Unseen Effects

GabeEconomics(ML), Mini Lessons

Common Sense Economics: What Everyone Needs to Know about Wealth and Prosperity

Trade restrictions between nations have important secondary effects. The proponents of tariffs and import quotas on foreign goods almost always ignore the secondary effects of their policies. Tariffs and quotas may initially protect the U.S. workers who make similar products at a higher cost. But there will be unintended secondary consequences.

Consider the import quotas restricting the sale of foreign-produced sugar in the United States. As the result of these quotas, for many years the domestic price of sugar in the United States has been approximately twice the price in the rest of the world. The proponents of this policy—primarily sugar producers—argue that the quota “saves jobs” and increases employment. No doubt, the employment of sugar growers in the United States is higher than it otherwise would be. But what about the secondary effects?

The higher sugar prices mean it’s more expensive for U.S. firms to produce candy and other products that use a lot of sugar. As a result, many candy producers, including the makers of Life Savers, Jaw Breakers, Red Hots, Fannie May and Fanny Farmer chocolates, and Oreo cookies, have moved to countries like Canada and Mexico, where sugar can be purchased at its true market price. Thus, employment among sugar-using firms in the United States is lower than it otherwise would be. Further, because foreigners sell less sugar in the United States, they have less purchasing power with which to buy products we export to them. This, too, reduces U.S. employment.

  1. Supposing the U.S. removed sugar tariffs. How would workers currently producing sugar change to getting jobs making things like candy that would now be more competitive? Who should be responsible for the costs of their adjustment? Why?
  2. Every few years, someone proposes the creation of a basic income, where everyone in the country receives a check, providing enough money to live simply. The effect of this would be to reduce poverty and the many things associated with it. What do you think would be some of the secondary effects?

This reading is an excerpt from Certell’s Common Sense Economics eBook.  Certell offers curriculum materials and eBooks free of charge for students and teachers.  Click here to download the Common Sense Economics Materials.

Image Citation:

18, Sept. 2018, Side Effects meme, [Digital image].  Retrieved from <google.com>.