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Trump’s Sugar Swamp

Summary:
CAMBRIDGE – As the United States, Mexico, and Canada prepare to renegotiate the North American Free Trade Agreement, as US President Donald Trump’s administration has demanded, much attention is being devoted to one item in particular: sugar. The negotiations will probably produce a sweet deal for the US sugar industry, highlighting the emptiness of Trump’s promises to “drain the swamp” of special-interest influence over policymaking. Sugar producers’ political clout is nothing new, in the US or other industrialized countries. They have often received trade protection, in the form of import tariffs and quotas, to ensure that domestic sugar prices far exceed those in supplier countries like Australia, Brazil, the Dominican Republic, the Philippines, and Mexico. In fact,

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CAMBRIDGE – As the United States, Mexico, and Canada prepare to renegotiate the North American Free Trade Agreement, as US President Donald Trump’s administration has demanded, much attention is being devoted to one item in particular: sugar. The negotiations will probably produce a sweet deal for the US sugar industry, highlighting the emptiness of Trump’s promises to “drain the swamp” of special-interest influence over policymaking.

Sugar producers’ political clout is nothing new, in the US or other industrialized countries. They have often received trade protection, in the form of import tariffs and quotas, to ensure that domestic sugar prices far exceed those in supplier countries like Australia, Brazil, the Dominican Republic, the Philippines, and Mexico.

In fact, sugar was one of the few goods facing high US barriers that had to be dismantled under NAFTA. (Mexico had to eliminate high import barriers in many areas.) But the required liberalization was delayed long after NAFTA took effect in 1994. Mexican sugar exports to the US did not rise substantially until 2013.

At that point, US producers and refiners quickly sought protection. And the Commerce Department agreed to give it to them, in the form of tariffs on sugar imports of up to 80%. To stave off the tariff hike, Mexico agreed in 2014 to limit its sugar exports and prop up US sugar prices. This month, it agreed to even stricter limits. According to Commerce Secretary Wilbur Ross, “We have gotten the Mexican side to agree to nearly every request by US industry.”

Such actions benefit American sugar producers – particularly a small group of wealthy sugarcane growers, largely in Florida, who offer generous campaign contributions to the relevant politicians. For example, the Florida-based Fanjul brothers, Alfonso and José, reportedly contributed a half-million dollars to Trump’s January inauguration. US Sugar has also recently donated generously to Florida Governor Rick Scott.

But the high US sugar prices – double the world price level, on average, over the last 35 years – sustained by protectionist trade measures hurt American consumers, who face an estimated $3 billion per year in added costs. And such measures harm US industries that need sugar, with economic costs that outweigh the benefits of a more profitable domestic sugar industry.

Notably, candy companies have been shedding workers for years and moving their factories offshore. The US International Trade Agency confirms that high sugar costs are a “major factor in relocation decisions.” For each “sugar growing and harvesting job saved through high US sugar prices,” the Agency estimates, “nearly three confectionery manufacturing jobs are lost.”

Yet the US government refuses to allow sugar prices to drop. Beyond import barriers, the US has created a price floor, via nonrecourse marketing assistance loans...

Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

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