Prisoner’s Dilemmas-XV: Sugar Tariffs

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“..Look at the United States. There is no country in the world where the law is kept more within its proper domain—which is, to secure to everyone his liberty and his property. Therefore, there is no country in the world where social order appears to rest upon a more solid basis. Nevertheless, even in the United States, there are two questions, and only two, that from the beginning have endangered political order. And what are these two questions? That of slavery and that of tariffs; that is, precisely the only two questions in which, contrary to the general spirit of this republic, law has taken the character of a plunderer…” Frédéric Bastiat- The Law (1850).

The tendency for people to favor protectionist policies is an understandable fallacy, but a fallacy, nevertheless. Some Americans are under the erroneous assumption that they have a moral duty to keep domestic jobs from being outsourced. Much of this sentiment; was fostered by campaigns waged by organized labor throughout American history. It is difficult to tell if the buy American fallacy is the byproduct of union propaganda or an intrinsic sense of nationalism and economic jingoism. Regardless of whether the American public is receptive to their pithy buy domestic slogans, the union interests frequently get their way. The best example is the enduring specter of import tariffs that have plagued American economic policy for centuries. The earliest example is the Tariff Act of 1789, which was strongly favored by none other than Alexander Hamilton.

Arguably one of the most notable tariffs on the books is related to the importation of sugar. The tariffs placed on foreign sugar have been upheld through various laws over the years, starting from the nascent period of the republic.

“…On brown sugars, per pound, one cent. 

On loaf sugars, per pound, three cents. 

On all other sugars, per pound, one and a half cents

(Tariff Act of 1789, P. 25)..”

From a game-theoretical standpoint, consumers are the first ones to defect. If imported sugar is cheaper American consumers gravitate toward buying the less expensive Caribbean sugar. The lobbyists for the sugar industry work to pressure lawmakers into keeping import taxes on foreign sugar. The collective pressure placed on Congress to place and uphold tariffs can be considered a defection by the domestic sugar producers. Many economists and political scientists assume that the marginal increase in the cost of sugar would be negligible to an individual customer. In turn, fulfilling the enduring axiom of Public Choice theory; concentrated benefits and dispersed costs. Few households consume enough sugar to desire to change their baking and coffee flavoring habits. Although, these costs are salient to commercial confectionary producers who purchase mass quantities of sugar for domestic and international retail goods. It has led to firms relocating production facilities to countries without sugar tariffs (Life Savers plant moving to Canada, p. 4). Technically, this could be a defection, but the irony is that it undermines the moral initiative of keeping domestic jobs within the bounds of the United States. But not every company opts to move their factories abroad, another substitute for cheaper inputs. Hence, the rise of soft drink producers using high fructose corn syrup instead of cane sugar. One noteworthy example would be when Coke and Pepsi switched to using corn syrup in their sodas for the US market in the 1980s (p.5) (Mexican cola still uses real sugar). There has been much debate over whether high fructose corn syrup is more unhealthy than sugar. If it is more injurious to one’s health, then a Prisoner’s Dilemma is afoot, the suboptimal result being the American people doing unnecessary damage to their bodies merely to appease a small subset of the overall constituency.