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The show about all things Bravo from the housewives to summerhouse at everything in between.

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Today’s episode is about the mystery of the missing baby.

Formula Nationwide more than 40% of infant.

0:35

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.

0:50

What infant formula they can find and retailers like Walgreens and CVS and Target are now limiting.

It’s yes, it is. 2022 in America and we are rationing Essentials for babies.

As I recently explained in a piece for the Atlantic.

1:08

This might seem like a complicated story.

And in some ways, it is kind of a complicated story, but I think you can basically boiled down this mystery to three factors.

Three number one, bacteria number two of virus.

And number three, a trade and Regulatory policy.

1:26

So number one is the easiest part to explain.

That’s the bacteria.

What happened was following?

The deaths of several babies from a rare infection, the FDA investigated Abbott.

Which is a major producer of infant formula in the US and they discovered traces of nasty bacteria in their Michigan plant.

1:42

They recalled several brands of formula.

They shut down the Plant.

Advise parents not to buy the stuff that was coming out of it.

Basically closed that node in the supply chain.

So recall suck, but they’re also pretty common like thousands of drugs and thousands of products are called every single year and they don’t typically create a meltdown like we’re experiencing right now.

2:03

So something else seems to be going on.

That leads us a number to the virus, right?

The pandemic itself is clearly snarled, all sorts of Supply change, 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.

2:20

It’s hard to think of a market that is yanked around.

More than formula like in the spring of twenty, twenty parents hoarded formula, you know, like the hoarded paper towels, toilet paper then is they, you know, work their way through the stock piles sales fell a lot.

And so if you’re a formula maker, And you sort of you know, reading the signals of consumer demand is very confusing because demand surged in 2020 and then it pulled back in 2021.

2:43

It’s served 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?

2:59

So incredibly fragile itself.

That brings me to today’s guest Scotland.

Sikkim 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.

3:18

But as you’re going to see and is I myself kind of have to admit the reason the US 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.

3:37

Like 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.

4:12

Scott Lincecum, welcome to the podcast.

Well, thanks for having me, go to beer.

Let’s start with the pandemic.

It’s got, how did the pandemic itself proved to be the perfect storm when it comes to gunking up?

The supply of baby formula mean, look, you know, a lot of this stuff is just the pandemic.

4:31

Doing its thing, like it’s 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 Country shutting down and reopening and States doing different things and then they’re being labor, shortages and trucking shortages and all sorts of crazy stuff in the market.

4:51

It’s inevitably going to redound to manufacturing whether it’s a broad or here.

Little known fact, is that the global Supply chains in the domestic Supply chains are actually suffering from a lot of Of the same things we always think about the ports but there’s a lot of domestic stuff at its suffering as well.

5:07

So baby formula in a lot of ways was just like all other parts of manufacturing steps is all corners and all these other things that are we famously had shorts on the flowers aren’t showing up and then the next thing, you know, you know, your packaging, suppliers, shut down and it’s a giant mess, right?

5:24

So there’s that.

And then adding insult to injury.

Is this recall?

A Major FDR FDA approved supplier Abbott in.

Michigan had a plant shut down because some infant formula was found to have.

5:43

Actually we think calm, 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 fire.

So you have the normal supply chain stuff and then this recall and And that has really fueled a serious shortage in in the market and leaving us now to try to scramble to pick up the pieces and and, and fill these gaps as best we can write.

6:14

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 these and the aisles were clear.

6:32

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 excess baby formula, so they didn’t need to buy as much in late 2020, early 2021, suppliers people manufacturing, all this stuff, all this, all this baby powder.

6:48

I was using all this baby formula say, you know, well, obviously there’s a pullback in demand.

We don’t even make as much and then what happens early this year for a variety of reasons, the demand for baby formula comes back and suppliers are Before it on top of this really catastrophic shutdown of Abbott Laboratories.

7:07

What?

If you’re jumping on that?

No, I 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 again which adds even more uncertainty and to this kind of these market gyrations.

7:23

And then like you said, look I having been a parent of an infant who needed baby formula.

Let me tell you, you do kind of freaked out when you can.

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.

7:45

Doing its thing in this case.

That’s right ever going to get to the policy, which is really the meat of this episode.

We’re going to get to the policy and 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.

8:02

A strategizing with their family to buy up as much baby formula as possible and ship, baby formula to the parents in their family, to make sure they don’t run out a formula.

What is this?

Do it exacerbates, the shortage?

Because when parents, or when anyone, in any inflationary environment in 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.

8:32

Because this isn’t just like toilet paper.

It’s not just something that’s night.

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.

8:47

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 Scotland to come thesis statement on trade and Regulatory policy for infant formula in United States of America.

9:09

So, in a normal Market, when you have these types of demand and Supply gyrations, the market will adjust your 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.

9:28

The amount of additional Supply that can enter from Large Global producers of infant formula in Europe or New Zealand, or Canada or elsewhere?

You couple those regulatory barriers with stuff going on in the US 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.

10:00

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.

10:16

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 jumped up in there.

If you want to know, I was just gonna say, it’s basically the Fix storm for a for shortages.

10:35

You are you’ve created a highly concentrated price regulated market that discourages investment and Market entry.

And oh, by the way, you create a tariff wall right around the country to prevent any imports from satisfying the gaps that eventually exist.

10:51

So it’s it really is it’s like somebody created a shortage in a lab, unfortunately.

So let’s jump into it yet.

Let’s go ahead and start with trade policy, and I know that the Concept of trade policy is likely to make some people’s eyes glaze over.

So the me ask this question in as as relatable away as I possibly can.

11:12

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?

11:28

Right.

Well, there is we’ve established a two-step process or wall that 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 longest equipment gun. 101, tariffs are taxes, on Imports and of econ, 101.

11:52

Go right back in just go, good.

So due to long-standing government protection of the day.

Three industry.

The 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.

12:12

So, in the infant formula category, you have a tariff that applies to Imports of from a formula from most places.

And once you hit a certain quantity of imports, then you have an additional tariff on top of that.

12:28

So that that extra quota step adds all sorts of additional uncertainty.

Not only, are you paying a higher tariff, price, higher tax, but you don’t know when that tears going to kick in.

If you’re an importer and you’re trying to plan and to heck with it.

I’m just going to buy domestic, right?

12:44

So that’s the first issue, the the now, in a normal operating Market.

However, when prices rise to two main, you know, high demand and limited Supply.

Ooh, sirs are going to enter that market, even with the tariffs, even with some of these quota issues.

13:03

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 dock, my pay doc the so.

So in a normal Market, you’re still going to enter your.

You’re going to either, they’re going to pay the tariffs or the importers will pay the terrorists because they can they can make it up on the price side.

13:24

The problem.

Is that the FDA regulations applying Apply to imported baby.

Formula are so strict that really no one is willing to go through that the registration process, the labeling requirements, the nutrient requirements.

13:42

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 growing baby Market.

13:58

I wish it were.

I wish we were having more babies, but we’re not.

So producers a broader.

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?

14:18

So as a result 98% of the US market is Satisfied by American Producers.

According to the Sorry our numbers at Cato or 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 US market for certain products and certain quantities.

14:44

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 largest importer.

I mean Relatively, but basically nowhere else and that creates all sorts of again Supply problems when domestic production shuts down, right?

15:08

So it was 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.

Like but there’s a lot of American parents that are trying to order this stuff.

And what often happens is that US Customs agents.

15:26

See shipments at the border.

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 and I was writing my article and there are studies that have found that European formula.

Meets practically all of the fda’s nutritional guidelines.

15:44

And even in some ways might even be better than American formula because the EU ban certain sugars and they have a higher lactose share in their formula, which IP good for babies, but the problem is that due to all these technicalities, that you said, write the Ray wants to be very very jealous.

15:59

Very very careful about the baby formula.

It lets him to the US.

So 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.

16:15

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 answer.

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.

16:36

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.

16:53

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.

And that’s and where things get really egregious.

17:08

Is that even in our free trade agreements.

I did Scare quotes for those of you who can’t see me, even our free trade agreements.

We have major restrictions on Dairy, including infant formula.

And in fact, the Trump Administration, in fact, it part of the like lone holdout Tom in the US.

17:28

MCA President, Trump’s NAFTA replacement, the u.s.

Mexico Canada agreement.

Great name was insuring 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.

17:49

That administered by the Canadians.

The Trump Administration did this because of a Chinese company was investing in Canada, 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.

18:09

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 and their captive market.

So they lobbied and with the help of the Trump Administration and put in these import caps in place, but This not only is an import restriction, but it’s really an investment Des inhibitor, right?

18:34

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, it does not a huge player in the infant Market infant formula Market, but we were essentially We ensuring that they never would be which, you know, let’s face it quite frankly and be pretty nice if they were a little bigger right now.

19:04

Yeah, 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, when, 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.

19:25

And basically steps up the Courage, men 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 daddy formula will probably be indefinitely hampered because the Trump Administration punishment of this Chinese investment.

19:50

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.

20:07

It’s we’re not just discouraging, a Chinese investment were not, just discouraging European Imports.

Were 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 want to just comment on what I just said.

20:25

No, and I think the other really key point is This is all part of kind of the long-standing US protection of our dairy industry.

If you I mean, go back.

I found a Cato paper from like 2002 writing about all of these.

20:41

We have not only tariff protection and these tariff rate quotas in 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 protection, as I’m you’re going to have like steel and ships and sugar and probably dare.

20:58

He is your fourth presidential head on that Mountainside.

And so it really is, it’s, it’s unfortunate but unsurprising that we’re in the position were 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.

21:18

So I think we had a pretty good picture now of the trade policy.

Snafus that led us here.

Let’s talk about the domestic regulation.

What is Wick and why should we know about it?

So, Wick is a very well-intentioned government program, that gives vouchers cash vouchers to parents of infants to buy baby formula.

21:45

Like I said, you even hard hard to disagree with that one.

Yeah, hard.

It is agree with that wholeheartedly rotarians like me are like, you know, what?

Cash for poor baby’s.

Okay fine, that, that I’m gonna have to say yes to Mouse.

We’ll just just by By the way, just to just so we can help place people Wick actually stands for.

22:01

It’s short for the special supplemental nutrition program for here’s the wick 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?

22:18

Now, there’s two things wrong with it.

The first is that Wick started out being a pretty small program, but has It’s ballooned to being about half of the entire us, infant formula market.

22:34

So that creates what we call, an economics monopsony situation where the government is the dominant consumer and can use that leverage to price tank.

Right?

Essentially to negotiate prices that are way below market for whatever product it’s consuming in this case, infant formula.

22:56

Now, look, that is a great.

Great deal for taxpayers.

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 ya.

Monopoly is one supplier or concentration among suppliers.

23:13

And monopsony is the opposite its concentration among buyers.

Basically one buyer.

The US government.

Exactly.

So first is just that you have this Behemoth in the market and that Wick has become due to years and years and years of expansion.

But the second issue is how the wick system has been designed.

23:31

And again, I don’t think any of this was intentional, but in order to encourage companies to bid on WIC contracts, the each state essentially Awards, a sole supplier contract for baby formula, which essentially means if you win the contract, you’re the only wit provider in the state.

23:55

Well, why would companies want to do that?

It turns Turns out that if you’re the wick provider, you get all sorts of benefits in the non Wick 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 particular infant formula.

24:15

There’s a lot of brand loyalty there.

So studies show that when you win a whit contract, you become basically the dominant producer in the state.

So the government again uses it.

It’s it’s consuming.

Its monopsony power to negotiate these.

24:33

These very low priced contracts and producers agreed of those because they are going to we’re going to win in the non in the non weak Market.

The problem of course, is that this is like really unintentionally designed to limit Market entry and investment, right?

24:51

You really aren’t going to have new startups that are going to be willing to engage in this type of loss, leading a 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?

25:10

So that’s it’s essentially A system that is going 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.

25:28

Designer baby formula market, and in fact, it’s exactly what we see and there’s a 2011 analysis by the USDA.

The reported that just for company’s account for practically all us.

Formula sales Abbott where this bacterial infection was found me Johnson / ego and Gerber.

25:44

So, you know, it says, if you know, if the US had this sort of situation with say cars, right?

This should be an industry where if you wanted to buy a Mercedes, good luck.

It’s going to cost a hundred thousand dollars.

We discourage Car Imports.

You’re basically every other country and in the US, the only We people making cars are, let’s just say Ford and GM.

26:00

Now, let’s say for some reason at Ford because they, you know, screwed something up in Detroit or in some other Factory in Georgia or whatever.

Now Ford is not going to be cars anymore for the next six months.

No more Ford’s.

You 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 US government for foreign or International Investment.

26:23

In our trading partners who have 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.

26:39

Exact had a failure in Michigan.

And that is why we are where we are.

Yeah.

And, and, and adding to the problem was that we had a failure at the largest Wick contractor of all in Abbott.

So Abbott has apparently about 31, I think kind of the wick contracts out. 250, and, and Abbott was doing voluntary recalls.

27:01

Not only from the Michigan product, but really just trying, you know, just trying to figure out what the heck’s going on.

And and it was It was kind of seizing up Abit product beyond that Michigan Production at the same time USDA, which manages the WIC program was issuing waivers to WIC customers.

27:19

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 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.

27:35

So it really is like it really is just the perfect storm for a shortage and situation that’s bordering on crisis.

Okay, let me play Devil’s Advocate, Scott.

These are babies.

27:52

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.

28:07

We have to do this like an Abbott Labs.

It turned out is basically a petri dish is there’s bacteria everywhere.

In fact, maybe this proves the FDA should be More protectionist that we should be doing like bacterial checks on the weekly.

In all of these domestic producers.

28:25

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 that to the idea?

That like, of course, we have to be protectionist because this is the most vulnerable group of Americans.

28:41

That there is her.

I mean, the most obvious response is that all the protection in the world, does you?

No 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 and essentially, one basket, when that basket breaks, you have huge ramifications for the rest of the, you know, the people needing eating eggs, eating infant formula.

29:10

So the end and that, again, study after study shows is, 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 your eggs in a bunch of baskets, right?

And, and so is, the most resilient thing is having global capacity, in Canada, in Europe, in New Zealand in the United States as well.

29:34

And limiting, the barriers between interested, really 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 You can do all that jazz.

So that the first thing, the second issue though.

29:50

Is that look European baby.

Formula is not.

This is not from China.

This is not.

No one is is like out there arguing.

We should, we should be, we’re dependent on a certain Source or a dependent on again China or some sort of this is coming.

30:08

This is Formula from a very reputable regulatory regime.

It is coming from one of the world’s largest producers.

And Export is a product.

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.

30:25

And these are very reputable companies.

Very reputable, Regulatory regimes and American parents are not there, certainly not a reckless with their babies.

There’s certainly able to shop for what they believe is in their best interest.

30:44

And if they believe that Europe, Ian product that is approved by a sip 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 just simply an issue of allowing them to choose their level of risk and to choose their product within, of course, sub s acceptable bounds.

31:11

One more point to add on to that.

Is that a lot of times when European?

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.

31:31

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 Parts that are already happening to be clear more safe.

31:50

For the parents, that demand Western European baby formula for whatever reason.

They like the goat milk, their francophiles.

Who knows?

But this is already happening and it would be safer if we had a more ethical 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 A lot like drugs in the sense that, you know, if you 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.

32:29

They’re all refrigerated and 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 come to surmount.

Some of the potential issues like a label in a foreign language.

32:45

For example.

‘Well, I’ve heard that retailers 44, were providing the instructions in English.

They were providing conversion charts because the scoopers were there, you know, different size.

So the market can easily surmount, those kind of obstacles what it cannot surmount as as an FDA and tariff blockade at the border, then shipments being seized and mom’s being treated basically like drug mules.

33:08

I mean the stuff that you see on the mommy blogs.

I’m now I’m big in the mommy blogs.

Now.

This WC is really crazy.

I mean, you know, just small ship.

Being seized by customs and moms having to hide formula in packages of rice and stuffing crazy stuff.

33:25

All because we’ve or 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.

33:41

So on the administration side, the 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 just today, we’re recording on Tuesday afternoon.

34:02

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 some European countries as well.

So they’re starting to act on that.

34:18

Yeah.

So so look, you know, to the extent that they can expedite any sort of processing to the extent with 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.

34:41

Hey, that’s all good.

What?

What you every little bit helps?

It’s Actually, I think it’s just going to be some kind of marginal, right.

And we’re not really talking about a major fix because if you look at some of the importance that they’re now approving like from Switzerland or Ireland, those are from already FDA approved facilities or registered products.

35:02

These are 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.

That’s why it really The impetus needs to be in Congress to act first on the tariffs that Congress has constitutional authority over Terrace.

35:27

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.

35:43

And it’s very transparent right now.

Honestly, we’ve looked at this at Kato is almost impossible to figure out how this stuff works.

So that’s that’s a big problem.

The other thing is we need them.

You just say just be clear what was difficult to figure out about how it works?

Is that say the the tax on Imports, might be like five percent for the first 100 bottles and then it’s like six percent for the next 150 and then it’s 9.5 the next 250 and it just keeps changing.

36:10

Its certain volume thresholds in such a way that if you are a company overseas, looking at this law, you Your hands, and you’re like, my lawyers can’t even figure this out.

Like, why am I even gonna 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.

36:26

The risk is just too high that you might end up tripping the quota.

And then the next thing, you know, instead of paying 10%, You were picking your paying 20%.

Yeah.

That’s a, that’s a big problem with quotas.

The other big thing that Congress needs to get on is some sort of mutual recognition system.

36:42

We have this already for some Pharmaceuticals.

Where we basically say look if it’s a pharmaceutical that is approved by a regulator in Europe or in New Zealand or a couple other places.

There’s a list of in Switzerland and other one.

Then it’s okay.

36:59

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 formula.

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 Hard enough to make their own choices about the risks, they want to assume and that that’s fine.

37:22

Now, that I know the FDA will be kicking and screaming about this type of stuff, but, you know, to act 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 Wick, you know, it may be made sense to save taxpayers.

37:40

A few bucks in the way that Wick 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 at from my research.

37:56

It’s like 2 billion dollars 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 Wick consumers buy whatever product they want.

Whether its domestic imported.

38:11

Whatever you 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 sure.

38:26

So, 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 will help, right?

Yeah.

Look, you, 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.

38:45

That is basically We a five-alarm fire for the libertarian fire department to come in and say, hey, this is exactly the fire that we predict 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 product is important, is baby.

39:01

Formula is a product with a healthy diversity of suppliers.

That still has something like the wick 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.

39:16

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.

39:32

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.

39:48

Now, globalization has failed.

The US should just make everything here.

You heard this from the right with people like JD Vance.

No high.

Oh, you hear a pure from the trumpets you hear from people on the left who are like anti capitalists and are basically like, Neo mercantilist.

That’s just make everything.

We want in the United States.

40:04

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 the nationalists, got what they wanted this.

The tariffs, the regulatory barriers, the government contracts and the rest.

40:23

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, you know, yes, reshoring production can insulate you from external shocks, but it makes you far more susceptible to domestic shocks and like Factory, shut down or earthquake or a freak ice storm.

40:46

In Texas, and at the end of the day, it also makes you poor and less secure overall.

And so the best way is not to bring everything back home.

But to sure, you know, 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.

41:09

So that when times are tough here, we can supplement with foreign product.

When times are tough abroad, we can we Export their and so forth and and allowing and then allowing the system itself to self-regulate a lot more than it is right now, right?

41:25

We build 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 Scotland to come.

Thank you very, very much.

Appreciate it.

41:40

My pleasure.

Thanks for having me.

Thank you very much for listening.

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