Minnesota’s Economic News — W/E 1/27/22
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2022 was a tough year for parents trying to find baby formula. But after months of parents facing empty shelves,
Congress waived tariffs, which can be as high as 17.5%, to help families struggling to find formula after supply-chain problems and the closure of a crucial factory crimped supplies.
However, those tariffs have returned this year as the Wall Street Journal reports:
But waiving baby formula tariffs led to some significant improvements in the supply of baby formula. For example,
A White House spokesman said the tariff waivers doubled the number of manufacturers selling baby formula in the U.S. Congress made the tariff waivers temporary as part of a deal to pass the measures quickly, said people familiar with the matter.
Congress waived tariffs, which can be as high as 17.5%, to help families struggling to find formula after supply-chain problems and the closure of a crucial factory crimped supplies. A White House spokesman said the tariff waivers doubled the number of manufacturers selling baby formula in the U.S. Congress made the tariff waivers temporary as part of a deal to pass the measures quickly, said people familiar with the matter.
So why would anyone want them back? For one, tariff suspensions were temporary, meaning that unless extra action was taken to make them permanent, they were going to come back at some point. But tariffs also protect domestic producers from foreign competition, which is why it shouldn’t be too surprising that the biggest advocate for bringing these tariffs back is the dairy industry, which is bound to benefit from less competition from outside baby formula producers.
The U.S. dairy industry, which makes ingredients for baby formula, had urged lawmakers to let the tariff suspensions expire. Jim Mulhern, chief executive of the National Milk Producers Federation, wrote to lawmakers in November that the supply had improved enough to allow for a return of the tariffs.
There is a lesson to be learned from this, however. While tariffs may hurt outside producers by denying them a market, they also hurt domestic consumers by restricting supply and raising prices. This is econ 101. The fact that the baby formula shortage improved after these tariffs were waived proves this very phenomenon.
This is also something that is supported by evidence. Trump’s war on China, for example, placed tariffs on numerous goods. Instead of hurting China, these tariffs were almost entirely paid for by U.S. consumers through higher prices and lower imports.
Baby formula tariffs benefit no one, except U.S. producers and their suppliers, to the detriment of U.S. families and the U.S. economy — and to some extent, outside producers. They need to be completely eliminated.
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