Last week, food companies sent a letter to Agriculture Secretary Tom Vilsack to warn that a sugar shortage is possible if the department doesn’t raise import quotas. How the Administration resolves the dispute will send a message about Mr. Obama’s view of protectionist policies amidst a recession.
In states from Florida to Minnesota, sugar producers have their profits guaranteed by a price floor created by the import restrictions. Each year, the amount of foreign sugar that manufacturers may use is limited to protect U.S. sugar farmers who benefit from artificially higher prices on the domestic market. According to the letter to Secretary Vilsack, signed by companies like Kraft, Hershey and Mars, without some easing « consumers will pay higher prices [and] food manufacturing jobs will be at risk. » But scarcity is only half the issue. The other half is a protectionist program that distorts trade and has negative economic consequences.
According to a 2006 study by the U.S. International Trade Administration, each sugar job saved by propping up domestic producers costs three jobs in manufacturing, with many companies relocating to countries such as Canada and Mexico where the price of sugar can be one-half to two-thirds the rate in the U.S. So instead of importing sugar, the U.S. brings in more sugary finished products, with imports rising to $18.7 billion in 2004 from $6.7 billion in 1990.
Standing for free trade would require the administration to stand up to some powerful unions. So far, no evidence of that.