The Toilet Paper Panic Is Back. This Time the Economics Are Different

I suspect that this toilet paper panic will be less shocking than the previous one. Just remember this: In both cases, it was politicians to blame for the bathroom crisis, not markets.

During the COVID-19 pandemic in 2020, America experienced a disturbing phenomenon: a run on toilet paper. Most of us remember the headlines. “Why Are Stores Running Out of Toilet Paper?” NPR asked. “Why are people stockpiling toilet paper?” asked the BBC.

The pandemic has been over for years, but toilet paper is suddenly back in the headlines. This time, the problem is not shortages but fear of high prices. “Toilet Paper Prices Are Rising,” Yahoo warned. “Wiped out: U.S. faces surging toilet paper prices,” the Guardian cheekily noted.

What’s going on here?

Well, as in COVID-19, bad economics has resulted in a predictable mess.

Let’s start with the pandemic. Many media outlets and scholars at the time said the toilet paper shortage stemmed from an obvious source: panic-buying. “Consumers are experiencing nervousness, and they are buying more than they should, depleting inventories of an industry that is very lean,” said NC State professor Ronalds Gonzalez. This isn’t so much an incorrect answer as an incomplete one. Panic-buying was taking place, understandably so. Americans have seen enough zombie apocalypse movies to know that when things hit the fan, one better be supplied with the essentials — and few things are more essential than toilet paper.

Yet, bad economic policy also played a big role. A curious fact from 2020 is that despite the shortage of toilet paper, prices remained remarkably stable. Whether one looks at production prices or consumer prices, the story is the same: Prices for sanitary paper in 2020 were pretty flat. As many observed in 2020, there was an obvious reason for this: anti-gouging laws and enforcement. Normally, when a good becomes scarce, its price rises, something economists illustrate with a basic supply-and-demand graph. Yet that didn’t happen during the pandemic, almost certainly because sellers didn’t wish to be accused of unlawful activity.

According to the American Bar Association, emergency declarations triggered price-gouging laws in no fewer than 38 states and the District of Columbia. And while there was no federal law on “price gouging,” the Department of Justice created a COVID-19 Hoarding and Price Gouging Task Force. Its goal was to police pandemic “profiteering.”

In other words, any retailer in the country who tried to raise prices to reflect changing market conditions risked running afoul of price-gouging laws or federal enforcement. The price signals that could have discouraged panic-buying and encouraged toilet paper production were never allowed to operate. The result? A national shortage of toilet paper. (This is why anti-gouging laws are counterproductive.)

Today is a very different story. There is no national emergency, and prices are working just fine. The problem is that those prices are moving in a direction that has many concerned, or, to be more accurate, prices could soon be moving in that direction. Despite the punny and panicked headlines, there’s no clear evidence that toilet paper prices are surging. In fact, government data show that consumer prices for sanitary tissue paper products fell slightly between April and July. (Don’t take my word for it. Go to your local grocery store. I predict you’ll not face sticker shock.)

That could soon change, however. A careful reading of these stories reveals that prices are expected to rise because of the trade war between the United States and Canada. After trade negotiations between the two countries collapsed last month, both countries face tariff hikes on certain goods. While the U.S. has had tariffs on Canadian lumber for years, Trump’s new tariffs put a 50% tax on Canadian tissue products. Meanwhile, Canada’s retaliatory tariffs, which are scheduled to go into effect on Sept. 8, threaten to impose a duty of up to 50% on “toilet paper or face tissue stock.”

Data show that the U.S. imports 100 million kilograms of toilet paper from Canada annually, and these tariffs are all but certain to drive up toilet paper prices to some degree, though how much remains to be seen.

Still, people would do well to remember that tariffs are not taxes on foreigners but taxes on imported goods, which is why it’s businesses and consumers who feel the pain.

Because prices are still operating, I suspect that this toilet paper panic will be less shocking than the previous one. Just remember this: In both cases, it was politicians to blame for the bathroom crisis, not markets.

This article first appeared in The Washington Examiner.