Protectionist Laws an Overlooked Cause of Supply-Chain Disruptions

C asual observers can be forgiven for thinking the spate of supply-chain disruptions experienced in recent years is largely due to our increasingly globalized economy. Even when disaster strikes far away, economic interconnectedness often means Americans still suffer the effects. But the truth is more complicated.

Overlooked is that many supply-chain woes, including empty store shelves in Alaska earlier this year, are not the result of excessive globalization but protectionist measures that impede access to international products and services.

A classic example is the Jones Act. Passed in 1920, the law restricts domestic water transportation to vessels registered and built in the United States. That raises costs by reducing competition and requiring the use of ships that are far more expensive than their international counterparts.

It also means there’s less slack in the system when things go wrong.

This spring, an aging Jones Act–compliant container ship used to haul goods between the West Coast and Alaska suffered a mechanical breakdown that company officials estimated would keep it out of commission for up to two weeks. With fewer than 30 of the world’s over 5,500 container ships meeting the Jones Act’s requirements, finding an alternative ship in such situations to handle the goods is no easy task. The result for Alaskans? Delayed shipments and bare store shelves.

That’s not an anomaly. In 2022, another Jones Act ship used to transport containers and other items from Texas to Puerto Rico ceased operating for nearly two months because of the 34-year-old vessel’s need for repairs. No replacement ship was offered.

The law creates problems even in normal circumstances. Despite the United States being one of the world’s top exporters of liquefied natural gas (LNG), New England and Puerto Rico must import it from overseas because there are no tankers compliant with the Jones Act to transport LNG from U.S. ports.

While the Jones Act impedes Americans’ access to American goods, protectionist laws’ primary impact is discouraging their use of foreign products.

The U.S. sugar program, for instance, only lets a limited amount of sugar into the country under low tariffs and then subjects any additional amounts to much higher duties. So high, in fact, they can nearly double the sugar’s price. When production shortfalls occur, such as last year following a hurricane that struck sugar-growing regions of the U.S. and Mexico, businesses ranging from bakers to candymakers face the choice of paying tariff-inflated prices for sugar or simply going without.

It’s a protectionism-induced supply-chain headache that enriches U.S. sugar producers while forcing the rest of the country to pay higher prices.

But the complications arising from ill-conceived protectionism can be far more consequential than just costlier candy canes. During much of 2022, for example, parents across the country faced widespread shortages of baby formula following the shutdown of a Michigan formula factory suspected of spreading disease.

In a well-functioning market, this should have led to minimal disruptions as alternative suppliers filled the void. Thanks to import barriers, however, baby formula isn’t a typical market.

First are the tariffs. While various free-trade agreements allow some formula to enter the United States duty-free, most imports face significant import taxes. Between 2012 and 2021, 80 percent of formula imports were hit with tariffs levied at an effective rate of 25.1 percent.

On top of that are rules and regulations that deter foreign suppliers. These are so significant that formula produced in Europe, for example — despite being subject to similar regulatory scrutiny as in the United States — cannot be imported by Americans for commercial use.

Both of these import barriers contributed mightily to forming a market in which foreign producers accounted for less than 2 percent of consumption. For comparison, imports account for nearly 18 percent of U.S. beer consumption and over a quarter of U.S. wine sales. But U.S. protectionism resulted in Americans placing nearly all — over 98 percent — of their formula eggs in a single domestic basket.

Another example of the risks of an overreliance on domestic supplies can be seen in the 2021 winter storm that left millions in Texas without power amid subfreezing temperatures. Besides its human toll, the storm’s resulting power outages also took much of the U.S. chemical industry offline and created supply bottlenecks.

While this is not an argument for offshoring the industry, it illustrates the risks that arise from a lack of supply diversification that international trade helps provide.

As Americans gain an increased appreciation for the supply chain’s importance, they should also recognize protectionism’s role in hindering its smooth operation. Globalization can’t solve everything, and supply-chain risks will continue to be a reality of 21st-century economic life, but reducing trade barriers can lessen their harm and help keep the economy humming.