New Studies Set Sights On Trade Equity

Posted: Jul 17, 2014 12:01 AM

As tensions escalate in hotspots around the globe, libertarians rightly remind us that it is trade, the freest trade, that brings peace and prosperity between global adversaries. Free trade, approached from a perspective of common equity, demystifies the cultural differences that might be otherwise found inscrutable, differences that heighten tensions. It has been said that the introduction of Pepsi and Pizza Hut into the Soviet Union did as much to bring an end to the Cold War as did President Reagan’s rightly-tough rhetoric and policy.

At the same time, predatory practices—driven by economies that are decidedly not free-market (or limited government), do a disservice to the potential goodwill of free trade. Such cronyism is the hallmark of failing and floundering regimes worldwide, and ultimately neither the United States, nor these nations, are helped by our acceptance of the status quo, and in these past few weeks a number of reports have been released that serve as helpful (and warning) guideposts on why we absolutely must not tolerate the economic tinkering of crony capitalist subsidization by other nations.

Such is the case with the global sugar trade, the subject of several of these reports. Sugar, a staple with massive economic implications worldwide, is also generally regarded as the commodity with the most market distortions associated with it.

The Institute for Policy Innovation put it best in their recent report, Seeking a Global Solution in Sugar Trade Policy, “US agriculture is the most efficient and productive in the world. In a reasonably free global sugar market, the United States can compete in sugar.” The problem is that, despite the best efforts of free marketeers, that global sugar market is anything but free. Mexico heavily subsidizes it’s domestic sugar industry, with the government owning and operating roughly 20 percent of the market overall—severely undercutting US firms, hobbled with an ever-increasing array of regulatory burdens from an administration seemingly determined to keep the US economy limping along.

So while Mexico does what it can to prop up its inefficient producers, the US is doing whatever it can to make sure that its efficient agricultural firms are being left behind (and at the same time, Mexico is working to drive its pool of manual labor to the higher wages of the north).

But this problem isn’t limited to Mexico. India, Brazil, and Thailand all massively subsidize the production of sugar. Brazil is, literally, spending billions in subsidies, according to the IPI report, bailing out its ethanol industry to the tune of nearly a half-billion dollars. And these four countries control more than two thirds of the global sugar market, exerting a tremendous amount of pressure on it as a result. Moreover, as any one of these nations adds additional cronyist bailouts, the others follow suit. Brazil announces a new subsidy, then Thailand and India announce theirs.

Like all other forms of cronyism and government interference, these bailouts have the secondary effect of discouraging innovation. Why innovate, when practice inefficiencies will go rewarded by the state?

At the same time, US firms are facing the double-whammy in terms of punishing their drive towards greater efficiency and productivity. Their successful efforts are met with the corrupt practices of foreign governments whose sole interest is in undercutting their market prices, while here at home they are met with a federal government that rewards them by driving up their regulatory costs, labor costs, and energy costs!

The US has to be aggressive in defending its interests, and while some (rightly) have deep concerns for the global trade treaties the US has signed, we have, nevertheless, signed them. We must be willing to use the tools at our disposal to combat what is essentially economic warfare—finding a comprehensive solution that will bring some obligatory rationality to the process.

At the same time we look at ensuring that our interests are protected vis-à-vis the predatory practices of other nations (whose goal is simple: to use their massive subsidization to destroy the US sugar marketplace), we have to recognize that we need serious reform here at home. While we shouldn’t disarm, trade-wise, it is imperative that we also recognize the deleterious impact that both a massive regulatory state and an ever-elusive set of shifting potential burdens have on US businesses.

The two go hand-in-hand. We ensure that our businesses are globally-competitive while we take the necessary steps to ensure that our economic liberties aren’t being abused by others.