Gerard Scimeca – Co-founder, CASE
December 21, 2020
When the Biden administration gets underway on Jan 20, one of the major economic questions will be: How will the new president manage inequities in international trade fomented by unfair government practices such as subsidies that skew markets and damage U.S. industries?
The mists of the presidential transition are beginning to lift, and a picture is emerging of an administration committed to battling foreign subsidies. As Reuters reports of the new administration’s intentions, “reforming the badly damaged World Trade Organization with new rules against subsidies and other non-market practices is viewed as a bigger priority.”
This is potentially good news for one U.S. agricultural segment that has been especially hard hit by foreign subsidies – U.S. sugar growers.
For several years, U.S. sugar growers have been pressing for their case with successive administrations and with members of Congress. They assert that the playing field on which they compete with foreign companies is as uneven as they come, with U.S. producers at huge disadvantage due to massive foreign subsidies.
“The sugar market is the most volatile commodity market in the world,” the group Americans for Limited Government stated. “America’s sugar farmers compete, unfairly, against heavily subsidized foreign producers, justifying the current no-cost, U.S. sugar policy program to stabilize the domestic sugar market.”
While the U.S. sugar industry does not receive subsidy checks, the U.S. government’s response to foreign subsidies is interest-bearing loans to U.S. farmers and import quotas to protect U.S. consumers and farmers from a glut of subsidized sugar. This is not the ideal response from a free market perspective, but the shear breadth of foreign subsidies leaves little choice.
A report last year by researchers at Texas Tech University found that “government intervention in the world sugar market remains extreme and widespread with a wide variety measures to support domestic sugar producers.” Due to subsidization, there is a continuing cycle of distorted prices and alternating supply gluts and shortages for consumers that sows uncertainty for farmers.
The report noted the highly protectionist and predatory tactics of the world’s top sugar exporting nations, including Brazil and India. Other regions singled out in the report include Thailand, Mexico, China, the European Union, and others. This is in addition to other protectionist tactics employed, including import tariffs, loan forgiveness, price controls and direct payments to producers for equipment and supplies.
The U.S. sugar industry has long championed a zero-for-zero policy, which would eliminate U.S. sugar tariffs in exchange for the end of foreign subsidies across the board. Such a measure would allow price to be based on actual costs, not twisted out of shape by government tariffs and subsidies, and the Biden administration and new Congress would be wise to pursue it.
That sort of approach is in line with viewpoints espoused by Janet Yellen, the former chair of the Federal Reserve and Biden’s nominee as Treasury Secretary. “Resisting protectionism and strongly supporting a rules-based multilateral system are what the U.S. stood for and promoted as a global system with great success,” she said in 2018, taking a swipe at the Trump administration for largely abandoning that approach.
Rules are good when it comes to trade – if everyone follows them. A reformed WTO, armed with teeth to enforce those rules and take on foreign sugar subsidies, could be a powerful antidote against the many bad actors seeking unfair advantage.
