Trump Administration Signals Desire to Raise Prices on Americans

A new agreement between the United States and Mexico will be a sweet one for a small handful of American sugar producers – but it will leave a sour taste in the mouth of U.S. packaged food makers, soda producers, restaurants, confectioners, and ultimately consumers.  The bilateral deal could be a prologue to NAFTA, and it raises the question: Is the purpose of free trade to bring prices down to the ground or suspend them in mid-air? Is the goal to encourage trade – or limit it?

The Trump Administration has opted for limiting imports and driving up prices, apparently casting its lot with a few agribusinesses. The heavily subsidized and protected sugar industry got another boost over the people who buy their product when the U.S.-Mexico deal set a floor price by limiting the amount of sugar that Americans can import from south of the Rio Grande. In a June 29 tweet, Trump patted himself on the back, tweeting: “New sugar deal negotiated with Mexico is a very good one for both Mexico and the U.S. Had no deal for many years, which hurt U.S. badly.” But the agreement will be a ‘very good one’ only for the small few who grow sugar; it will hurt the overwhelming majority who use it.

The new deal sharply lowers the proportion of refined sugar Mexico can export to the United States, and cuts the quality of Mexico's crude sugar exports. By reducing the limit on how much sugar Mexico can export to the United States – erasing a free trade environment under NAFTA that has allowed Mexican sugar to move easily across the border – the deal will drive up prices throughout the supply chain. Basically, a couple more barriers will be added to what is already a maze of price supports and import quotas that inflate domestic prices, benefiting well-heeled sugar producers and hurting everyone else. Ultimately, end-use consumers will be whacked with steeper prices for everything from processed foods, to restaurant meals, to candy bars.

How big a dent will this put in the wallets of consumers? The overall cost of sugar will go up by $1 billion for packaged food makers and soda companies, according to the industry group Sweetener Users Association. Make no mistake about it, that price will flow down to average Americans when they shop at supermarkets and corner stores.

But this agreement does not just hurt companies whose products contain sugar, and the consumers who buy them. It will also threaten jobs in food-producing industries across the United States. That is why Senator Pat Toomey (R-Pennsylvania) has come out strongly against the deal, even though it was negotiated by an administration of his own party. The keystone state alone includes more than 40,000 people who work in those industries. The high price of sugar in the United States, driven up by agreements such as these, has already cost the country jobs. Kraft, for example, has shifted production of one of its chocolate bars to Canada because of the steep cost of sugar in the United States.

More broadly, the deal also raises the question: Is this a prelude to re-negotiations of NAFTA, expected to begin in August? Will negotiators for the three North American countries focus on new provisions that turn a free trade agreement into a managed trade agreement – with consumers and downstream producers finding themselves the victims?

The goal of free trade is to make the economy more efficient, not less. The way to do that is to remove barriers rather than erect them.