Chapter 111 Question 100

Why do U.S. consumers pay more than twice the price for sugar than the global price? (Thomas Pugill) In 2005, the average price of raw sugar in the United States was 22 cents/lb, but the average price in the global market was only 10 cents/lb.What explains this huge price gap? The short answer is that the United States imposes a tariff of more than one hundred percent on imported sugar.But that begs another question: Why would lawmakers in Congress enact a policy that costs voters $2 billion a year?A reasonable answer starts with looking at the different incentives faced by voters and domestic sugar producers.

Since the average household spends such a small fraction of its income on sugar, less than one percent, few voters bother to complain to their elected representatives about the high price of sugar.In fact, most voters probably don't even know the sugar import tax exists. For sugar producers, however, the motivations are quite different.It is estimated that the sugar import tax could increase the annual revenue of a large Florida producer by $65 million.When meeting such huge interests, manufacturers not only write letters, but also hire senior lobbyists to lobby congressmen.What's more, they also provided large campaign donations to lawmakers who supported the sugar import tax.

Producers earn less than half of the costs imposed on American consumers, yet political forces remain ambivalent about repealing the sugar import tax because the benefits of the tariff are concentrated while the costs are highly dispersed.