Tariffs and the Infant Formula Shortage

Tariffs and the Infant Formula Shortage

INSIGHTi

Tariffs and the Infant Formula Shortage
May 23, 2022
The United States is experiencing a shortage of infant formula. The shortage is localized to the United
States. Some analyses argue that high tariffs on formula impeded the development of foreign sources of
infant formula for the U.S. market and exacerbated the U.S. shortage. As a result, tariffs are a focus of
congressional attention, and legislation addressing tariffs has been introduced. Below are answers to key
questions about trade in infant formula.
How Are Imports of Infant Formula Classified?
Subheading 1901.10 of the Harmonized Tariff
Schedule of the United States (HTSUS) covers
Defining Infant Formula
formula marketed both for infants and young
The Federal Food Drug and Cosmetic Act defines infant
children. Infants are defined in FDA regulation as
formula as “a food which purports to be or is represented
individuals aged not more than 12 months old,
for special dietary use solely as a food for infants by reason
of its simulation of human milk or its suitability as a
whereas a child is defined as an individual older
complete or partial substitute for human milk.”
than 12 months but younger than 12 years.
While both infant and children’s formula are considered food products, infant formula is subject to
additional oversight. The current shortage applies primarily to infant formula, particularly for use in
infants with specific health needs. Because HTSUS 1901.10 includes both infant formula and children’s
formula, some recent discussions on the impact of tariffs have relied on trade data that included both
types of formula. The HTSUS codes that have been used to classify infant formula between 2012 and
2021, and which were used for the data in this Insight, can be found in the shaded text box to the right.
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Does the United States Import Infant Formula?
HTSUS
Codes
The United States imports little infant formula relative to its domestic production and
for
consumption. Between 2012 and 2021, the United States produced an estimated average
Infant
524 million kilograms ($2.3 billion) of infant formula annually. An industry analysis
calculated average demand over that time at approximately $2 billion annually, leaving the
Formula
United States with an average surplus of $300 million annually. During that time, the
(2012-
United States exported an average of 33.5 million kilograms ($277.1 million) annually
2021)
and imported an average 3.2 million kilograms ($13.4 million) (Figure1). Imports of

infant formula increased over the past decade from approximately 1.3 million kilograms
1901.10.05
($3.8 million) in 2012 to 4.3 million kilograms valued ($28.8 million) in 2021(Figure 2).
1901.10.10
In 2021, the $28.8 million in imports satisfied approximately 1.5% of the estimated
1901.10.11
domestic demand of $1.8 billion.
1901.10.15
In 2021, the largest source of imports of infant formula was Ireland (2.3 million
1901.10.16
kilograms, $17.2 million) followed by Chile (1.2 million kilograms, $3.3 million) and the
1901.10.21
Netherlands (0.5 million kilograms, $7.1 million). Those three countries represented 93%
1901.10.26
of all imports (by quantity) (Table 1). They similarly represent the top three sources of
1901.10.29
U.S. imports of infant formula between 2012 and 2021 (Figure 3). In 2021, the United
1901.10.30
States imported no infant formula from Canada. Although Mexico is a large source of U.S.
1901.10.31
imports of children’s formula (98% of imports by quantity in 2021), it is a relatively
1901.10.33
minor source of infant formula (0.4%). Whereas imports of children’s formula were
1901.10.35
relatively rare prior to 2020, they are more common in the two years since (Figure 4).
1901.10.36
1901.10.40
Figure 1. Imports and Exports of Formula (Infant and Young Child)
1901.10.41
2012-2021(millions of U.S. dollars)
1901.10.44
1901.10.45
1901.10.49
1901.10.55
1901.10.60
1901.10.75
1901.10.80
1901.10.85
1901.10.90
1901.10.95

Source: U.S. Census Bureau.
Notes: U.S. export data is not as granular as the import data and it is difficult to disaggregate infant from child formula in
export numbers. However, surveys conducted by CRS of imports of U.S.-made formula in other national statistics suggests
that most U.S. exports are of infant formula.

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Figure 2. Imports of Infant Formula
2012-2021 (Customs Value and Quantity)

Source: U.S. Census Bureau.
Notes: Infant formula only. See shaded box for HTSUS codes.

Figure 3. Sources of Imports of Infant Formula
2012-2021 (millions of kilograms)

Source: U.S. Census Bureau.
Notes: Infant formula only. See shaded box for HTSUS codes.

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Figure 4. Imports of Formula (Infant and Young Child)
2012-2021 (millions of kilograms)

Source: U.S. Census Bureau.
Notes: As many sources have not distinguished between formula suitable for infants and formula suitable for young
children in their figures, both are included here for il ustrative purposes.
Table 1. Sources of Imports of Infant Formula in 2021
Quantity of Imports
Value of Imports (U.S.
Average Cost per
Country
(kilograms)
Dollars)
Kilogram (U.S. Dollars)
Ireland
2,297,934 kg
$17,191,723
$7.48
Chile
1,179,763 kg
$3,296,057
$2.79
Netherlands
551,802 kg
$7,092,049
$12.85
Brazil
183,171 kg
$325,245
$1.78
Venezuela
43,143 kg
$110,104
$2.55
Serbia
36,486 kg
$35,272
$0.97
Mexico
18,377 kg
$514,488
$28.00
Australia
8,244 kg
$230,838
$28.00
Greece
1,620 kg
$15,034
$9.28
Denmark
518 kg
$6,728
$12.99
El Salvador
480 kg
$6,000
$12.50
United Kingdom
9 kg
$2,223
$247.00
Sum
4,321,547 kg
$28,825,761
$6.67 (average)
Source: U.S. Census Bureau.
Notes: Infant formula only. See shaded box for HTSUS codes.

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What are U.S. Tariffs on Imports of Infant Formula?
The most-favored-nation (MFN) tariff rate for infant formula ranges from 14.9% to 17.5% depending on
the content. Once a certain threshold of imports is reached, the duties on most common infant formulas
increase to $1.035 per kilogram + 14.9%. In addition, once another threshold is reached, certain low-
priced formulas may be subject to additional tariffs. Certain infant formulas enter duty free from some
free trade agreement (FTA) partners. Between 2012 and 2021, the United States imported approximately
$149 million in infant formula, $29 million (19.4%) of which entered duty free. The average effective
calculated duty rate on the remaining imports was 25.1%.
Did the United States-Mexico-Canada Agreement (USMCA) Place Additional Tariffs on
Imports of Formula from Canada?
The USMCA did not place additional tariffs on imports of formula from Canada. However, the USMCA
included a new requirement that Canada monitor its global exports of formula and provide that
information to the United States. If Canada’s exports of formula exceed approximately 40,480 metric tons
(40,480,000 kilograms) globally between August 1, 2021 and July 31, 2022 (the dairy year), Canada is
obligated to impose an export charge of CAD 4.25 (approximately $3.31) per kilogram. In the 2020-2021
dairy year, Canada exported approximately 1,022 metric tons (1,021,910 kilograms) of formula globally.
As such, none of Canada’s exports over the past two years have been subject to the charge. Canada would
have to export nearly 40 times more formula than it currently does to become subject to the charge.
What Impact Have Tariffs had On the Shortage?
It is difficult to assess the impact U.S. tariffs have had on the current shortage. The U.S. infant formula
market, as mentioned above, is highly saturated, with domestic producers exceeding U.S. domestic
demand by a considerable margin. That, coupled with the FDA’s nutritional requirements and the U.S.
Department of Agriculture’s Special Supplemental Nutrition Program for Women, Infants, and Children’s
(WIC) sole-sourcing contracting, may make the United States a relatively unattractive market for foreign
manufacturers, particularly of low-cost infant formula. As such, Congress might consider encouraging
mutual recognition agreements on regulatory testing and certification, or other policy instruments to
reduce these trade barriers, in addition to potentially lowering tariff rates.
Non-tariff barriers may have weighed more heavily on the decision by foreign producers not to enter the
U.S. market than the tariffs. Of the three major sources of U.S. imports of infant formula, one (Chile) has
duty-free access to the U.S. market. Despite that duty-free access, imports from Ireland, which does not
have duty-free access to the U.S. market, have grown at a faster pace. Nevertheless, the additional cost
tariffs add to imports of infant formula, particularly low-cost formula, may play a role. In 2021, the
average cost of infant formula from Ireland and the Netherlands, which is subject to tariffs, was $7.48 and
$12.85 per kilogram, respectively; the average cost of infant formula from Chile, by contrast, was $2.79
per kilogram (Table 1).

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Author Information

Christopher A. Casey

Analyst in International Trade and Finance

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