but this policy also expires at the end of January 2023. Reckitt, a British company and now the most popular brand in the U.S. benefitted from this WIC flexibility and reportedly fed more than 40 percent of all low-income WIC infants. The expiration threatens those on WIC currently using Reckitt since after January 31, 2023, these parents will have to switch back to the state-contracted formula (which still may not be available in store and parents will need to forego their benefits and pay out-of-pocket to buy formula online).

Finally, in May, President Biden controversially delegated certain Defense Production Act (DPA) authorities to direct domestic production of infant formula to the Health and Human Services (HHS) Secretary, Secretary Xavier Becerra. Becerra authorized Abbott and Reckitt to use specific language in contracts with suppliers to ensure they received priority when ordering necessary ingredients including sugar, corn syrup, and single-use filters. On the other side of the coin, Becerra invoked DPA authority to require Cargill, a primary supplier of these inputs, to prioritize certain orders for these formula manufacturers. However, the lack of transparency that notoriously surrounds DPA invocations makes it unclear how effectively the DPA helped increase domestic production of baby formula.

Further, sugar and syrups, for instance, are key ingredients for formula and also experiencing a supply crisis. In fact, in September, the National Confectioners Association urged relaxation of sugar TRQs mandated by the U.S. sugar program as candymakers reported significant stress in the supply chain contributing to historically high prices. Yet again, bad longstanding policy prevents supply chain flexibility; the U.S. sugar program purposefully restricts the supply and importation of sugar to elevate prices, which is good for sugar farmers but detrimental for all sugar-consuming industries, including infant formula manufacturers.

The infant formula crisis hurt millions of Americans, lasted far too long, and elicited a disappointing response from federal policymakers. Not only have imports simply increased supply to mitigate scarcity, they also provided variety for consumers. Moreover, the crisis provides the important lesson that a nation’s resilience is borne out of freedom, not substantial domestic manufacturing, which can insulate a nation from competition, stymie innovation, and increase vulnerability to domestic shocks. The numerous barriers that impede a free market in infant formula lessened the ability of retailers to adapt and parents paid the price waiting for policymakers to enact change. Even then, the solutions fell short. Hopefully it doesn’t take another crisis to persuade the administration and Congress to permanently reform these egregious barriers that harm more than help.