THERE IS good news and bad news in U.S.-Mexico relations. Unfortunately, they're the same news: The Trump administration and the Mexican government have reached a new agreement on access to the United States for Mexican sugar producers. This is good news because it avoids an impending trade war over the commodity, thus preserving a modicum of good relations leading into negotiations over updating the North American Free Trade Agreement (NAFTA). It's bad news because the whole business perpetuates a system of market manipulations that hurts American consumers of the commodity while benefiting no one but a well-connected few who produce it in the United States.
At the core of those market manipulations for many years has been a series of per-country import quotas that permit only certain quantities of raw sugar to enter the United States from various nations. NAFTA changed that by granting Mexico’s sugar producers free access to the U.S. market, though the access didn’t actually kick in until the Obama administration, some 15 years after the agreement’s adoption. Nevertheless, by 2014, Mexico had come to supply a large portion of the U.S. market, at which point American refiners lodged a complaint with the Commerce Department, accusing the Mexicans of “dumping” subsidized sugar and sending too much of it in refined form.
In response to the threat of punitive tariffs, Mexico agreed to limit refined sugar shipments and accepted minimum prices; even that wasn't good enough for American industry, however. The latest deal, struck by Commerce Secretary Wilbur Ross and Mexican Economy Minister Ildefonso Guajardo, essentially tightens those supply limitations and further increases minimum prices. It's a major concession by Mexico for the sake of good bilateral relations, though American producers say they still aren't completely happy with it.
If you’re wondering how these elaborate protections for sugar producers can possibly benefit the far larger number of sugar consumers, well, we are, too. The truth is that Americans as a whole would be better off if there were global free trade in sugar, not just free trade between the United States and Mexico. Would that cost jobs in the sugar industry? Maybe. But it is certain that the protectionist system kills thousands of jobs in sugar-using industries, whose costs of production are forced up by these pointless, politically driven market interventions.
Things have come to quite a point when the only way to save a free trade agreement is by enforcing less-free trade. But that is what is happening: Mexico’s sugar exporters are being forced to accept a version of the country-by-country quota system they thought they had negotiated their way out of, fair and square, back when everyone signed NAFTA a quarter-century ago. Yet managed trade of that sort appears to be what President Trump means by “fair trade,” though we don’t understand what’s fair about determining market share through haggling among bureaucrats rather than supply and demand.
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