Another Factor in Supply Risk: Protectionist Government Policies

With politically motivated forms of supply risk, we usually think of the old Russian bear flexing its muscles when it comes to natural gas. Or some nutcase dictator in Latin America nationalizing foreign-owned manufacturing facilities (not to mention the largest oil company). But in reality, government-led supply risk can manifest itself much closer to home. Consider this story over on Cato's blog about how we can thank the US government for a looming sugar shortage. According to the story, "an alliance of sugar-using industries sent a letter earlier today to Secretary of Agriculture Tom Vilsack asking for an increase in the quotas imposed on imported sugar".

The letter suggests that a currently forecast shortage does "not have to happen" and that "the only reason markets are forecast to be so tight is the restrictive U.S. policy on sugar imports". The result is "without a quota increase, consumers will pay higher prices, food manufacturing jobs will be at risk and trading patterns will be distorted". But as Cato opines, "Protectionism is not just a consumer issue ... trade barriers against agricultural commodities such as sugar also raise costs for U.S. producers, forcing them to raise prices, and thus reducing sales, output, and employment. Artificially high domestic sugar prices have forced thousands of domestic manufacturing jobs to be 'shipped overseas' to countries that allow sugar to be imported at world prices."

Whether it's sugar or steel, policies that protect producers at the expense of consumers and industry inevitably end up backfiring when it comes to the broader economy. Standing behind the interests of domestic producers through anti-dumping policies, tariffs and import duties at the expense of the many is failed policy. But thanks to special interest groups and lobbyists that fill the coffers of politicians on both sides of the aisle, it's unlikely that much will change in Washington. That is, unless we all give up our sweet tooth in protest, at least in this case.

Jason Busch

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