The U.S. government has restricted imports of sugar and, as a consequence, U.S. consumers pay almost twice the world price of sugar in domestic markets.
What instrument of trade policy has the U.S. government used to restrict the imports of sugar into the U.S. domestic market? Using an appropriate diagram, analyze the welfare consequences of this policy for the U.S. economy. Using this diagram, explain how this policy has affected consumers, producers, and national welfare.
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What instrument of trade policy has the U.S. government used to restrict the imports of sugar into the U.S. domestic market?
The United States is the world's fourth largest producer of sugar (behind Brazil, India, and China) and the fourth largest importer. Since 1981 the U.S. government has operated a price support program for sugar beet and sugar cane producers and processors. The ostensible goal is to maintain high prices by limiting imports. Unlike other agricultural sectors in the United States, there are no restrictions on domestic sugar production.
Historically, the US produced about 55% of the sugar it consumed and imported 45%. Largely as a result of current U.S. sugar protections, today the US produces 88% of domestic consumption and imports only 12%.
The U.S. sugar program has two primary facets. The first is price support loans. Unlike other farm loan programs, the U.S. sugar program makes loans available to millers and processors, which are generally corporations, rather than directly to individual farmers. Under a system of "non-recourse" loans, processors ...
The solution provides detailed explanations including an appropriate diagram explaining the sugar protectionism policy of the U.S.