Coca-Cola’s statement was that it plans to sell “an offering made with U.S. cane sugar,” but as a “complement” to its existing U.S. lineup. In other words, corn syrup isn’t being phased out. Since it’s cheaper, that’s no surprise. The federal government props up sugar prices to the benefit of U.S. producers, particularly but not exclusively in Florida, by meddling in markets with a complicated tariff-quota system.
“In 2022, U.S. wholesale refined sugar prices were more than double the world price,” the Government Accountability Office said in 2023. Its report cited estimates that U.S. sugar producers get a protectionist windfall of $1.4 billion to $2.7 billion a year. But sugar users “lose an estimated $2.5 billion to $3.5 billion of consumer benefit,” making it a net loss. Also, high U.S. sugar prices are another incentive for confectioners and food manufacturers to set up shop elsewhere.
It’s classic protectionism: The government gives concentrated benefits to sugar producers. The costs are borne by everybody, but they are diffuse. The program is a net loss for the country, but the subsidized industry becomes influential and will spend money in politics to preserve its take. The downstream jobs that never get created because of the protectionist policies don’t have anyone to stand up for them, because they don’t exist.
By the way, Mr. Trump is threatening to levy a new 50% tariff on imports from Brazil. What does the U.S. buy from there? Cane sugar.
Those who prosper by government protection can quickly end up suffering from it. The latest example is President Trump’s trade deal with Japan, which has U.S. auto makers and United Auto Workers (UAW) President Shawn Fain up in arms—and they have a point.
Mr. Trump in April slapped 25% tariffs on autos and parts with exemptions for U.S.-made content. Mr. Fain cheered. But under the Japan deal, Japanese-made cars will pay a tariff of 15%, which is lower than the 25% on imports from Canada and Mexico.
Because American auto plants rely heavily on parts from Canada and Mexico, the tariff cost on U.S.-made cars could be larger than on Japanese imports. A mooted deal with the European Union would also apply a 15% tariff on its car exports to the U.S.
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Tough luck, Mr. Fain. Protectionism is a fickle benefactor.
It has been clear for a while that Trump and co. don’t understand or believe in balance of payments accounting, that they want both a smaller trade deficit and more foreign investment in America. Now their basic lack of understanding is embodied in a specific deal.
Second, as I said, it appears that Trump will get to influence how Japan invests. We’re already well on the way toward an economy in which success in business depends not on how good your product is but on your political influence (and also an economy in which Trump tells Coca-Cola what ingredients it should use.) This is another step on that road.
Finally, a 15 percent tariff is still really, really high — much higher than the 1.6 percent tariff Japanese non-agricultural exports faced before Trump began his trade war.
Will Japanese exporters, rather than U.S. consumers, end up paying that tariff? Some people have looked at the relatively muted effect of tariffs on consumer prices so far and suggested that maybe Trump was right about that. But they’re looking at the wrong data.
If foreigners were eating the tariffs, we’d expect to see a large decline in the prices America is paying for imports. And the BLS does, in fact, measure import prices; its index specifically does not include tariffs.
So let’s compare the increase in average tariffs from a year ago with the change in nonfuel import prices:
Source: Yale Budget Lab, Bureau of Labor Statistics
Have import prices fallen by enough to offset the tariff hikes? No, they’ve gone up slightly.
So why aren’t we seeing big increases in consumer prices yet? Basically because for the moment U.S. businesses are absorbing much of the cost rather than passing it on to consumers. They’ve been able to do that partly because many companies rushed to bring imports in before the tariffs hit, and are still selling out of that inventory. They’ve been willing to do that because they don’t want to alienate customers and lose market share, and have been hoping that the tariffs will mostly go away.
President Donald Trump published his administration’s AI Action Plan on Wednesday. Though muchofthe reporting following the announcement of the 28-page plan focuses on its accompanying executive order on “woke AI,” the more important aspect of the plan is how it removes regulatory barriers to foster a friendly environment for American AI innovation.
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While the plan’s deregulatory agenda promotes AI innovation, its heavy-handed industrial policy will interfere with private investment and discourage productivity. The plan directs OSTP to publish a National AI Research and Development Strategic Plan “to guide Federal AI research investments.” But there’s no need for taxpayer dollars to be infused into the sector. Stanford University’s Institute for Human-Centered Artificial Intelligence calculates that the private sector invested $109 billion in American AI, “nearly 12 times higher than China’s $9.3 billion,” in 2024; it is this private investment that is responsible for the industry’s meteoric technological and economic growth.
The CHIPS and Science Act appropriated $53 billion to subsidize American tech businesses. The case of Intel is illustrative: Scott Lincicome, vice president of general economics at the Cato Institute, describes how the company was foundering for yearsbefore the Biden administration (unwisely) promised it $19 billion in corporate welfare in March 2024; Intel’s stock fell so precipitously that year that Taiwan Semiconductor Manufacturing Co. considered purchasing the failing company this February. Trump recognized this failure on the campaign trail, but his AI Action Plan still invokes the statute to “invest in developing and scaling foundational and translational manufacturing technologies.” The plan’s direction of the Departments of Labor and Education to “prioritize AI skill development as a core objective of relevant education and workforce funding streams” is doomed for the same reason: Federal subsidies crowd out private funding, encourage bad investment, and discourage productivity.
One thing is for sure: The pressure Trump and his people are exerting on the Fed is a push for fiscal dominance. The executive branch wants to use the central bank as a tool to accommodate the government’s frenzy of reckless borrowing. Such political control of a central bank is a hallmark of failed monetary systems in weak institutional settings. History shows where that always leads: to inflation, economic stagnation, and financial instability.
