Nature Abhors A Vacuum… Even In Trade

Andrew Langer

7/15/2013 1:53:00 PM - Andrew Langer

The axiom that nature abhors a vacuum applies well-beyond the physics of the universe. Economics is an organic sphere in its own right—where the tinkering of states can have severe consequences. And when the US fails to act to protect its own interests, you can take it to the bank that another state will capitalize on the US’ failure to do so.

So it has been with the global trade in sugar. The US sugar industry, already at a massive disadvantage from its regulatory and tax climate, has called for a worldwide subsidy cease-fire under a new “Zero-for-Zero” sugar policy (a proposal that calls for the dismantling of all global protectionist policies surrounding the sugar trade, pledging that the US will disarm itself when it gets agreements from others that they will do so as well). Coincidentally, India, the world’s second-biggest sugar producer, doubled-down, increasing their taxes on imported sugar by a staggering 50% just days after news of the Zero-for-Zero proposal broke.

India, Brazil, and a handful of nations recognize the America’s competitive disadvantage—their regulatory costs are lower and their corporate tax structures offer greater benefits to their domestic producers. These nations are increasing taxes on imports while providing massive subsidies to their producers (the height of crony capitalism). The end result of this crony capitalism is the eventual destruction of the US sugar business, whose costs (like all businesses in America) have gone up incredibly in the last 4 years—regulatory costs have skyrocketed, fuel costs have skyrocketed, health care costs have sky rocketed.

But unlike other industries, whose prices have either risen (slowly) or remained steady, the dumping of subsidized sugar on the marketplace has caused sugar prices to drop by more than 50 percent in just the past two years. And it would be one thing if consumers were benefiting from these price drops, but there is little evidence to support that since our grocery bills keep going up.

No industry can survive if their costs explode and their prices are forced down, which brings us back to the notion of creating a subsidy-free market for sugar – a market where the laws of supply and demand, not the laws of governments determine success and failure.

Currently, Rep. Ted Yoho (R-FL) has introduced the Zero-for-Zero concept as a standalone bill (H.Con.Res.39). American businesses need regulatory reform, tax reform, and real market-based reforms to health care. But those reforms are a long time away—and until that point, we need to ensure that some measure of support is given here at home. We have already seen it: if the US fails to act, other nations will step in and fill that vacuum, exploiting any gap in that defense and using it to their economic advantage (as India did last week).

Yoho’s bill is a good step towards filling that vacuum, and ensuring that our economic defenses remain strong until a free market starts to take shape.