Perhaps the most visible fallout from the pandemic was the severe congestion at the largest U.S. ports in Los Angeles and Long Beach. These ports account for almost half of all U.S. imports, yet the Customs and Border Protection officials that clear and admit goods do not work nights or weekends. But why CBP’s presence at ports is necessary in the first place is an even more pressing issue. CBP ensures tariffs and duties on imports have been paid. Eliminating these taxes would reduce an administrative burden on CBP officials (as well as traders), freeing up CBP resources, and allowing the movement of goods through the ports more swiftly.
Tariffs and duties also contributed to the scarcity of some transport-related goods such as chassis: vehicle frames that hold containers. Without enough chassis, containers could not be picked up and transported by truck or rail, leaving ports with less space where new containers could be off-loaded, which exacerbated port bottlenecks.
However, tariffs function as political instruments for policy-makers to win votes in states where domestic industries that claim harm from import competition directly lobby for protectionism. The price of this “protection” is paid by Americans directly and indirectly through delays or, in some cases, flat-out shortages of goods. For example, in December 2021, heightened demand for cream cheese for holiday baking pressured the industry, which was unable to quickly meet demand because of a lack of packaging and starch, a key ingredient used to stabilize cream cheese. While the shortages of packaging and starch were primarily a result of pandemic-related problems, imports could not fill the gap because of pre-pandemic trade restrictions. Onerous nontariff barriers imposed by the Food and Drug Administration and the U.S. Department of Agriculture prevent the importation of most dairy products, including cream cheese, primarily to protect U.S. dairy farmers.
These policies were implemented long before the pandemic. Ironically, as trade has been liberalized through the reduction of tariffs, nontariff barriers have risen. In more-stable times, the costs of trade distortions are easily spread amongst consumers. But in a state of emergency, the concentrated benefits stay the same while the costs grow much higher. In the case of the pandemic, the effect of long-standing trade barriers wasn’t that consumers had fewer options of cream cheese; it was that they had no options at all.
The shocks of the pandemic surely added to the upward pressure on food prices, but trade restrictions prevented the industrial flexibility that could have mitigated this pressure.
For example, import duties on phosphate fertilizer do not only make fertilizer more expensive for farmers, thus contributing to rising food prices, they can also cause lower yields that reduce the food supply and push food prices even higher. Similarly, steel nails and lumber (vital construction materials) face punitive duties — some as high as 324 percent. These duties, like those on fertilizer, have a cyclical impact: They make building homes more expensive, which potentially reduces the number of homes built, which further contributes to upward pressure on home prices.
As if we learned nothing from the pandemic era, another crisis worsened by trade and regulatory restrictions arose in early 2022. Recalls of baby formula, and a factory shutdown by the largest U.S. formula manufacturer, left parents panicking as they faced empty store shelves. Tariffs, tariff-rate quotas, and FDA restrictions prevented imports of baby formula from easing this huge supply shock. Again, these restrictions, the results of lobbying, long preceded the pandemic. Most notably, Big Dairy lobbied (successfully) to inhibit the importation of Canadian baby formula. The formula crisis lasted almost a year, although many parents remain distressed as formula-stock levels are still unreliable in some states.
The war in Ukraine highlighted similar problems with energy. As the U.S. banned imports of Russian oil and gas, some began to ask why we import oil and gas at all, given that the United States is the largest oil producer in the world. The culprit is the Jones Act, passed in 1920 to restrict the domestic waterborne transportation of goods to U.S.-flagged, U.S.-built, and U.S.-crewed ships. Jones Act–compliant ships make it 67 percent more expensive to transport gas from the Gulf coast to California than it would be to import it from Singapore. Yet Jones Act supporters, primarily in the name of national security, continue to win favor with policy-makers. Additionally, bad trade policies are hampering the uptake of alternative energy sources. Tariffs and duties imposed on solar panels, for instance, increase the price of solar-panel installation by an estimated $600. These taxes, too, were lobbied for by domestic industries seeking insulation from competition.
If you scratch the surface of virtually any supply crisis, you will likely find myriad trade restrictions preventing the flexibility that businesses need to adjust their behavior — just as consumers adjust theirs — in times of emergency. Removing these trade restrictions would not solve everything, but it would ameliorate the fallout from future crises.
