Alex Tabarrok has a post at Marginal Revolution commenting on a comparison between American and Canadian ketchup. A viral video on TikTok has noted that American Heinz ketchup is made with high-fructose corn syrup, but Canadian Heinz ketchup is made with sugar. Same brand, same product, neighboring countries, different ingredients. Why?
As Tabarrok writes, trade policy plays a major role. The U.S. has sugar quotas, where imported sugar is heavily taxed. A handful of U.S. sugar companies benefit greatly from the protectionism. The price of sugar in the U.S. is roughly double the global price.
Sugar and high-fructose corn syrup are substitutes, so expensive sugar increases the demand for high-fructose corn syrup. Government policy works in both directions here: The federal government subsidizes corn, driving that price down. Given these interventions, it’s common sense for American food companies to substitute high-fructose corn syrup for sugar.
Special interests support this arrangement. “The sugar quota is supported by domestic sugar producers, including the infamous Fanjul brothers, but it’s also supported and indeed was lobbied for by Archer Daniels Midland, the inventors of HFCS,” Tabarrok writes. The Fanjuls are political supporters of Marco Rubio, which likely helps to explain why Rubio has defended the sugar quotas on national-security grounds in the past.
Every other U.S. food company that uses sugar as an input is harmed by these policies. They pay a globally uncompetitive price for sugar and then pass that cost on to U.S. consumers. The extra money paid for sweeteners could have been used to invent new products, lower prices for consumers, employ more workers, invest in new technology, or even give a dividend to shareholders — any combination of those alternative uses would be preferable to shoveling the money to domestic sugar companies because the federal government says so. And for consumers, the costs are especially high on low-income households, which spend a larger percentage of their income on food than higher-income households do.
Iain Murray of the Competitive Enterprise Institute describes the U.S. sugar quotas as the “platonic form of bad public policy.” Concentrated benefits with dispersed costs that skew an entire industry. Higher prices for all consumers, but especially the poor. Special interests working with politicians to keep it in place.
Progressives want to point to industry consolidation as a cause of higher prices everywhere except where it’s true. Similar to Jones Act shipping, the sugar industry is an actual case of a consolidated industry charging higher prices on Americans, but it is only able to do so because government policy allows it to. Progressives get pretty quiet when the solution to consolidation would be less government, so they make up stories about the supposed misdeeds of greedy companies in meatpacking, international ocean shipping, retail, groceries, or petroleum instead.
Some conservatives who want more protectionism should pay attention to sugar quotas as well. This is how trade policy in the U.S. is actually made. A group of technocrats doesn’t get together and narrowly target trade restrictions in the national interest. Politicians trot out national-security arguments for any industry in their state, no matter how tangential to defense it actually is. Lobbyists come knocking on the doors of every congressional office, seeking their own exemptions and side deals. Trade restrictions work at cross purposes with other trade policies and with domestic policies. And Americans end up paying more for everything from sugar to shoes to shipping to solar panels (just to pick four that start with the letter “s”) to satisfy politicians and bureaucrats who think they know best.