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.

The Paradox of Implicit Logrolling

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The Paradox of Implicit Logrolling

The process of implicit logrolling (p.101) is a form of indirect vote-trading that heavily relies on the bundling of wedge issues. By way of tying specific groupings of policies and candidates to attract target demographics of voters. Per Buchanan and Tullock (1962), such arrangements encompassing political platforms can be manipulated by “…political entrepreneurs…”. Simultaneously considering the zealous nature of many single-issue voters, it is easy to see why implicit logrolling is such an effective mechanism in shaping the American political landscape. If the American voters continue to support controversial political positions, implicit logrolling will be effective.

Most analysts ignore how voters reconcile selecting programs and political candidates that hold logically inconsistent views. For example, an individual that defends abortion rights on the grounds of a bodily integrity argument concurrently favoring vaccine mandates. Whatever happened to “my body, my choice”? Although, if this individual held both positions on the grounds of an externalities argument, perhaps there might not be any logical discrepancies. However, few voters delve that deep into the logic of their political philosophies. Here lies the Paradox of Implicit Logrolling; political platforms drive voters to support policies they would not otherwise choose. We have most saliently observed this phenomenon in the demographic shifts within the Republican Party. The GOP was once favoring free trade, now advocates for tariffs.

The Whisk(e)y Wars- A Conflict Fought With Tariffs

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“…When there is no probability that any such repeal [of a tariff in a foreign country] can be procured, it seems a bad method of compensating the injury done to certain classes of our people to do another injury ourselves, not only to those classes but to almost all the other classes of them. When our neighbors prohibit some manufacture of ours, we generally prohibit, not only the same, for that alone would seldom affect them considerably, but some other manufacture of theirs. This may no doubt encourage some particular class of workmen among ourselves, and by excluding some of their rivals, may enable them to raise their price in the home market. Those workmen, however, who suffered from our neighbors’ prohibition will not be benefited by ours. On the contrary, they and almost all the other classes of our citizens will thereby be obliged to pay dearer than before for certain goods. Every such law, therefore, imposes a real tax upon the whole country, not in favor of that particular class of workmen who were injured by our neighbors’ prohibition, but of some other class…” (Bk. 4, Ch. 2)

 The Wealth of Nations- Adam Smith

The Biden Administration’s commitment to free trade is questionable at best. The extent to which he will champion laissez-faire policies is a difficult determination to make in the nascent period of his presidency. Biden being a centrist is more concerned with appeasing the median voter than taking principled policy positions. Only time will tell whether or not he will capitulate to the anti-market sentiment of the vociferous and passionate populous wing of the Democratic party. Epitomized in the heated rhetoric of elected officials such as Elizabeth Warren and Alexandria Ocasio-Cortez. However, there may be some light at the end of the tunnel. Free trade may not necessarily be dead in the water. Despite the multitude of flawed policies that have so far been supported and promulgated by the Biden Administration they may have done one thing correctly. Repeal some of the Trump-era tariffs. Arguably one of the most disturbing aspects of the Trump administration was his hostility towards foreign trade. Biden has taken one small step to repair America’s tarnished image in the arena of international trade. This attempt at redemption has manifested itself in an unlikely form, the abolition of the importation tariff on Scotch Whisky

The previous statement is not wholly accurate. The United States agreed to relinquish all tariffs on goods imported from the United Kingdom. Responding to the UK’s lift all of its tariffs on US imports back in January. Scotch Whisky is one of Scotland’s most highly esteemed exports. Making it an iconic symbol of the UK’s presence in the arena of global trade. Considering back in 2012 the United States was estimated to be the largest export market for Scotland’s prized spirit, it stands to reason that the tariffs were detrimental to United Kingdom’s economy. Even in light of the Trump tariffs the United States still maintained this position as top consumer nearly a decade later in 2020. Despite the United States remaining big-time scotch imbibing nation the tariffs still sent shock waves throughout the industry. It projected that since the 25 percent tariff was imposed back in 2019, Scotch producers lost an aggregate “$682 million (£500 million)” in sales. In 2019, the United States imported $2.07 billion worth of distilled spirits from the U.K., the majority of it being scotch whisky. The year 2020, delivered a two-punch blow to Scotland’s whisky producers. The COVID-19 pandemic also eroded profit. Leading to an overall 23 percent dip in global scotch sales. The US tariffs have been attributed to a 32 percent decline in overall whisky exports. As recent as last month the losses incurred by the tariffs have been described as “unsustainable” for some producers.

The United States did not escape with impunity from retaliatory tariffs being imposed by the United Kingdom. It should not be ignored that the UK is a significant trading partner of the United States. Approximately 20.3 percent of all agricultural exports from America to the UK were alcoholic beverages. The United Kingdom slapped a 25 percent tariff on American whiskey after Trump applied tariffs on steel imported from the UK. As predicted by several experts and commentators American whiskey serves as a salient target for reciprocal tariffs. The United Kingdom was previously viewed as the largest market for bourbon exports. Since the application of the tariffs overall exports declined by 35 percent. Overall, bourbon sales in the United Kingdom decreased by a staggering 50 percent. The United Kingdom did relax tariffs on American Brandy, Rum, and Vodka. However, the UK and other European Union countries will continue to maintain tariffs on American whiskey as a result of a “two-year trade war on steel and aluminum”. 

The question become what was the impetus behind this fatuous trade dispute between the US and the UK? It all came to a head in 2019, after a 16-year dispute between aerospace rivals Boeing and Airbus. The UK applying tariffs on up to $4 billion worth of goods over subsidies received by Boeing. The United Kingdom started to ratchet down the conflict by easing tariffs on some US goods and Biden reciprocated by lifting tariffs on UK imports. While Biden is not a perfect free trader, this was a shrewd decision on his part. Not from the standpoint of political strategy, but the point-of-view of sound economic theory. The words once-famous uttered by Ronald Regan ring true here: “If you want more of something, subsidize it; if you want less of something tax it”. Here is the crux of the idiocy of protectionism. Proponents seek to limit imports to encourage domestic consumption-based out on a sense of nationalism. However, they ignore the fact that their hostility towards foreign goods may stir the ire of lateral trade partners. Resulting in defensive actions that will result in the decreased consumption of American goods globally. Wouldn’t a proud nationalist prefer to see American goods consumed all across the world? After all, the two best-selling whiskies globally in 2019 were Jack Daniels and Jim Beam. This was not the byproduct of using taxation to punish Americans who enjoy drinking imported whiskies, but through many years of savvy marketing, product consistency, and rightfully earned brand recognition.