The pandemic era has seen its share of supply-chain problems, but the infant-formula crisis—which began a year ago—stands out for its depth, duration and danger. National out-of-stock rates for formula exceeded 90% at one point in June, and store shelves in certain parts of the country remain sparse even today. The shortages got so bad they inspired multiple emergency responses from Congress, several different federal agencies and the White House itself.

The crisis also offered an opportunity—a road map to achieve a more robust and resilient U.S. market for baby formula and other essential goods. But much of Washington appears ready to ignore it.

First let’s recall how we got here. After two infant deaths from infection with Cronobacter sakazakii, the Food and Drug Administration in early 2022 zeroed in on Abbott Nutrition’s infant-formula plant in Sturgis, Mich. There the FDA found traces of the bacteria, leading to the factory’s temporary closing and a voluntary national recall of Abbott infant-formula products.

Because the Sturgis facility accounted for almost 40% of U.S. formula production, its closing in February 2022 created a supply shock that the two other major U.S. formula-makers, Reckitt/​Mead Johnson and Nestlé Gerber, couldn’t remedy. News of the Abbott problems and the sight of empty store shelves then motivated parents to hoard formula, exacerbating the shortages and creating a nationwide supply crisis that persisted through the summer.

Politicians responded to the crisis with their standard pandemic playbook. They claimed decades of laissez-faire economics—free trade, deregulation, etc.—had left the U.S. formula market vulnerable to a major shock. Thus, the politicians argued, new government industrial policies and more regulatory enforcement were needed to resolve the current crisis and protect against future ones.

These refrains ignored the reality of the U.S. formula market and related federal policies, as well as the government’s own actions to restock American store shelves. The market was hardly free or overly dependent on imports, as some claimed during the crisis. In fact, the federal government imposed two different barriers to imported formula from almost every country in the world.

First, high and complicated “tariff rate quotas” dating back decades subjected most infant-formula imports to an effective tax of more than 25%; even most “free-trade agreement” partners, such as Canada and Australia, faced these or similar restrictions. Second, FDA regulations—governing everything from formula recipes to labels and scoop size and subjecting foreign producers to registration and inspection—further discouraged imports and authorized government officials to seize noncompliant shipments at the border.

As a result, the U.S. market was closed to large, popular and safe formula brands from Europe, the U.K., New Zealand and elsewhere. It was so closed, in fact, that American manufacturers accounted for more than 98% of U.S. formula consumption in 2021. And when the Abbott facility’s closing poked a giant hole in the American formula market, U.S. trade policies prevented imports from easily filling the gap.

Two aspects of U.S. domestic policy added insult to this injury by effectively ensuring that a handful of large formula producers continue to dominate the market.

First, the U.S. regulates formula more strictly than any other food and more strictly than most other countries. Heavy regulatory burdens can discourage new market entrants, and 2022 saw the first new U.S. formula manufacturer since 2007—the process to set up production and secure regulatory approval took the new player, ByHeart, more than five years and $190 million.

Second, the Special Supplemental Nutrition Assistance Program for Women, Infants, and Children, or WIC, which has grown to cover almost half of U.S. infant-formula sales each year, demands steep discounts from participating formula producers in exchange for sole access to a state’s WIC market and prime shelf space at participating retailers. This, in turn, automatically boosts winning bidders’ sales in the non-WIC market, making them the dominant player in the state.

Since only large producers have the resources to offer upfront discounts on such large quantities, it’s no surprise that three large corporations—Abbott, Reckitt/​Mead Johnson, and Nestlé Gerber—hold all WIC contracts and accounted for more than 83% of total market share in 2021.

The combination of high trade barriers, onerous domestic regulations and restrictive government contracts has created a concentrated and sclerotic U.S. formula market that collapsed when a single factory shut down and still hasn’t fully recovered. Tellingly, the federal government’s emergency actions to alleviate the formula crisis targeted these very policies. Congress suspended baby-formula tariffs through the end of 2022. The FDA exercised its “enforcement discretion” to approve eight new foreign manufacturers to sell formula until 2025 without meeting all U.S. regulations. The Agriculture Department allowed WIC recipients to use their benefits to buy noncontract formula brands, including imports, until mid-2023. And President Biden’s Operation Fly Formula commissioned military aircraft to deliver formula from abroad.

In all cases, the federal government implicitly recognized how freer markets can boost economic resilience and how protectionism and excessive regulation undermine it. Yet Congress and the executive branch haven’t made these reforms permanent. Tariffs are now back in force, even as discrete shortages persist.

Disruptions are both inevitable and necessary in a modern economy because growth often comes with growing pains. But eggs and children’s medicines, which are less regulated than infant formula, both bounced back quickly from recent supply shocks. A relatively free and open market not only lowers costs today but protects against long-term shortages tomorrow.

As new supply problems emerge, policy makers should learn from their past mistakes and their temporary solutions. Unfortunately, there’s little sign that they will.