Opinion | The US sugar program: why Americans pay more for sugar

Tariff-Rate Quotas negatively impact economic welfare.


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Granulated white cane sugar in a sack with a scoop.

Shahab Khan, Opinions Columnist

The one thing that I know about Americans is that we love our sugar. We consume more sugar than any other country. Thanks to the tariff-rate quota, or TRQ, levied by the U.S. sugar program, American consumers also pay more than double for the commodity compared to the rest of the world.

The TRQ charged by the U.S. sugar program allows the country to import a certain amount of sugar at a low tariff rate. But if the U.S. imports more than the set amount of sugar, the tariff rate increases.

Instead of protecting sugar farmers, the federal government’s policies need to focus on improving the economic well-being of our nation by providing consumers with inexpensive goods. Getting rid of the U.S. sugar program will help the government in that goal.

Since free trade policies hurt domestic firms that do not have comparative advantage, governments utilize protectionist policies to encourage consumers to “buy American.”

The U.S. sugar program is meant to help these domestic producers by using a TRQ to raise the price of sugar, which increases the profits of domestic producers.

As per the logic of Econ 101, U.S. sugar producers would not face any competition from foreign firms in a closed economy. Therefore, they would charge U.S. consumers a price based on market conditions. However, in an open economy, the price of sugar that U.S. consumers pay would decrease.

This is because of comparative advantage, a theory which helps provide a rudimentary picture of how international trade works and what goods countries choose to import and export.

Essentially, a country is to have a comparative advantage in the production of a good when its costs of producing that good relative to the cost of producing other goods is less than another country’s cost of producing that good.

For example, say the U.S. and Brazil both produce two goods: sugar and computers. If the relative price of producing sugar in terms of computers is higher in the U.S. than in Brazil, Brazil would have a comparative advantage. Thus, Brazilian farmers could sell sugar to U.S. consumers at a cheaper price than what U.S. producers could offer.

Given that in the real world the U.S. does not have a comparative advantage in sugar production, U.S. sugar producers have to lower their prices and sugar production in order to compete with foreign sugar firms.

This is done at the expense of U.S. consumers, as the tariffs levied by the TRQ have burdened consumers with nearly $2.4 billion in extra costs, according to an analysis from the American Enterprise Institute.  As for domestic producers, the sugar program only provides $1.4 billion in benefits to them.

Therefore, the U.S. economy is losing $1 billion a year courtesy of the U.S. sugar program. As if that was not enough, the sugar program also causes anywhere from 17,000-20,000 people to become unemployed on an annual basis, signifying how this protectionist policy is a job-killer.

It is clear by its costs that the U.S. sugar program, like most barriers to trade, exceeds the apparent “benefits” it may have. Hence, it is in the best interest of the federal government to scrap the U.S. sugar program.

Columns reflect the opinions of the authors and are not necessarily those of the Editorial Board, The Daily Iowan, or other organizations in which the author may be involved.