The True Cost of America's Protectionist Food Policies

Kamala Harris recently called for a new federal law to ban "price gouging on food" in North Carolina, but such a law would likely have little impact on grocery prices and could even make the problem worse. This article explores the real drivers behind rising food costs in the United States and argues that the solution lies not in price controls, but in addressing the web of tariffs, trade barriers, and regulatory protectionism that have long inflated food prices for American consumers.

Exposing the Myth of Corporate Greed

The Fallacy of "Price Gouging"

Contrary to the popular narrative, the evidence suggests that "price gouging" was not the primary driver of the post-pandemic spike in food prices. Reports from the New York Federal Reserve and the Kansas City Fed indicate that the increase was largely due to higher commodity prices, tighter labor markets, and wage growth, rather than excessive corporate profits. In fact, the grocery industry has historically operated on notoriously thin profit margins, ranking 80th out of 96 industries surveyed by NYU's Stern School of Business.

The Normalcy of Price Increases

Food prices have already begun to stabilize, with the "food at home" portion of the Consumer Price Index increasing by just over 1% from January 2023 to July 2024 - much less than the overall rate of inflation. This suggests that the recent price spike was a temporary aberration driven by external factors, not a systemic issue of corporate greed.

The Folly of Price Controls

Economists have long warned that price controls, such as a ban on "price gouging," are more likely to reduce supply and create shortages, ultimately leading to higher prices in the long run. Inflation is a macroeconomic phenomenon driven by broad monetary and fiscal policies, not the choices of individual corporate actors.

The Limitations of Political Promises

Politicians may be tempted to promise quick fixes to voters' grocery angst, but the reality is that the main solution is simply time, as normal market conditions return and American incomes slowly outpace food prices. However, this "wait and see" approach is often a nonstarter for candidates facing an upcoming election.

The Consequences of Protectionism

The true culprit behind high food prices in the United States is not corporate greed, but rather the web of tariffs, trade barriers, and regulatory protectionism that have long shielded domestic industries from foreign competition. These policies, designed to protect the interests of powerful agricultural lobbies, have kept prices artificially high for American consumers.

Tariffs and Trade Restrictions

The United States maintains a range of tariffs and "trade remedy" duties on a wide variety of foods, from beef and seafood to produce like cantaloupes and spinach. These measures effectively keep prices higher than they would be in a free market. The USDA has estimated that the elimination of these agricultural tariffs could save American consumers around .5 billion annually.

Regulatory Protectionism

In addition to tariffs, various regulatory barriers, such as restrictions on imported products like tuna, catfish, and biofuel inputs, further inflate food prices for little tangible benefit to consumer health, safety, or the environment. The 2022 baby formula crisis exposed how these regulations can effectively wall off the U.S. market from safe, high-demand alternatives made abroad.

Propping Up Domestic Industries

The U.S. government has a long history of using policies like the Agricultural Marketing Agreement Act of 1937 and produce-marketing orders to artificially prop up domestic food producers, limiting supply and keeping prices high. The federal Renewable Fuel Standard, which mandates the blending of biofuels into transportation fuel, has also been estimated to increase Americans' total food spending by 0.8 to 2 percent.

The Political Calculus

Despite the significant financial burden these protectionist policies place on American consumers, especially those with low incomes or large families, politicians have been reluctant to address them. This is because the benefits of these policies are concentrated on powerful industry groups, while the costs are diffused across the broader population. As a result, the entrenched interests that profit from these arrangements fiercely lobby to maintain them, while consumers remain largely unaware or apathetic.