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The Domino Effect of Sugar Protectionism

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“Like most conservatives, I don’t like subsidies or government intervention in markets.” So began a column in the Daily Caller by Rep. Tom Rooney (R-Fla.).

Anyone familiar with the ways of Washington knows what’s coming next: a series of sorry excuses for why — just this once — the congressman’s alleged commitment to free-market principles must be jettisoned. Rooney does not disappoint.

“But,” he continues, cluing in the reader who did not foresee this turn of events, “I do like U.S. sugar policy, which, according to some, runs counter to these core conservative ideals.”

That may be the understatement of the year. The sugar industry is among the most coddled industries in the United States. The federal government simultaneously restricts the amount of sugar that domestic producers can sell in the United States and slaps a roughly 150 percent tariff on sugar imports above a fixed quota. It also makes loans to sugar processors on the condition that they pay sugar producers at set minimum prices. As a result, Americans pay three times the world price for sugar.

The savvy reader will not be surprised to learn that Rooney represents one of the largest sugar-producing states in the Union and therefore has a vested interest in keeping that industry free from foreign competition. Of course, he couches his pork-barrel politics in the language of the common good. Why, without forcing the domestic price of sugar to triple the world price, Rooney claims, Americans would be at the mercy of dastardly Latin American countries whose governments (ahem) heavily subsidize their domestic sugar industries!

Brazil is Rooney’s biggest bogeyman. The Portuguese-speaking nation is “the OPEC of the sugar world,” controlling “nearly half of the global sugar market,” he writes. Its government “plans to plow another $1 trillion into its sugar market over the next few decades” — a pittance compared to what Washington spends on corporate welfare — and its sugar labor force “in some cases, makes just 50 cents an hour.”

Rooney insists that U.S. sugar producers “have some of the lowest production costs in the world,” yet “they cannot compete with the heavy hand of the Brazilian government.”

“Government intervention,” he concludes, “will be necessary to maintain America’s sugar industry.”

Being a good Republican, Rooney naturally doesn’t want the government to play “too large” a role in the sugar industry or to “dictate business practices”; but he does want it to skew the playing field in favor of American sugar producers and against American consumers. Thus, he favors maintaining the sugar program as it currently stands. This, he says, “is the least intrusive way to keep 142,000 Americans off unemployment rolls.”

This is a textbook example of examining only those effects of a policy that are readily apparent while ignoring other, less visible effects. While the tariff may keep Americans employed in the sugar industry, the fact that it bumps the domestic sugar price to triple the world price is surely of some consequence. Aaron Goone observed in the Dartmouth Business Journal,

Politically, the oft-stated case for this type of protectionism is that it preserves jobs. This is true for the U.S. sugar industry, but the tariffs involved negatively affect the majority of the population. In fact, despite “saving” a few low-wage jobs in the uncompetitive sugar farm industry, these tariffs bring the U.S. a net economic cost. In his book Free Trade Under Fire, Dr. Douglas Irwin, a professor of International Trade in Dartmouth’s Economics department, states that artificially high sugar prices due to tariffs cost the American economy $1.9 billion of deadweight loss a year, on average. Since there would be an estimated 3,600 jobs at risk due to international competition if the industry was liberalized, this means that it costs around $600,000 to preserve a single at-risk job through the tariffs. Considering that the mean wage of the industry is $37,000, the implication is that the opportunity cost to our economy of saving one job in the sugar industry is $563,000. This is about 3.5 times the average CEO salary!

Moreover, Goone points out, “an astounding 42 percent of the benefits from the tariffs go to just 0.02 percent of the farms, most of which are under the control of just one family.” In addition, he notes, “these firms receiving the most benefit are the ones that would be least affected by international competition. Not only are the tariffs not helping those they are intended to support but they are also simultaneously destroying jobs in downstream industries, which are forced to bear the tariff’s costs.”

The candy industry is just one of those suffering from Washington’s sugar protectionism. A 2006 U.S. Department of Commerce report found that sugar quotas were “a major factor” in the loss of 10,000 candy-manufacturing jobs: companies simply moved their operations to countries where sugar is cheaper. That is why Life Savers, for example, are now made in Canada, and why Brach’s and Hershey’s candies are increasingly being produced in Mexico.

The number of other jobs lost because of the sugar program may not even be quantifiable, but it seems clear that in order to save 142,000 jobs in the sugar industry — or, as Goone would have it, 3,600 — the government is putting tens of thousands of Americans out of work. In fact, more jobs may be lost to the sugar program than are saved by it!

As for “the OPEC of the sugar world,” if Brazil wants to keep trying corporatism, let its government have at it. There is no reason to punish Americans — or Brazilian sugar laborers, who might experience higher wages and growing ranks if Americans could buy more of their product — for the actions of Brazilian officials and their corporate cronies. Brazil’s experiment with an unfree market will, of necessity, come crashing down sooner or later. In the meantime, should that country try to use its market dominance to force up the world price of sugar, it will undoubtedly find that other countries’ producers will rush to undercut it — if their governments stay out of the way.

Finally, it is amusing to note that Rooney argues that the United States should protect its own sugar industry because “[all] of the 120 countries that produce sugar have governments that aid their sugar producers and protect their domestic sugar jobs in some way.” Conservatives tend to pooh-pooh liberals’ arguments that Washington should enact certain programs (such as universal health insurance) because “everyone’s doing it”; and they don’t take too kindly to U.S. courts’ citing foreign court rulings. Why, then, should the U.S. government engage in foolish, counterproductive, and unconstitutional sugar protectionism just because every other country does so?

In the end, Rooney wants the sugar program to continue because it visibly benefits his monied constituents, as his arguments for maintaining the program reveal. The largely invisible harm it brings to others does not figure into his calculation. After all, those who benefit directly from the sugar program, though few in number, can be counted on to contribute heavily to the campaigns of those politicians who keep the gravy train running; while those who are harmed by it, though they far outnumber the beneficiaries, will neither recognize that it is the source of their woes nor contribute significantly to politicians promising to repeal it — if any can be found. No wonder Big Sugar gets such a sweet deal.

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    Michael Tennant is a software developer and freelance writer.