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Baby Formula Shortages Show Why America Must Develop Its Own Critical Supply Chains

AMAC Exclusive – By Daniel Berman

supply chains

The image of the U.S. military flying in emergency supplies of baby formula sounds like something out of a science fiction film. But that very scene played out just days ago and is a testament to exactly how far global supply chains have collapsed under the Biden administration.

While the White House was as negligent in preparing for the formula emergency as it has been dismissive of responsibility in response to it, there are broader issues at stake beyond the immediate crisis. While FDA rules obstructed finding alternative sources of baby formula abroad, the actual shortage was a consequence of virtually the entire domestic supply resting on a single company, Abbott Nutrition. The result was that when Abbott messed up (and no one contests they did), there were no alternative suppliers to pick up the slack.

While conservatives can debate whether the FDA should have erred on the side of safety when no alternative source of formula was available rather than allowing desperate parents to make a hard choice, the fact remains that the existence of that choice is a consequence of globalization creating incentives for the entire country or even world to depend on as few suppliers as possible. The baby formula shortage is one more piece of evidence that the debate over the desirability of free trade goes beyond the tradeoff of jobs versus cheaper prices. And it reminds us why rebuilding our domestic industries is vital to American security.

The premise of free trade, taught to middle school students with the help of a simple four quadrant chart, is the concept of “comparative advantage.” The idea is that every actor within an economic system will always be more efficient at producing a certain product or good. Even if Country A can produce more of everything than Country B, Country A might still be able to produce product A much more efficiently than product B. “Comparative” in “comparative advantage” refers to the idea that a larger economic system with fewer barriers to trade will always be more efficient than one with more barriers.

The problem with this premise has always been that it occurs only in the form of an abstraction. While it might theoretically be more efficient for the U.S. and China to specialize in different products and then trade, they still have to get those products to each other. This arrangement will leave both nations economically dependent on the other, meaning they will also be politically dependent.

For this system to work perfectly, one must also entirely assume that disruptions to it will not occur: wars, natural disasters, a global pandemic, or even screwups (as occurred with Abbott Nutrition). The argument for dismissing what economists term “externalities” is that they somehow “cancel out.” We do not have to be concerned about a globalized economy being more vulnerable to war precisely because that vulnerability will discourage anyone from starting a war. This argument was widely circulated in 1913, less than a year before World War I broke out in Europe. Of course, accidents happen, but they will be priced in by the market, and it will return to equilibrium, or so the theory goes.

In fact, the supply-chain shortage highlights a flaw with this theory; namely, that the extent of contingency planning is that the “market will solve,” and if the “market will solve” it absolves everyone else of any responsibility for doing anything about it. When COVID-19 hit, the problem was not that global supply chains could not adapt, it was that everyone assumed it was everyone else’s job to adapt. Corporations looked to governments and governments looked to corporations, though they were happy to throw money in all directions in the hope it might accomplish something, contributing to inflation.

Yet even while the first month of COVID revealed the weakness both of global supply chains (primarily through a worldwide shortage of PPE and masks) and of farcical government (and private billionaire) efforts to send private planes to secure stockpiles of critical supplies, no one seemed to internalize that this fiasco showed that the current system is a dangerous way to organize an economy or society.

The answer to this problem is not socialism or even a broader government role in the economy. But it is a myth to suggest that globalization is inherent to capitalism. Globalization occurred in the 1990s and early 2000s because governments, most prominently that of the United States, chose to subsidize it. Rather than investing in domestic manufacturing or education, the U.S. chose to subsidize sourcing foreign trade. This could be direct, through using military aid, diplomatic pressure, and diplomatic pressure to get foreign countries to open up for U.S. corporations to relocate manufacturing, but also indirect through the U.S. militarily intervening to keep open international trade routes. This prevented the markets from accurately pricing the risks of long-term transport against the costs of easier production. The U.S. government, in effect, spent trillions to subsidize insurance costs for Middle Eastern oil rather than investing in domestic supply or stabilizing Mexico/Venezuela in the Western Hemisphere. The outsourcing of electronic production first to South Korea but now to Vietnam, Malaysia, and the Philippines is underwritten by U.S. military commitments.

If globalization is collapsing, and that collapse is accelerating under Biden, it is because globalization was always artificial, propped up by the United States and its allies. Without a United States able or willing to ensure the security of global supply chains, it is not more efficient to produce face masks in Vietnam rather than in Texas because the ones produced abroad may not arrive at all. In contrast, the ones produced domestically can easily be shipped anywhere in the country. Any single global event or accident compounds this problem.

Republicans have a case that the FDA may have erred in its cost-benefit analysis. And they were right to call for a lift on imports of baby formula. These are, however, band-aids masking a much deeper problem. In the long run, we need to invest in self-sufficiency. The GOP understands that when it comes to energy, though in many ways, that is more of a reaction to Democrats’ green zeal than a coherent strategic philosophy. A nationalist economic philosophy has to go further. It should not involve interfering with businesses at the service level, but it should involve creating a resource security net in which raw materials can, in an emergency, always be sourced securely. For too long, America has focused on trying to secure global supply chains, an impossible task in the long term. In the process, it has forgotten to secure its own, a much more achievable production base, that which will ultimately lead to the greatest prosperity for her people.

Daniel Berman is a frequent commentator and lecturer on foreign policy and political affairs, both nationally and internationally. He holds a Ph.D. in International Relations from the London School of Economics. He also writes as Daniel Roman.


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ops
7 months ago

I’m confused. On one side 67 million abortions since Roe vs Wade and this is the same party that is now concerned about baby formula?
Democrats, problem creators, not problem solvers! LOSERS!

tika
7 months ago
Reply to  ops

you’re not confused! they are.

fred
8 months ago

Another crisis by Bidum, not. I and many millions other Americans survived without commercial formula, because there was no such thing 50 years ago. Millions of our ancestors, their children, us and our children all did very well on formula made at home from the simple recipe hospitals gave to mothers when they went home with their baby. Pet milk, Karo syrup and water. It couldn’t be unsafe because we all survived on it as that is all there was then.
I would be far more concerned about risking contamination by shipping pallets of formula from unknown foreign sources and using thousands of gallons of jet fuel for absolutely no good reason.

Robert Zuccaro
8 months ago

Some days its a cracker shortage… the next day, its pasta… the next its paper towels… bleach… bananas… Anybody remember the shortages and bread lines in the USSR prior to their collapse due to economic mismanagement? Apparently the new Democrat motto is “Less is More”. It cost me $50 to fill up my little old ’94 Ford Ranger the other day… “Less” money for me, “More” for the elitists ruining America. We had a Tea Party in Boston over less…

John
8 months ago

Anyone thinking about rare earths ? China owns the world rare earth business. We are going to be screwed soon real bad by China if the U.S. doesn’t open their eyes and get mining and processing NOW. We won’t be making military equipment to keep us safe or machinery or steel or anything else without rare earths. This administration on purpose is steering us into a 3rd world country dependent on China.

ops
7 months ago
Reply to  John

We in essence have provided the very rope to hang ourselves when dealing with China in their 100 year war to dominate the world economically and militarily.

MariaRose
8 months ago

This was being manufactured in a plant here in the USA which had a food safety issue, which was immediately reported to the FDA. The plant closed down in September 2021 as soon as it released the problem and fixed the problem (reclean, sanitized, etc) but it took the FDA over 6 months to schedule an inspection to certify the facility. Meanwhile, the plant was producing and neither were the rest of the plants owned by the company making more to compensate for the one plant not producing the supply needed. Why was there such a long delay especially since the FDA head can’t explain why it took so long for them to get the notice of the problem? (6 months of moving the request through the multiple desks in the bureaucracy of the FDA)

saltnlight
8 months ago

Bring everything back here. no more China!

PaulE
8 months ago
Reply to  saltnlight

Wrong President in power to make that happen. Trump was the only POTUS in the last 30 years to stand up to China and he was removed from power to put Biden in place. All so we can continue with “business as usual” from Washington’s perspective.

PaulE
8 months ago

There are a multitude of reasons why we ended up with a shortage of baby formula in this country. Only one of which is related to the supply chain issue. The other causes are related to government over-regulation of virtually everything, the inherent inefficiency and ineptness of the federal bureaucracy to react to any issue, not just this one, in a real-time manner to minimize or eliminate the problem, and generally horrendus federal tax policy that encourages businesses to off-shore their businesses around the world rather than build anything in the United States anymore.

This baby formula “crisis” is just the latest example of how we have grown the federal government bureaucracy so large and pervasive, that any minor disruption anywhere along the fragile global supply chain, that has constructed over the last 30 years, leads to yet another fiasco. Even when this “crisis” if resolved, there will be another one ready to take its place. More “help” from Washington, in terms of new laws and expanded regulations, is NOT the answer. It never has been and never will be.

The real solution is to get government out of the way on most things and streamline the supply chain by encouraging businesses to build and produce in the United States. Unfortunately, none of those making their living feeding the beast called the federal government will ever willingly agree to this new arrangement without being forced to accept it. I just don’t see the vast majority of the American people willing to push the issue to achieve that goal. We have far too many sheep, that will complain about this crisis or that crisis but are unwilling to demand wholesale changes like the left in this country frequently does. That is the one thing the left is good at. They are highly vocal and well organized to constantly push for more and more insane changes, which the federal government is happy to respond to. Unfortunately, our side is mostly quiet and too docile to actually push for more sane governmental policies and less government bureaucracy.

legally present
8 months ago
Reply to  PaulE

There are other baby formula suppliers, Perrigo in Allegan, Mi. makes 3 different kinds of baby formula. The problem with Abbot was they were the sole supplier of WIC for low income households to get their baby formula for free. American companies bid on being the supplier of WIC, and Abbott is the winner year after year. PLUS there would have been more formula IF they hadn’t sent pallets of the formula to the Border Patrol for the babies coming over the border. AND the FDA which was missing in action on rechecking the Abbott plant and confirming it was safe to start producing formula again, so basically shut it down and NOT re-check to see if it’s safe to start producing again was the problem. How did they fix it by giving the FDA MORE Federal $$$.

PaulE
8 months ago

Everything you laid out is a perfect example of the over-regulation and policy blunders of the federal government’s desire to micro-manage virtually everything it touches. Yes, Abbott won the sole source contract for WIC, which by its very nature creates a huge disincentive for other companies to compete in a marketpplace the government has stacked in the favor of a few large corporations. The way Abbott and other sole source providers end up winning their contracts, year after year, is they essentially help the government employees write the annual bids that are then sent out by so narrowly defining the specifications, that only one company can meet all the criteria. This is how the government’s RFP (Request for Proposals) process essentially works in the area of sole sourcing, where the same vendor / company keeps winning for years.

As for the government’s decision to redirect the limited amount of baby formula left in warehouses to the border, well that is just the government deciding that the babies of illegal aliens have a higher priority than the babies of U.S. citizens. Eseentially the government deciding who is of more value to the government in the long run. Again, that is reflective of the Democrats desire to cultivate their new voting base, the under-educated or completely illiterate illegal aliens being allow to flood into the country, by the millions a year, to help ensure they retain their power in Washington indefinitely. They used to try and hide this sort of stuff, but the Democrats are so sure the American people won’t fight back, that they just do it all out in the open now.

Stephen Russell
8 months ago

Produce OUR stuff here , screw importing save: wines, liquors, foods, clothing, wines,

ops
7 months ago

Follow the money and one will be surprised to see how many politicians from both sides of the aisle have profited in doing business with China. Read the book Red Handed with 80 pages of footnotes supporting the authors statements. Trump derailed their business plans!! He was not part of the club.

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