Evil of Import Quotas

July 25, 1960

So far as immediate policy is concerned, Congress was justified in granting and the President in using discretionary power to slash the Cuban sugar quota. The President, in fact, should have asked and Congress should have granted even wider discretionary powers many months ago, when Castro first started seizing American property and vilifying us.

As it is, our timidity, our declared fear of doing anything to injure “the Cuban people,” our failure even to stop subsidizing the Cuban economy, led Castro to conclude that he could go further and further with impunity. Our action came only after 2,380,000 of Cuba’s 3,120,000 quota of short tons for 1960 had already been certified for entry. The President had to cut 95 percent, or all but 40,000 tons of the 740,000 ton remainder. By that time Castro had burnt too many bridges behind him. Face-saving forced him to go further.

It is gratifying that when the President did act he acted firmly, and refused to allow himself to be bluffed by the Khrushchev threats. It is the duty of every nation to protect the lives, persons, and property of its citizens abroad. We should take whatever economic or diplomatic countermeasures our own interests require.

EXORBITANT COST

It is disheartening, however, to find that the only way the Administration can think of to protect our rights and to “counter Communism” in Latin America is to plan a still bigger “economic assistance” program there. This is getting to be hard to distinguish from an uneasy payment of tribute. The billions we have already given away globally have failed either to halt Communism or to win us reliable allies.

As for our long-run policy concerning sugar, what is required is not a readjustment of quotas but abolition of the quota system. That system goes back to the depression-inspired Jones-Costigan Act of 1934. The purpose of this legislation has been to “stabilize” the price of sugar and to protect our domestic producers. It has done so at an exorbitant cost.

An import-quota system must be discriminatory as between exporting nations. It breeds resentment in all but the most favored. Ironically, our sugar-quota system was set up especially to favor Cuba which, in addition to being allotted 96 percent of all foreign imports (apart from the special case of the Philippines), was granted a tariff preference and got from us a premium of 2 cents a pound above the world market. Now that we have cut that quota, Castro can plausibly claim that we are discriminating against Cuba.

We pay a heavy price to subsidize a domestic sugar production equal to only about a fourth of our total sugar consumption. In order to make our import-quota system work we also enforce a quota for every individual domestic producer.

TARIFF LESS HARMFUL

I have no wish to advocate tariffs. But if we want to continue to protect our domestic sugar producers, we can do it just as effectively through a higher tariff as through a quota system, without discrimination between foreign countries, with infinitely less red tape, and without authoritarian production controls at home. A uniform tariff would allow foreign countries to sell to us in proportion to their efficiency and costs. It would also allow our domestic producers to compete with each other on the basis of their individual efficiency and costs. Though our consumers would have to pay the duty in the price, most of it would go to the government in revenues, and (unless its total expenditures were increased) come off their taxes somewhere else.

A tariff is at least compatible with the continuance of an otherwise free economy; a quota system is not. Our regimentation of the sugar market has set an evil precedent. Practically everything that is wrong with our import-quota system in sugar is equally wrong with our recent import-quota system in oil. Here again, everything that a quota system accomplishes in holding up the price or holding down supply (assuming either aim to be desirable) could be accomplished much more flexibly and efficiently by a tariff, which would at least permit volume and cost competition within the domestic market.