An article in Forbes (January 18, 2017) reported that: The United States (U.S.)

Question

An article in Forbes (January 18, 2017) reported that:

              The United States (U.S.) is the fifth largest sugar producer and fifth largest consumer of sugar in the world. The U.S. sugar industry has enjoyed trade protection since 1789 when Congress enacted the first tariff against foreign-produced sugar. Since then, the U.S. government has continued to provide trade support and protection for its domestic sugar industry.

              The framework for the current U.S. sugar program has its roots in the so-called “Farm Bill” enacted in 1990. The farm bill is the primary vehicle for setting U.S. sugar policy and that policy is currently based on three main pillars: price support through preferential loan agreements, domestic market controls and tariff-rate quotas.

              In fiscal year (FY) 2013, Americans consumed 12 million tons of refined sugar, with the average price for raw sugar 6 cents per pound higher than the average world price.

REQUIRED

1. What groups in the U.S. benefit from the U.S. trade restrictions on sugar?

How do these groups benefit?

What groups in the U.S. are harmed by the U.S. trade restrictions on sugar?

How are these groups harmed?

What groups outside the U.S. are affected by the U.S. trade restrictions on sugar?

How are these groups affected?

If there are far more sugar consumers in the U.S. than sugar producers, then why do these trade restrictions continue, i.e. why don’t consumers exert political pressure on Congress to remove the restrictions?

Explanation / Answer

a. The group benefitting from U.S. trade restrictions on sugar are the US domestic producers. With trade restrictions, the producer surplus of domestic producers will higher than without trade restrictions. The domestic producers also supply a greater quantity at higher price.. The government also earns some revenue by imposing tariff based restrictions.

b. Sugar consumers are harmed by the trade restrictions on sugar as the price of sugar increases with trade restrictions.

c. Outside the U.S., the groups negatively affected by these trade restrictions are the sugar producers from rest of the world. With tariffs in the US, the demand for imported sugar declines and hence they lose their market share in the US. As a result, the producer surplus of the foreign sugar producers decline.

d. The reason why consumers do not exert political pressure on Congress needs to be understood in context of political economy. The sugar producers lobby with the US politicians to keep the trade restrictions on. Also, they fund the US political parties and their candidate to pursue their interests in public.
No such lobby group exists to represent consumer interests in public domain. In the absence of such a consumer representation, the consumers have little voice in the public policy debates.

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