Sugar Subsidies Drive in the United States discussion Cases This is an individual assignment. There will be three case assignments relating to the week’s
Sugar Subsidies Drive in the United States discussion Cases
This is an individual assignment. There will be three case assignments relating to the week’s readings to read and analyze. The format for case write-ups should be as follows:
Case write-ups should be submitted on canvas and should be double-spaced using a common font such as Times New Roman or Arial 12 point font.
At the top, left corner of the first page of the case, please include the following information:
Case write-ups should include the following:
Section 1: Introduction – a summary of the case and what you will address in the write-up.
Section 2: Thorough answers to questions. Each answer should be discussed in its own paragraph(s).
Section 3: Conclusion – A synopsis of the case and any concluding remarks.
The following criteria will be utilized in assigning grades to case write-ups:
Response received/posted by the deadline
The write-up reflects a clear understanding of the case
The write-up reflects critical thinking and the application of appropriate concepts/ideas from the course
The write-up reflects critical thinking and original ideas, not answers directly out of the textbook or another outside source
The write-up has an appropriate length of at least several paragraphs.
The write-up is well written, reflecting clarity of thought, as well as correct grammar, punctuation, and spelling
The student appropriately cites (i.e., using APA guidelines) any outside sources, including the course text, that were used in formulating the case write-up
You may find the Purdue Online Writing lab, https://owl.purdue.edu/owl/research_and_citation/apa_style/apa_style_introduction.html, (Links to an external site.)Links to an external site. (Links to an external site.)Links to an external site. (Links to an external site.)Links to an external site.helpful in ensuring that your citations and references are APA compliant. Sugar Subsidies Drive Candy Makers Abroad closing case
Back in the 1930s at the height of the Great Depression, the U.S. government stepped in
to support the U.S. sugar industry with a combination of subsidies, price supports, import
quotas, and tariffs. These actions were meant to be temporary, but as of 2015 they are
still in place. Under policies approved in the 2008 farm bill, the government guarantees
85 percent of the market for U.S. producers, primarily farmers growing sugar beets and
cane. The remaining 15 percent is allocated for imports from certain countries at a
preferential tariff rate. The government also sets a floor price for sugar. If the price falls
below the floor, the government steps in to purchase excess supply, driving the price
back up again. The surplus is then sold at a loss to producers of ethanol. A significant U.S.
sugar harvest in 2013 required the government to spend some $300 million to prop up
U.S. sugar prices. As a result of these policies, between 2010 and 2013, the U.S. sugar
price has averaged between 64 and 92 percent higher than the world price of sugar.
American sugar producers say that the federal programs are necessary to keep big sugarproducing countries such as Brazil, India, and Thailand
from flooding the U.S. market and driving them out of business. Opponents of the
practice include numerous small candy producers. Many of them complain about the
high U.S. price for sugar. Increasingly, they have responded by moving production
offshore. For example, the Spangler Candy Company, the maker of Dum Dums, has
moved 200 jobs from Ohio to Juarez, Mexico, where it makes candy canes that are then
imported back into the United States. Similarly, Adams & Brooks, a California-based
candy company, has shifted two-thirds of its production across the border to Mexico in
response to higher U.S. sugar prices. A recent academic study suggest that the U.S. sugar
policies primarily benefit 4,700 sugar producers, while imposing costs of $2.9 to $3.5
billion per annum on U.S. consumers due to higher sugar prices. The same research
predicts that removing the support programs would lead to the net creation of 17,000 to
20,000 new jobs in the United States, while dramatically reducing imports of products
containing sugar. Given the benefits of removing sugar support programs and all the talk
about deregulation and reducing the budget deficit in Congress,
Chapter Seven Government Policy and International Trade 211
Research Task Use the globalEDGETM website (globaledge.msu.edu) to complete the
following exercises: 1. You work for a pharmaceutical company that hopes to provide
products and services in New Zealand. Yet management’s current knowledge of this
country’s trade policies and barriers is limited. After searching a resource that summarizes
the import and export regulations, outline the most important foreign trade barriers your
firm’s managers must keep in mind while developing a strategy for entry into New
Zealand’s pharmaceutical market.
2. The number of member nations of the World Trade Organization has increased
considerably in recent years. In addition, some nonmember countries have observer
status in the WTO. Such status requires accession negotiations to begin within five years
of attaining this preliminary position. Visit the WTO’s website to identify a list of current
members and observers. Identify the last five countries that joined the WTO as members.
Also, examine the list of current observer countries. Do you notice anything in particular
about the countries that have recently joined or have observer status?
3. Given the arguments relating to the new trade theory and strategic trade policy, what
kind of trade policy should business be pressuring government to adopt? 4. You are an
employee of a U.S. firm that produces personal computers in Thailand and then exports
them to the United States and other countries for sale. The personal computers were
originally produced in Thailand to take advantage of relatively low labor costs and a
skilled workforce. Other possible locations considered at the time were Malaysia and
Hong Kong. The U.S. government decides to impose punitive 100 percent ad
valorem tariffs on imports of computers from Thailand to punish the country for
administrative trade barriers that restrict U.S. exports to Thailand. How should your firm
respond? What does this tell you about the use of targeted trade barriers? 5. Reread the
Management Focus “Protecting U.S. Magnesium.” Who gains most from the antidumping
duties levied by the United States on imports of magnesium from China and Russia? Who
are the losers? Are these duties in the best national interests of the United States?
212 Part Three The Global Trade and Investment Environment
1. For a detailed welfare analysis of the effect of a tariff, see P. R. Krugman and M.
Obstfeld, International Economics: Theory and Policy (New York: HarperCollins, 2000), ch.
8. 2. World Trade Organization, World Trade Report 2006 (Geneva: WTO, 2006). 3. The
study was undertaken by Kym Anderson of the University of Adelaide. See “A Not So
Perfect Market,” The Economist: Survey of Agriculture and Technology, March 25, 2000,
pp. 8–10. 4. K. Anderson, W. Martin, and D. van der Mensbrugghe, “Distortions to World
Trade: Impact on Agricultural Markets and Farm Incomes,” Review of Agricultural
Economics 28 (Summer 2006), pp. 168–94. 5. J. B. Teece, “Voluntary Export Restraints Are
Back; They Didn’t Work the Last Time,” Automotive News, April 23, 2012. 6. G. Hufbauer
and Z. A. Elliott, Measuring the Costs of Protectionism in the United States (Washington,
DC: Institute for International Economics, 1993). 7. Alan Goldstein, “Sematech Members
Facing Dues Increase; 30% Jump to Make Up for Loss of Federal Funding,” Dallas Morning
News, July 27, 1996, p. 2F. 8. N. Dunne and R. Waters, “U.S. Waves a Big Stick at Chinese
Pirates,” Financial Times, January 6, 1995, p. 4. 9. Peter S. Jordan, “Country Sanctions
and the International Business Community,” American Society of International Law
Proceedings of the Annual Meeting 20, no. 9 (1997),
10. “Brazil’s Auto Industry Struggles to Boost Global Competitiveness,” Journal of
Commerce, October 10, 1991, p. 6A.
11. For reviews, see J. A. Brander, “Rationales for Strategic Trade and Industrial Policy,”
in Strategic Trade Policy and the New
International Economics, P. R. Krugman, ed. (Cambridge, MA: MIT Press, 1986); P. R.
Krugman, “Is Free Trade Passé?,” Journal of Economic Perspectives 1 (1987), pp. 131–44;
P. R. Krugman, “Does the New Trade Theory Require a New Trade Policy?,” World
Economy 15, no. 4 (1992), pp. 423–41.
12. “Airbus and Boeing: The Jumbo War,” The Economist, June 15, 1991, pp. 65–66.
13. For details, see Krugman, “Is Free Trade Passé?” and Brander, “Rationales for Strategic
Trade and Industrial Policy.”
14. Krugman, “Is Free Trade Passé?”
15. This dilemma is a variant of the famous prisoner’s dilemma, which has become a
classic metaphor for the difficulty of achieving cooperation between self-interested and
mutually suspicious entities. For a good general introduction, see A. Dixit and B. Nalebuff,
Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (New
York: Norton, 1991).
16. Note that the Smoot-Hawley Act did not cause the Great Depression. However, the
beggar-thy-neighbor trade policies that it ushered in certainly made things worse. See J.
Bhagwati, Protectionism (Cambridge, MA: MIT Press, 1988).
17. World Bank, World Development Report (New York: Oxford University Press, 1987).
18. Frances Williams, “WTO—New Name Heralds New Powers,” Financial Times,
December 16, 1993, p. 5; Frances Williams, “GATT’s Successor to Be Given Real Clout,”
Financial Times, April 4, 1994, p. 6.
19. W. J. Davey, “The WTO Dispute Settlement System: The First Ten Years,” Journal of
International Economic Law, March 2005, pp. 17–28.
many observers thought that 2013 would be the year that the sugar programs were finally
abandoned. The farm bill was up for renewal, and the sugar support programs were held
up as an example of how wasteful government subsidies are. However, sugar producers
spent some $20 million on political lobbying between 2011 and 2013. Partly due to their
influence, the U.S. Senate voted 54 to 45 against any reform in the sugar programs. The
majority included 20 out of 45 Republican senators, most of whom publicly rail against
this kind of government intervention. Apparently, however, political expediency required
that they support intervention in this case.
Sources: George F. Will, “Congress Needs to Stop Subsidies to Sugar Farmers,”
The Washington Post, June 7, 2013; Ron Nixon, “American Candy Makers, Pinched by
Inflated Sugar Prices, Look Abroad,” The New York Times, October 30, 2013; J. Beghinand
and A. Elobeid, “The Impact of the U.S. Sugar Program Redux,” Iowa
State Working Paper 13-WP 538, May 2013, www.card.iastate.edu/publications/
CASE DISCUSSION QUESTIONS 1. Who benefits from subsidies to U.S. sugar producers?
Who loses? 2. Do the benefits of U.S. government support to the U.S. sugar industry
outweigh the losses? 3. What do you think would happen if the U.S. government removed
all support for U.S. sugar producers? 4. Government support programs for sugar
producers were introduced in the 1930s, yet they are still in place today, long after the
original rationale disappeared. What does this tell you about political decisions relating
to international trade? 5. If you had the power to make changes here, what would you
do and why?
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