NATIONALIST ECONOMICS ISN'T:

Unfortunately, the infant formula crisis isn't simply another case of a one-off event causing pandemic-related supply chain pressures to boil over. Instead, U.S. policy has exacerbated the nation's infant formula problem by depressing potential supply. First, as my Cato colleague Gabby Beaumont-Smith just documented, the United States maintains high tariff barriers to imports of formula from other nations--all part of our government's longstanding subsidization and protection of the politically powerful U.S. dairy industry. Imports of formula from most places, such as the European Union, are subject to a complex system of "tariff rate quotas," under which already-high tariffs (usually 17.5 percent, but it depends on the product) increase even further once a certain quantity threshold is hit. 

We even restrict imports of formula from most "free trade" (scare quotes intended!) agreement partners, including major dairy producing nations like Canada. In fact, a key provision of the renegotiated NAFTA--the U.S.-Mexico-Canada Agreement (USMCA)--actually tightened restrictions on Canadian baby formula to ensure that new investments in Ontario production capacity by Chinese company Feihe would never threaten the U.S. market:

Canada agreed that, in the first year after the agreement takes hold, it can export a maximum 13,333 tonnes of formula without penalty. In USMCA's second year, that threshold rises to 40,000 tonnes, and increases only 1.2 per cent annually after that. Each kilogram of product Canada exports beyond those limits gets hit with an export charge of $4.25, significantly increasing product costs....

Canada wanted to attract investment for a baby formula facility because it uses skim milk from cows as an ingredient. Healthy consumer appetites for butter leave provincial milk marketing boards with a surplus of skim. Baby formula looked like a smart use for it, and Canada didn't have any significant infant formula production before Feihe arrived.

Expanding this plant, or building a second infant formula plant somewhere else in Canada, look like less attractive business propositions under this new trade deal.

The bolded part is especially important today: Because USMCA effectively capped possible exports of infant formula to the United States, it discouraged investment in new Canadian capacity--capacity that we sure could use right now. The same goes for other potential Canadian suppliers--indeed, that's the whole point of the USMCA restrictions. As Big Dairy's trade associations stated in supportive public comments after the agreement's text was completed:

A particularly critical additional element of USMCA in this area is the export surcharge that is intended to discourage exports of Canadian SMP, MPC and infant formula beyond specified quantities. Properly administered, this provision will be an essential tool in constraining Canada's ability to dump unlimited quantities of dairy products onto global markets.... Canada must ensure that these surcharges function as intended to discipline the export expansion of these product areas."

Export expansion! Heaven forbid!

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