Sugar is cheaper in Canada than the US – but Canada has almost no sugar growers. Which trade theory that focus on factor endowments or technology possibly explain that phenomenon? Easy: add tariffs and quotas, especially when enriched with the political economy of protection (Chapter 7).   The Wall Street Journal details that "the gap between what Americans and the rest of the world pay for sugar has reached its widest level in at least a decade, breathing new life into the battle over import quotas that prop up the price of the sweet stuff in the U.S."

 

The history of sugar quotas since 1816 (to subsidize plantations in the newly acquired Louisiana territory) is detailed in "The Great Sugar Shaft." Curiously, its

another cautionary tale of trade policy hysteresis.  

 

Source: WSJ

 

Here are some questions from the WSJ-in-Education program

1. Suppose the world market for sugar is perfectly competitive, and

that the U.S. is insignificant in the world market for sugar. Also suppose that the

U.S. sugar market is perfectly competitive. What is the effect of the introduction

of a U.S. sugar quota on the price of sugar in the U.S. market?

2. What is the effect of a sugar quota on U.S. consumer surplus? Why do

U.S. sugar consumers oppose U.S. sugar quotas?

3. What is the effect of a quota on U.S. producer surplus? Why do U.S.

sugar producers lobby for U.S. sugar quotas?

4. Suppose sugar consumption is a cause of the current U.S. obesity

epidemic, and that obesity is a leading cause of type 2 diabetes. Does sugar U.S.

consumption have a negative externality? If so, is it possible that a U.S. sugar

quota improves economic welfare? Related article: Premier Wen Jiabao had sharp words

for Washington, ceding little ground on China's currency policy and suggesting that

U.S. efforts to boost its exports by weakening the dollar amounted to "a kind of

trade protectionism."