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A Sweet Free Trade Zone

Jun 1, 2010 • Government, International Trade and Finance • 94 Views    No Comments

Economically speaking, Tootsie Rolls are special.

In 2009, U.S. sugar beet prices (at 27.2 cents/lb.) were more than double the world price of cane sugar (13.8 cents/lb.)  Consequently, almost anything with sugar in it is more expensive. According to the Dallas Fed, because of the import barriers that protected the domestic sugar industry in 2002, a typical household paid $21 extra (close to $26 today because of inflation) for products that contain sugar.

But not Tootsie Roll. With Free Trade Zone status bestowed upon them by the U.S. Congress, the sugar they use in their Chicago manufacturing plant is tariff free.

The Economic Lesson

It is tough to find an economist who does not like free trade. In his Teaching Company lecture on the global economy, Dr. Timothy Taylor introduces his discussion about the benefits of trade by telling us that we probably learned about the noodle from Marco Polo and have been sharing ideas ever since. Several hundred years later, in a California assembly plant, NPR’s This American Life described how Toyota taught General Motors about manufacturing cars more efficiently. Indeed, from noodles to cars, now and for hundreds of years, trade has enabled us to share ideas. Also, the specialization that trade facilitates creates more efficiency when we do what we do best. As a result, there seems to be a correlation between higher G.D.P.s and more trade.

Those who are harmed by free trade are easy to identify. By contrast, it is tougher to support a “faceless” consumer who would save $26.00 a year. Perhaps, the invisible consumer is the reason that nations still try to erect trade barriers. A list of trade barriers would include tariffs, import quotas, licensing restrictions, antidumping laws, government subsidies, embargoes and quality control standards.

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