Plain English with Derek Thompson - The Mystery of America's Missing Baby Formula

Episode Date: May 18, 2022

America's infant formula shortage is very strange and very embarrassing. Nationwide, more than 40 percent of formula is out of stock, and in many states, like Texas and Tennessee, more than half of it is gone. What's going on? The immediate cause is the shutdown of a Michigan plant. But shutdowns and recalls happen all the time, and they rarely cause a national crisis like this. Economist Scott Lincicome says the real culprit lies in America's trade and regulatory policy. He explains how we got here and how we can get back to a rational baby formula policy in America. If you have questions, observations, or ideas for future episodes, email us at [e-mail]. Host: Derek Thompson Guest: Scott Lincicome Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

What's up, guys, Rachel Lindsay here, and I am teaming up with your favorite Ringer podcasters to deliver the Bravo drama and news that you've been craving on Morally Corrupt. It's the show about all things Bravo, from the housewise to summer house and everything in between. We'll be mentioning it all every week. Check it out on Spotify and the ringer.com. Today's episode is about the mystery of the missing baby formula. nationwide, more than 40% of infant formula is out of stock on shelves. That is a 20-fold increase since the first half of 2021. In many states, like Texas and Tennessee, more than half of the needed formula is gone.

And this is happening as parents are understandably freaking out, desperately hoarding what infant formula they can find. And retailers like Walgreens and CVS and Target are now limiting purchases. Yes, it is 2022 in America, and we are. rationing essentials for babies. As I recently explained in a piece for the Atlantic, this might seem like a complicated story, and in some ways it is kind of a complicated story, but I think you can basically boil down this mystery to three factors.

Three. Number one, a bacteria. Number two, a virus. And number three, a trade and regulatory policy. So number one is the easiest part to explain. That's the bacteria. What happened was following the death with several babies from a rare infection,

the FDA investigated Abbott, which is a major producer of infant formula in the U.S. And they discovered traces of nasty bacteria in their Michigan plant. They recalled several brands of formula. They shut down the plant, advised parents not to buy the stuff that was coming out of it, basically closed that node in the supply chain.

So recalls suck, but they're also pretty common. Like thousands of drugs, thousands of products are recalled every single year, and they don't typically create a massive. meltdown like we're experiencing right now. So something else seems to be going on. That leads us to number two. The virus.

The pandemic itself has clearly snarled all sorts of supply chains, whether it's electronic chips or cars or some furniture you were trying to buy six months ago and it still hasn't been delivered to your living room. It's hard to think of a market that it's yanked around more than formula. Like in the spring of 2020, parents hoarded formula. You know, like they hoarded paper towels, totally paper. then as they worked their way through the stockpiles, sales fell a lot. And so if you're a formula maker and you're sort of reading the signals of consumer demand,

it's very confusing because demand surged in 2020 and then it pulled back in 2021. It surged again in 2022. That is added to the problem of the shutdown plant. But that still doesn't explain what's going on. Again, formula isn't just like a little bit down. In many states, half of it is gone. Like, how is the market for this incredibly important product to feed our fragile infants so incredibly fragile itself.

That brings me to today's guest, Scott Linsicum. Scott is the director of general economics and trade for the Cato Institute, a libertarian think tank. Now, I myself am not a libertarian. I tend to prefer more regulation and more protection than the typical libertarian. But as you're going to see, and as I myself kind of have to admit, the reason the U.S. doesn't have enough baby formula

in this country for its parents is that America's very reasonable instinct to protect babies has become an unreasonable protectionist trade and regulatory policy. Basically, we told the world we didn't want their stupid formula. And now we're getting exactly what we asked for. I'm Derek Thompson. This is plain English. Scott Linsacom, welcome to the podcast.

Oh, thanks for having me. Good to be here. Let's start with the pandemic. Scott, how did the pandemic? Scott, how did the pandemic itself prove to be the perfect storm when it comes to gunking up the supply of baby formula? I mean, look, you know, a lot of this stuff is just the pandemic doing its thing, like it's done with all sorts of supply chains all over the world. When you have demand collapsing and then supply trying to follow suit and then demand

coming back in unexpected ways and countries shutting down and reopening and states doing different things, and then there being labor shortages and trucking shortages and all sorts of crazy stuff in the market, it's inevitably going to redound to manufacturing, whether it's a broad or here. A little known fact is that the global supply chains and the domestic supply chains are actually suffering from a lot of the same things. We always think about the ports, but there's a lot of domestic stuff that's suffering as well.

So, look, baby formula in a lot of ways was just like all other parts of manufacturing. Chips and cars and all these other things that are, we famously had shortages of last year. workers aren't showing up, and then the next thing you know, your packaging suppliers shut down, and it's a giant mess, right? So there's that. And then adding insult to injury is this recall. A major FDA-approved supplier Abbott in Michigan had a plant shutdown because some infant formula was found to have actually, we think, harmed several babies. The connection is unclear, but that's okay. That's for the lawyers to figure out.

But that caused the facility to shut down. And that really kind of, I think, added a lot of fuel to the fires. So you had the normal supply chain stuff and then this recall. And that has really fueled a serious shortage in the market and leaving us now to try to scramble to pick up the pieces and fill these gaps as best we can. Right. And with the pandemic, it's really tough because at the beginning, of COVID. You had all of these parents hoarding baby formula because they were afraid that baby formula

was going to run out like toilet paper, like paper towels, like everything else was running out. You went into the grocery stores and the aisles were cleared. They said, oh my God, this is going to happen for our baby's food. They hoarded baby formula in 2020. Then what happened? They had a lot of access baby formula, so they didn't need to buy as much in late 2020, early 2021. Suppliers, people manufacturing all this stuff, all this baby powder, excuse me, all this baby formula say, you know, well, obviously there's a pullback in demand. We don't need to make as much. And then what happens early this year for a variety of reasons, the demand for baby formula comes back and suppliers aren't ready for it on top of this really catastrophic shutdown of Abbott Laboratories.

But what if you, jump right on that. No, I'd say, you know, the other thing that I think is critical is that we stopped having babies at the beginning of the pandemic, and then we suddenly started having babies again, which adds even more uncertainty and to this kind of these market gyrations. And then, like you said, look, having been a parent of an infant who needed baby formula, let me tell you, you do kind of freak out when you can't find the right product. And so there also has been just some natural psychological element hoarding of stuff. And it's really, that is certainly adding insult to injury in a lot of this stuff. But it's not merely the pandemic doing its thing in this case. That's right. And we're going to get to the policy, which is really the meat of this episode.

We're going to get to the policy in like 15 seconds. But just to point something out, I know lots of people that I've been talking to, texting to within my family, friends telling me that they are strategizing with their family to buy up as much baby formula as possible and ship baby formula. formula to the parents in their family to make sure they don't run out a formula. What does this do? It exacerbates the shortage because when parents or when anyone in any inflationary environment, any shortage environment sees that there's a possibility of the thing that you need running out, then you buy as much as possible in the short run. When it's something like baby formula,

you buy even more of it because this isn't just like toilet paper. It's not just something that's that's important to have around. This is the life and death of an infant. So the psychology of shortages is definitely a major factor here. But it is not the only factor. It is not the only factor. Another factor is policy. Trade policy and regulatory policy. That to me is the deep story of the infant formula shortage. And that's a story that I want you to help me tell today. So why don't we start at 30,000 feet? Give me the Scotlandicum thesis statement on trade. And and regulatory policy for infant formula in the United States of America? So in a normal market, when you have these types of demand and supply gyrations, the market

will adjust. You're going to have prices are going to rise, and supply is going to fill the gaps really, really quickly. The problem we have is that we've essentially created a tariff and regulatory wall around the United States that has dramatically restricted the amount of additional supply that can enter from large global producers of infant flormeal. in Europe or New Zealand or Canada or elsewhere. You couple those regulatory barriers with stuff going on in the U.S. market related to domestic production, government policies that have actually contributed to concentration in the market and controlling prices that have further restricted the ability of the market to adjust

in times of crazy shocks like this. And so thanks to good old government policy, things are a lot worse than they really needed to be. So we have tariffs on baby formula that comes into the country. We discourage our trading partners to trade us baby formula. And within the U.S., within the captive market of domestic producers of baby formula, we constrict the number of companies that can actually supply young parents. Let's go through these one by one. But jump in there if you want.

No, no, I was just going to say it's basically the perfect storm for a, for shortages. You have created a highly concentrated price regulated market that discourages investment and market entry. And, oh, by the way, you've created a tariff wall around the country to prevent any imports from satisfying the gaps that eventually exist. So it really is, it's like somebody created a shortage in a lab, unfortunately. So let's jump into it. Yeah. Let's start with trade policy. And I know that the concept of trade policy is likely to make some people's eyes glaze over.

So let me ask this question in as relatable a way as I possibly can. Here's a simple question. Europe seems pretty good at feeding babies. Like, in general, babies do pretty well in Europe. Why is it so hard for American parents to import European baby formula? Right. Well, we've established a two-step process or wall. that European producers have to overcome,

and they just aren't going to really do this. So the first wall is the tariffs, and they're actually worse than normal tariffs. Due to a long- And just a quick-Econ 101, tariffs are taxes on imports. Yes. End of Econ 101.

Go right back to it. Go. Good. So due to long-standing government protection of the dairy industry, we have very high tariffs and what we call tariff rate quotas on imports of all sorts of dairy products. Infant formula traditionally is a dairy product. So in the infant formula category, you have a tariff that applies to imports of a formula

from most places. And once you hit a certain quantity of imports, then you have an additional tariff on top of that. So that extra quota step adds all sorts of additional. uncertainty. Not only are you paying a higher tariff price, a higher tax, but you don't know when that tariff's going to kick in. If you're an importer and you're trying to plan, ah, to heck with it. I'm just going to buy domestic, right? So that's the first issue. Now, in a normal operating market, however, when prices rise due to high demand and limited supply, producers are going to enter that market, even with the tariffs, even with some of these quota issues, because, look, they're going to be

able to profit take. Good old profit taking is good, right? We libertarians, I have to say that every episode, or, you know, I get like my dot, my pay dot. But the, so in a normal market, you're still going to enter, you're going to, either they're going to pay the tariffs or the importers will pay the tariffs because they can make it up on the price side. The problem is that the FDA regulations applying to applied to imported baby formula are so strict that really no one is willing to go through the registration process, the labeling requirements, the nutrient requirements, the scooper has to be a certain size, you have to agree to FDA inspections and then annual inspections thereafter. Nobody's going to be willing to do that because then you have the tariff.

And let's face it, the United States is not a really good. growing baby market. I wish it were. I wish we were having more babies, but we're not. So producers abroad are just simply not going to make the expense of going through all that FDA stuff, paying those tears, establishing sales and distribution channels in the United States, doing all of that kind of marketing and the rest that foreign companies like, say, Mercedes or whatever, do in the United States to sell their product, right? So as a result, 98% of the U.S. market is satisfied by American producers, according to the White House. Our numbers at Cato are a tiny bit different, but it's insignificant.

And you only are seeing a little bit of supply from Mexico, who actually has a tariff-free access to the U.S. market for certain products and certain quantities. So look, free trade works, right? We didn't apply tariffs. Next thing you know, Mexico, some some folks that produce in the United States invested in Mexico, and they shipped it here. Mexico's a large import group, I mean, relatively. But basically nowhere else. And that creates all sorts of, again, supply problems when domestic production shuts down. Right. So what's really important to say here is that there are a lot of American parents that on Facebook groups and online really want European baby formula. Maybe they're just Europhiles. Maybe they just really like goats milk. But there's a lot of American parents.

that are trying to order this stuff. And what often happens is that U.S. customs agents see shipments at the border. So Americans are trying to get more European baby formula into the states, but the government won't let them. And it's interesting because I looked into this when I was writing my article. And there are studies that have found that European formula meets practically all of the FDA's nutritional guidelines. And even in some ways might even be better than American formula because the EU banned

certain sugars and they have a higher lactose share in their formula, which might be good for babies. But the problem is that due to all these technicalities that you said, right, the FDA wants to be very, very jealous, very, very careful about the baby formula. It lets into the U.S. There's very strict guidelines about the labeling and the size of the scooper and all this stuff. And those are the guidelines that Europe doesn't meet. So even though the underlying product is basically, it's obviously healthy. There's not an epidemic of babies dying in the Netherlands. and it obviously meets most of America's nutritional guidelines. It can't be sold here because the FDA can't have the same labeling requirements

and can't essentially execute the same kind of quality checks that it could on a place like Abbott, which it shut down when it saw the bacterial infection. So for all these reasons, we have this just bizarre situation where Europe has all of this baby formula that it could have been selling us for years and years and decades and decades, and it hasn't been doing so. You know, you might also think, what about Canada, our largest trading partner in the world? They're right over the border. They make a bunch of milk.

They could clearly make a bunch of baby formula. What's happened with our trading relationship with Canada in the last, say, five or ten years that we should know about in this baby formula shortage story? Yeah, and where things get really egregious is that even in our free trade agreements, I did scare quotes for those of you who can't see me. even though our free trade agreements, we have major restrictions on dairy, including infant formula. And in fact, the Trump administration, in fact, part of the loan holdout, Tom, in the USMCA, President Trump's NAFTA replacement, US-Mexico-Canada agreement, great name, was ensuring additional restrictions on potential infant formula from Canada. So essentially, any infant formula sent from Canada to the United States over a certain quantity is subject to a really high export tax administered by the Canadians. The Trump administration did this because of a Chinese company was investing in Canada,

a very large dairy-producing nation. China is a growing baby formula market. This company saw the opportunity to use, you know, Canadian milk and Canadian facilities and quality and ship it back home, so they wanted to invest. in Canada. American dairy farmers, however, were very concerned that that potential export capacity was going to end up in the United States in their captive market. So they lobbied with the help of the Trump administration and put in these import caps in place. But critically, this not only is an import restriction, but it's really an investment inhibitor, right? The express goal of the U.S.

dairy industry and the Trump administration was to prevent additional investments in Canada so that there could be a new infant formula capacity online. Because again, that threatens their bottom line in the United States. So Canada's not a huge player in the infant formula market, but we were essentially ensuring that they never would be, which, you know, let's face it, quite frankly, it'd be pretty nice if they were a little bigger right now. Yeah, I mean, it's really, I don't want to be in the position of saying that today's infant formula shortage is Donald Trump's fault. Nonetheless, what happened, what was it three years ago, four years ago, when this precise episode took place, basically Trump, hand in hand with the dairy farmers of America, sees China

investing in the Canadian infant formula market and basically steps up the discouragement of infant formula coming into the U.S. in order to punish the Chinese investment. And you sent me to a CBC, a Canadian journalistic report on this that basically said Canada's capacity to produce baby formula will probably be indefinitely hampered because the Trump administration's punishment of this Chinese investment. So here in the Americas, not just the United States, but all of North America, we have purposely constricted baby formula production because, in part, of our fears of Chinese investment in the Canadian market. So it's just like, it goes to your perfect storm. It's we're not just discouraging a Chinese investment.

We're not just discouraging European imports. We're discouraging basically anyone from possibly making baby formula outside of these FDA-approved domestic suppliers. And that's the next part of the story that I want to get to. But why don't you just comment on what I just said? No, and I think the other really key point is that this is all part of kind of the longstanding U.S. protection of our dairy industry. If you, I mean, go back, I found a Cato paper from like 2002 writing about all of these. We have not only tariff protection and these tariff rate quotas and the rest, but we have all sorts of price supports and subsidies and the rest. Dairy is, if you have like a Mount Rushmore of American protectionism, you're going to have like steel and ships and sugar.

And probably dairy is your fourth presidential head on that mountain side. And so it really is, it's unfortunate but unsurprising that we're in the position we're in and that the dairy industry was lobbying for those new protections and using this kind of anti-China sentiment in the Trump administration and in the United States right now to get what they wanted. So I think we have a pretty good picture now of the trade policy snafus that led us here. Let's talk about the domestic regulation. Scott, what is WIC and why should we know about it? So WIC is a very well-intentioned government program that gives vouchers, cash vouchers, to parents of infants to buy baby formula.

Like I said, even hard to disagree with that one. Yeah. Even cold-hearted libertarians like me are like, you know what, cash for poor babies. Okay, fine. That I'm going to have to say yes to you. We'll just. By the way, just to just so we can help place people. WIC actually stands for, it's short for the special supplemental nutrition program for,

here's the WIC part, women, infants, and children. And this is a special group within the Department of Agriculture that, as you said, gives cash to mothers and poor infants. Scott, what could possibly be wrong with this program? Well, there's two things wrong with it. The first is that WIC started out being a pretty small program, but has since ballooned to being about half of the entire U.S. Infant Formula market. So that creates what we call in economics a monopsony situation, where the government is the

dominant consumer and can use that leverage to price take, right? Essentially, to negotiate prices that are way below market for whatever product it's consuming, in this case, infant formula. Now, look, that is a great deal for tax. It is not a great deal for producers. Just like a monopoly is good for producers and bad for consumers, monopsony the other way around, good for... Right. Yeah, monopoly is one supplier or concentration among suppliers, and monopsony is the opposite. It's concentration among buyers, basically one buyer, the U.S. government. Exactly. So first is just that you have this behemoth in the market and that

WIC has become due to years and years and years of expansion. But the second issue is how, the WIC system has been designed. And again, I don't think any of this was intentional. But in order to encourage companies to bid on WIC contracts, each state essentially awards a sole supplier contract for baby formula, which essentially means if you win the contract, you're the only WIC provider in the state. Well, why would companies want to do that? It turns out that if you're the WIC provider, you get all sorts of benefits in the non-WIC market, which makes sense. You're going to get shelf placement. You're going to get more prominent, you know, consumers that might sometimes be on WIC

and might sometimes not are going to be kind of brand loyal, particularly in Infant Formula. There's a lot of brand loyalty there. So studies show that when you win a WIT contract, you become basically the dominant producer in the state. So the government, again, uses its consuming its monopsony power to negotiate these very low-priced contracts, and producers agree to those because they're going to win in the non-wit market. The problem, of course, is that this is like really unintentionally designed to limit market entry and investment, right? You really aren't going to have new startups that are going to be willing. to engage in this type of lost leading activity, to basically lose money to eventually make money.

That's not a great proposition. They're also going to need production capacity to satisfy a massive consumer on day one, right? So it's essentially a system that is going to produce market concentration. You're going to eventually have just a few producers and very little market entry, very few small players only in niche areas, like very kind of high-end designer baby formula market. And in fact, this is exactly what we see. There's a 2011 analysis by the USDA that reported that just four companies account for practically all U.S. formula sales, Abbott, where this bacterial infection was found, Meade Johnson, Perigo, and Gerber. So, you know, it's as if, you know,

if the U.S. had this sort of situation with, say, cars, right? This would be an industry where if you wanted to buy a Mercedes, good luck, it's going to cost $100,000. We discourage car imports from basically every other country. And in the U.S., the only people making cars are, let's just say, Ford and GM. Now, let's say for some reason that Ford, because they screwed something up in Detroit or in some other factory in Georgia or whatever, now Ford is not going to make cars anymore for the next six months. No more Ford's. There would be an unbelievable shortage of cars.

And that's essentially the situation that we have here, through a variety of tariffs and quotas and direct discouragement from the U.S. government for foreign or international. national investment in our trading partners, we've discouraged all of this formula import, while at the same time purposely concentrating the production of formula within the country, meaning that we are exquisitely sensitive to failures in that system. We had a failure in Michigan, and that is why we are where we are. Yeah, and adding to the problem was that we had a failure at the largest WIC contractor of all in Abbott. So Abbott has apparently about 31, I think, of the WIC contracts out of 50. And Abbott was doing voluntary recalls not only from the Michigan product, but really just trying, you know, just trying to figure out what the heck's going on.

And it was kind of seizing up Abbott product beyond that Michigan production. At the same time, USDA, which manages the WIC program, was issuing waivers to WIC customers. That makes perfect sense. But that's going to put additional pressure on non-Abbott suppliers. And so they're going to be running out trying to find formula, and that's going to put additional pressure on the available supply, which makes, of course, perfect sense. They still need to feed their babies. So it really is, like, it really is just a perfect storm for a shortage and situation that's, that's bordering on crisis. Okay, let me play devil's advocate. Scott, these are babies. They are tiny. fragile infant babies. We have to protect them. Like the word, the root of protectionism is protect.

Who deserves our protection more than America's fragile, helpless babies? We have to do this. Like, at Abbott Labs, it turned out, is basically a petri dish. There's bacteria everywhere. In fact, maybe this proves the FDA should be even more protectionist, that we should be doing, like, bacterial checks on the weekly in all of the... domestic producers, we should basically be spying on them to make sure that they don't put bacteria into infant baby formula. What do you say to that? What do you say to the idea that, like, of course we have to be protectionist because this is the most vulnerable group of Americans that there is. Sure. I mean, the most obvious response is that all the protection in the world

does you know good if there's no formula on the shelves, right? You know, it's not very safe if a baby can't eat. So that's, I mean, I think that's the most obvious thing is that if you have a system that puts all of our eggs in essentially one basket, when that basket breaks, you have huge ramifications for the rest of the people needing, eating eggs, eating infant formula. So the, and that, again, study after study shows, as I've written a bajillion times over the last few years, that the best thing that we can do is supply diversity. You want to have to have your eggs in a bunch of baskets, right? And so the most resilient thing is having global capacity in Canada, in Europe, in New Zealand, in the United States as well, and limiting

the barriers between, limiting barriers to trade between those places so that when there is a problem in one place, the system can adjust, prices can adjust, and you can do all that So that's the first thing. The second issue, though, is that, look, European baby formula is not, this is not from China. This is not, no one is, like, out there arguing we should, we should be dependent on a certain source or dependent on, again, China or some sort of, this is coming, this is formula from a very reputable regulatory regime. It is coming from one of the world's largest producers and exporters of products. So this is product that is good enough, not just only for European babies, but good for babies all over the world. And the same goes for

product from New Zealand and elsewhere. And these are very reputable companies, very reputable regulatory regimes. And American parents are not, they're certainly not a reckless with their babies. They're certainly able to shop for what they believe is in their best interests. And if they believe that European product that is approved by a separate regulatory regime is where they want to go, well, they should be able to make that choice. It shouldn't be up to just the FDA, right? Leaving aside the economic issues, it's just simply an issue of allowing them to choose their level of risk and to choose their product within, of course, acceptable bounds. One more point to add onto that is that a lot of times.

when European baby formula is seized at the border, and it is investigated, it turns out that some of it is spoiled because it has been illegally transported without the typical temperature checks that you would want to transport formula from the Netherlands. And if we legalized this kind of trade, it would be much less likely that the formula would spoil on its way from, say, Spain to New York. So in a way, a more liberal trading environment would make... these kind of imports that are already happening, to be clear, more safe for the parents that demand Western European baby formula for whatever reason. They like the goat milk, they're francophiles. Who knows? But this is already happening, and it would be safer if we had a more

liberal trading machine. Yeah. In fact, whole cottage industries had developed around providing like third-party resellers to provide European baby formula because of the demand in the United States. And like you said, I mean, it's actually, it's a lot like drugs in the sense that, you know, if you create a legal regime, you're going to establish formal distribution channels. You're going to allow for these large manufacturers to have facilities in the United States that are all refrigerated. They can get supply out quite quickly. All that kind of jazz, right? And you're going to have, there are going to be channels that are able to surmount some of the potential issues like a, label in a foreign language, for example. I've heard that retailers were providing the instructions in English. They were providing conversion charts because the scoopers were the, you know,

different size. So the market can't easily surmount those kind of obstacles. What it can't surmount as an FDA and tariff blockade at the border and shipments being seized and moms being treated basically like drug mules. I mean, the stuff that you see on the mommy blogs, I'm now big in the mommy blogs now. The stuff you see is really crazy. I mean, you know, just small shipments being seized by customs and moms having to hide formula in packages of rice and stuff. I mean, crazy stuff, all because we're not, we're creating this black market instead of creating a more liberal trading regime. All right. Enough problems. Let's talk about solutions. What should the administration do that would help now? And what is it the administration should do that would help in the future?

Yeah, so on the administration side, the FDA is the obvious place to start. The, there needs to be, not just the, they're doing a little bit around the edges right now in terms of registration and expedited. The FDA just today, we're recording on Tuesday afternoon, just today announced that they're going to make it easier to import some baby formula to ease the shortage. I assume that this is going to include, yeah, this is going to make. it easier to import formula from that only Mexico, but also some European countries as well. So they're starting to act on that. Yeah. So look, to the extent that they can expedite any sort of processing, to the extent that's consistent with the law, of course, that they can act more quickly to get this stuff in,

that's great. I also see that they're exercising their, quote, enforcement discretion related to small shipments or shipments that are just have minor labeling. infractions or stuff, hey, that's all good. Every little bit helps. Unfortunately, I think it's just going to be some kind of marginal, right? We're not really talking about a major fix, because if you look at some of the imports that they're now approving, like from Switzerland or Ireland, those are from already FDA-approved facilities or registered products.

These were imports that were already going to come in, and we know that those import levels are tiny compared to the size of the market. So it's really not clear how much this is like in the grand scheme of things that can help. And that's why it really, the impetus needs to be in Congress to act. First, on the tariffs, that Congress has constitutional authority over tariffs. Congress could lift them all tomorrow. It is a no-brainer for these tariffs to be eliminated, especially given the current political backlash to all this stuff. at the very least, we should change the quota system such that it's a zero rate at the beginning

and it's very transparent. Right now, honestly, we've looked at this at Cato. It's almost impossible to figure out how this stuff works. So that's a big problem. The other thing is we need to And you're just saying, just to be clear, what's difficult to figure out about how it works is that say the tax on imports might be like 5% for the first 100 bottles and then it's like 6% for the next 150, and then it's 9.5 for the next 250. And it just keeps changing at certain volume thresholds in such a way that if you are a company overseas, looking at this law, you throw up your hands and you're like, my lawyers can't even figure this out. Like, why am I even going to try to sell into this market? This is way too confusing. I'm just going to shift this stuff to New Zealand.

And the risk, the risk is just too high that you might end up tripping the quota. And then the next, you know, instead of paying 10%, you're paying 20%. You know, that's a big problem with quotas. The other big thing that Congress needs to get on is some sort of mutual recognition system. We have this already for some pharmaceuticals where we basically say, look, if it's a pharmaceutical that's approved by a regulator in Europe or in New Zealand or a couple other places, there's a list of Switzerland's another one, then it's okay. That's it. We're done. We're going to let that happen. And that's the type of regime we really need to be adopting for infant form. I mean, I think we need to be adopting it more broadly.

These are reputable regulators. They have strong regulatory reputations, and the regimes are fine. And again, Americans are smart enough to make their own choices about the risks they want to assume. And that's fine. Now, I know the FDA will be kicking and screaming about this type of stuff, but, you know, attack with that. But that's the type of, I think, major change that would really help. The other thing we really need to do is reform WIC. You know, it maybe made sense to save taxpayers a few bucks in the way that WIC was designed.

But given how big the program is and how powerful it is, and given that, quite frankly, this is a pretty tiny market overall. We're not talking about big dollars. From my research, it's like $2 billion in annual sales in the United States. I mean, that's like what, like two or three F-35s? I can't keep track anymore. So look, let's just let WIC consumers buy whatever product they want, whether it's domestic, imported, whatever.

You've got to ditch those sole source contracts and ditch the kind of informal protectionism that exists in this as well. And that will also encourage diversity of supply and a much more stable market in the long term. Because the goal is, first, we have to muddle through the immediate crisis. But we need to try to prevent another crisis down the road, right? And that's the type of steps that'll help. Right. I mean, look, you are a libertarian.

I am a, I don't know, a liberal who enjoys some libertarian ideas. And certainly in a moment like this, that is basically a five alarm fire for the libertarian fire department to come in and say, hey, this is exactly the fire that we predicted is going to happen. You're the kind of person that I turn to to help explain it. You know, the kind of world that I want, the kind of market that I want for a product as important as baby formula, is a product with a healthy diversity of suppliers that still has something like the WICS subsidies for low-income parents and low-income infants. I know you're not arguing against that, but I think that the subsidy is still an important thing to have. It just allows more trade with trading partners, especially throughout Western and Central Europe, that we know can make this kind of product in a way that is safe and already, in fact, beloved by a lot of American.

moms and dads. Final question for you, Scott. Look, you're an inveterate globalist. You love free trade. This is an incredible story for the globalist free trade case. I'm sure there's some listeners, however, who might not like free trade. You know, and in fact, during the supply chain crunch, there were a lot of conservative populists, a lot of liberals who said, look, I'm very skeptical of globalization. Now, globalization has failed. The U.S. should just make everything here. You heard this from the right with people like J.D. Vance in Ohio. You hear it from the Trump. You hear it from people on the left who are like anti-capitalists and are basically like neo-mercantilist. Let's just make everything we want in the United States.

What do you say to those people? What is the lesson of the baby formula shortage that we should carry forward? Yeah, I mean, the lesson is that the nationalists got what they wanted. This is the tariffs, the regulatory barriers, the government contracts and the rest. this is exactly the system that a lot of folks have wanted, and now we're seeing just how fragile and brittle it really is. And it just goes to show that, yes, reshoring production can insulate you from external shocks, but it makes you far more susceptible to domestic shocks, like a factory shutdown or an earthquake or a freak ice storm in Texas. And at the end of the day, it also makes you poorer and less secure overall. And so the best way is not to bring everything back home, but to, sure, encourage domestic production,

have a stable and sound tax and regulatory regime, but also open up those borders and allow for diversity of supply, maximizing global capacity so that when times are tough here, we can supplement with foreign product. When times are tough abroad, we can export. there and so forth, and then allowing the system itself to self-regulate a lot more than it is right now. Right. We built a system where when Abbott fails, we have nothing to replace it. We could have a system where when the Michigan plant fails, the Parisian plant steps in and ships us a lot of the baby formula that feeds America's infants. Scott Linsicum, thank you very, very much.

I appreciate it. My pleasure. Thanks for having me. Thank you very much for listening. Plain English is produced by Devin Manzi. If you have a comment, a concern, a question, an idea for a future show, please email us at plain English at Spotify.com. That's plain, no space, English at Spotify.com.