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

AMAC Exclusive – By Daniel Berman

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.