Govt 7: Trade blocks and blockages (Trade Policy)

Summary

Episode Overview

Title: Govt 7: Trade Blocks and Blockages (Trade Policy)
Podcast: Planet Money Summer School (NPR)
Date: August 20, 2025
Host: Robert Smith
Guest: Professor Carolyn Freund, Dean of the School of Global Policy and Strategy, UC San Diego

This episode dives into the complexities of trade policy, focusing not just on tariffs, but on the vast array of ways governments intervene in international trade. Through two engaging case studies—sugar and automobiles—it explores how protectionist policies persist, their sometimes surprising costs, and the deep-rooted challenges of reform. The episode also unpacks why such policies often stick around, even when seemingly no one benefits, and how history and culture create stubborn barriers to freer global trade.

---

Key Discussion Points & Insights

1. The Landscape of Trade Policy

• Protectionism Defined
  • The practice of shielding a country's domestic industries from foreign competition via barriers like tariffs, quotas, and regulations.
  • Tariffs make foreign goods more expensive.
  • Other barriers include quotas (import limits) and regulations (packaging, safety standards, etc.).
• Historical Context
  • The US has a long tradition of protectionism—starting with the very first tariff in 1789.
• Resource Inefficiency
  • Prof. Freund's example: Saudi Arabia producing dairy by air-conditioning barns—illustrates the resource waste when trade doesn’t flow to where resources are best suited.

    “If goods are produced in the places where the resources are cheaper…we use less of the world's resources for actually more. We can produce more that way and everybody can be better off.” (Prof. Carolyn Freund, 04:15)

---

2. Case Study 1: The U.S. Sugar Industry

Timestamps: [06:27] – [20:49]

The Problem

• US sugar prices are over twice the world average due to government protections.
• These include price guarantees, tariffs, and quotas set in law, principally via the US Farm Bill.
• Result: Higher costs for US candy manufacturers and, ultimately, consumers.

On-the-Ground Impact

• Spangler Candy Company (Ohio):
  • Uses 100,000 pounds of sugar daily.
  • Pays about 15 cents more per pound compared to global prices.

  • “That's $15,000 a day. That's $75,000 a week…three to four million dollars a year. That's what these guys call the sugar penalty.” (Zoe Chase & Jess Jiang, 12:09)

  • Moved candy cane production to Mexico due to US sugar costs.
• Economic Rationale
  • The minimum sugar price is guaranteed for US farmers.

  • “The US Government will guarantee this minimum price for sugar that is not to drop below, quote, 22.9 cents per pound, end quote.” (Jess Jiang, 13:04)

  • The policy’s persistence is due to lobbying by the powerful sugar industry.

  • “The sugar lobby...is really powerful, super well organized. Each year, it gives a lot of money to political campaigns, and it spends a lot lobbying for or against bills.” (Jess Jiang, 14:49)

• Political Perspective
  • Lawmakers defend the program as crucial local economic activity.

  • “If American Crystal gave me zero, I would take the same position…25% of the economy in my district.” (Rep. Colin Peterson, 15:13)

Economic Concepts

• Institutional Path Dependence

  • Once a policy is established, entire industries and political incentives align to preserve it, making reform difficult.

  • “Because you put something in in the past, it changes how things are in the future. So the sugar example was a perfect example…historical protection has been so hard to get rid of.” (Prof. Carolyn Freund, 41:12)

• Who Pays?

  • Costs are spread thinly (“a few extra pennies”) per consumer, but benefits are substantial for concentrated groups (farmers, local economies).

---

3. Case Study 2: Car Safety Regulations as Trade Barriers

Timestamps: [22:49] – [34:39]

The Problem

• Different safety standards between the US, Europe, and other regions act as de facto trade barriers.
• Results in higher manufacturing costs, fewer car model choices, and more expensive vehicles.

Real-World Examples

• Auto Show Demonstrations:

  • Jeeps legal in the US are illegal in Europe due to differing safety design mandates.
  • Windshield wipers, turn signals (amber in US, clear in Europe), and safety tests all differ.

• “Could you drive this Jeep off road? You can drive it on dirt roads? ...You can't drive your Cadillac, but you cannot drive this car anywhere because…Europe.” (Robert Smith, 24:50)

• Regulatory Differences

  • No clear rationale behind some distinctions (e.g., windshield wiper coverage, color of turn signals).
  • Crash testing diverges: US emphasizes accidents at an angle; Europe focuses on head-on collisions and pedestrian safety (e.g., the “baby head test”).

• "Everyone tells us, and studies back this up, that in general, when you take all the regulations, both Europe and the U.S. both places are pretty safe…They're just different." (Robert Smith, 29:00)

The Deeper Causes

• History and Culture:

  • National pride, habits, and assumptions about behavior (seatbelt use, for example).
  • Manufacturer input originally established some differences to limit competition.

  • “If there are regulatory differences, it creates increased costs for a foreign producer...and sell it in your market.” (Prof. Freund, 36:10)

• Unintended Consequences

  • Modern global supply chains and consumer preference would now favor harmonized rules, but entrenched differences persist due to historical and emotional factors.
  • No single industry player benefits—reform is hampered by lack of natural advocacy.

• Potential Fix:

  • Mutual recognition: Each region accepts the standards of others as sufficiently safe.

    • “We both say, OK, we have different standards, but they're both safe. So I'm going to recognize European standards, Europeans will recognize U.S. standards, and our goods can be traded.” (Prof. Carolyn Freund, 39:42)

---

Notable Quotes & Memorable Moments

• On Protectionism’s Persistence:

  "When you have tariffs historically, they're very hard to get rid of. And that's a big danger..." (Prof. Freund, 18:06)

• On the Power of the Sugar Lobby:

  "The sugar lobby, it is really powerful, super well organized. Each year, it gives a lot of money to political campaigns, and it spends a lot lobbying for or against bills." (Jess Jiang, 14:49)

• On the Nature of Regulatory Differences for Cars:

  "In theory, all regulations should be the same. But if you have two different kinds of people and you have two different kinds of airbags, that means that car manufacturers have to manufacture a different kind of dashboard for Europe and the US, and two different dashboards means essentially two different cars." (Robert Smith, 34:07)

• Philosophical Barrier to Harmonization:

  "It's a trade barrier, but it's an emotional trade barrier, which is possibly why it is taking so long to straighten this out." (Zoe Chase, 34:26)

• On Mutual Recognition as a Solution:

  "That's such a beautiful concept where it essentially says, I trust my trading partner to make something safe, and they trust us to make something safe. And yes, we're different, but maybe difference is fine." (Robert Smith, 40:17)

---

Important Timestamps

• [02:27] — Prof. Freund explains trade barriers beyond tariffs
• [06:27] — Introducing the sugar case study
• [11:51] — US sugar price versus global price
• [13:04] — US Farm Bill and price guarantees for sugar
• [15:01] — Political lobbying and the sugar industry
• [18:26] — Institutional path dependence explained
• [22:49] — Car safety standards as trade barriers
• [25:45] — Arbitrary auto regulations (windshield wipers, turn signals)
• [29:00] — Study: US and European cars equally safe
• [32:41] — Cultural differences underlying standards (seat belt habits)
• [36:10] — How these rules originated as protectionism
• [39:42] — Solution: Mutual recognition of standards
• [40:43] — Vocabulary wrap-up (protectionism, quotas, path dependence)

---

Final Takeaways

• Trade policy is much broader than tariffs, encompassing quotas, regulations, and hard-to-change “hidden” barriers.
• Institutional and historical inertia—not just economic logic—keeps costly policies in place (e.g., sugar price supports).
• Trade barriers sometimes persist despite broad agreement on their inefficiency, due to the influence of lobbying, politics, and the distribution of costs/benefits.
• Seemingly neutral or outdated rules (like car safety standards) can have major impacts on trade, even when no one actively supports their continued existence.
• Cultural differences and national pride often underlie technical trade barriers—making globalization as much about “mindset” as policy.
• Prof. Freund’s vocabulary summary:
  • Protectionism = government intervention to shield local industry
  • Quota = quantity limit on imports
  • Path dependence = historical decisions shape current realities and resist change

---

This episode is a nuanced, accessible deep dive into the mechanics, politics, and psychology of trade barriers—making it clear why economics is everywhere, and why even the simplest products are shaped by centuries-old games of protection and power.

---

Next episode: Planet Money Summer School Commencement Ceremony!

Transcript

[Announcer]

This message comes from the International Rescue Committee. Co founded with help from Albert Einstein. The IRC provides emergency aid and support to people affected by conflict and disaster. Donate today by visiting rescue.org rebuild this

[Reporter Zoe Chase]

is Planet Money from NPR.

[Host Robert Smith]

Welcome back to Planet Money Summer School, the only economics class you can slip under your pillow and listen to as you fall asleep. Just drift away. I'll wake you for the vocabulary words. We are almost done with the summer semester and what a romp we have had through the world of government and business. We've had classes on the power of federal taxes and the dangers of federal spending. We've taught you how a country can make industrial policy work and why sometimes markets fail. But there is one big area we have not touched until today. Trade. Yes, yes, I know. As I'm sure you have noticed, trade policy, specifically tariffs, are in the news every single day. So today on Planet Money Summer School, we're going to step back a little and talk about the bigger picture of trade policy. Tariffs are, of course, the favorite tool of our current president, but there are lots of other ways that governments insert themselves into the free exchange of goods and services. Some of these trade barriers are so insidious and have been going on for so long, it may surprise you that they even exist. But in fact, we will feature two of them today that are costing you money every single day. Maybe you should wake up for this part. Our guest professor is an expert in all forms of trade shenanigans.

[Professor Carolyn Freund]

My name is Carolyn Freund and I'm the dean of the School of Global Policy and Strategy at UC San Diego.

[Host Robert Smith]

Come for the policy, stay for the strategy.

[Professor Carolyn Freund]

Oh, I like that. Maybe we can use that as a T shirt. Thank you.

[Host Robert Smith]

So, before we hear our case studies, I want to talk about the word protectionism. This is the policy of protecting a country's industries by keeping out foreign goods and services. And the US has this long history of protectionism. The very beginning of our country, we've had tariffs, tax on imports, and that protects American industries by making other countries goods more expensive. So that's tariffs. But there are other ways of protecting an industry. Let's just go through them now, Carolyn.

[Professor Carolyn Freund]

There are quotas which limits the quantity of a good coming in, because if there's only so much of a good, then there's more space for domestic industry.

[Host Robert Smith]

So in the United States, we used to have quotas on Japanese automobiles, for instance, and foreign clothing. Not as common a tool anymore. How does the government know exactly how much of a certain item to let into the country, they don't.

[Professor Carolyn Freund]

So they do it typically based on history, which isn't always a good judge because you never know what shocks, especially say in agriculture, are going to hit our own markets.

[Host Robert Smith]

And sometimes the government just makes it a hassle to import items with regulations and paperwork, even like packaging. It has to be in a certain kind of package. All these things to just make it difficult for another country to send us something and more expensive.

[Professor Carolyn Freund]

Absolutely. And as you know, some regulations are really to protect the consumer, but some are completely there to make it harder for other countries to export, which again

[Host Robert Smith]

protects American businesses who are better set up to meet those regulations. So trade is usually between a private company in one part of the world and a private company in the United States. They agree on a price, they decide to import that item. What are the dangers when the government gets involved in this transaction?

[Professor Carolyn Freund]

The fundamental danger is about the use of resources in this world. So by getting involved in that transaction, you are effectively distorting how resources are being used. So let me give a really wild example that's kind of true. Saudi Arabia wants to produce dairy, but as you know, Saudi Arabia is a really hot country. So to have cows in Saudi Arabia, they need to be in air conditioned barns. Well, that's super expensive and not really the best use of resources around the world. So if goods are produced in the places where the resources are cheaper, so labor intensive goods in countries with lots of labor, capital intensive goods in countries with a lot of capital, water intensive goods in countries with lots of water, et cetera, we use less of the world's resources for actually more. We can produce more that way and everybody can be better off.

[Host Robert Smith]

So today in our case studies, we are going to get into the impacts of some of this protectionism on two specific products that we see all the time, but we don't really think about the source of. The first is the sugar in our candy and the second is the car that might be in your garage right now. After the break.

[Sponsor Announcer]

Support comes from our 2026 lead sponsor of Planet Money, Amazon Business. How can you free your team from time consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology insights and Support [e-mail] this message comes from Capital One.

[Announcer]

Capital One offers checking accounts with no fees or minimums. What's in your wallet. Terms apply. See capitalone.com bank for details. Capital One NA member FDIC.

[Sponsor Announcer]

This message comes from Dell Technologies. PCs like the Dell 14+ with Intel Core Ultra processors will help you do more faster. Enjoy huge Savings by visiting Dell.com deals okay.

[Host Robert Smith]

Okay, class, listen up. This is the classic story of what happens when you try to protect an American industry and end up hurting another American industry. Professor Freund, you use this story in your classes. I know. What should our students be listening for? And as this story is played, they

[Professor Carolyn Freund]

should be thinking about the unintended consequences for the users of the product.

[Host Robert Smith]

In this case, sugar.

[Professor Carolyn Freund]

In this case, sugar. Exactly.

[Host Robert Smith]

Sugar. In 2013, Zoe Chase and Jess Jiang traveled to the Midwest to bring back this story about sugar protectionism. Even though the reporting is more than a decade old, the problem they talk about is still the same. The US Pays more than twice as much for sugar as the rest of the world. Take it away, Zoe.

[Reporter Zoe Chase]

Everybody knows Dum Dums. They're those lollipops. You've seen them at your doctor's office or your bank. Sugar, corn syrup, little wax wrapping, bunch of different flavors, sticks.

[Reporter Jess Jiang]

But lots of people don't know where they come from.

[Various Interviewees]

You like orange?

[Sponsor Announcer]

Sure.

[Various Interviewees]

It's a warm orange something, though.

[Reporter Zoe Chase]

We're looking at thousands of these little wrapped lollipops clattering out of this big steel pipe at the Dum Dum factory in Northwest Ohio.

[Various Interviewees]

In a minute and a half, he's gonna mix savvy blueberry. Can you wait for that?

[Reporter Jess Jiang]

Yes. Dean Spangler is the former CEO of the Spangler Company and he's showing us around the kitchen at the candy factory. It's a little bit Willy Wonka.

[Reporter Zoe Chase]

Imagine a kitchen made for giants with a couple busy little chefs running around in aprons and hair nets, metal detectors. They're pouring these big steel pots of sticky sugar and corn syrup into this kitchenaid that is as tall as a basketball hoop. And there's what looks like paint buckets just standing right next to it.

[Reporter Jess Jiang]

The buckets are filled with flavors and colors. There's blueberry, cream soda, root beer, watermelon.

[Reporter Zoe Chase]

Dum Dums is the signature product of this place, the Spangler Candy Company. The factory is several football fields. Big. They need a whole separate building just for the ingredients. Well, one ingredient in particular.

[Various Interviewees]

We use about 100,000 pounds of sugar a day.

[Host Robert Smith]

Where's the sugar?

[Various Interviewees]

In the sugar shack.

[Reporter Zoe Chase]

The room is basically big enough for four huge tanks of liquid sugar. Eight Olympic sized swimming pools worth.

[Various Interviewees]

We have about Enough sugar storage here for about four days. So we're receiving sugar, you know, constantly, all year long, all day long, 24 hours a day.

[Reporter Jess Jiang]

Lots of places replace sugar with corn syrup and there's corn syrup in these lollipops too. But Dean says to get the true flavor of your childhood, there is no substitute.

[Various Interviewees]

Nothing delivers flavor like sugar.

[Reporter Zoe Chase]

The Spangler company, they actually make this other iconic piece of candy, something even more nostalgia inspiring than a lollipop.

[Reporter Jess Jiang]

Red and white candy canes. They used to make them here at this factory in Ohio. But about 10 years ago, they moved the red and white candy cane operation to Mexico. It had gotten too expensive to make them here.

[Reporter Zoe Chase]

The places that buy the candy canes to sell the targets and the Walmarts of the world, they don't care about the brand, they don't care where they come from. They want them cheap.

[Various Interviewees]

Candy canes are treated like a commodity by the big box stores, completely the red and whites. And when you go to the big box retailers of the world, they leave for a quarter of a cent a cane, a half a cent a cane. I mean, they're going to the lowest price.

[Reporter Zoe Chase]

So this story so far, a factory moving its operations from Ohio to Mexico where it could operate more cheaply. That's a typical story. You might think you know the reasons for that.

[Reporter Jess Jiang]

But Kirk Vashaw, the current CEO of this Banglader company, he's pretty sure you don't know the reasons. In fact, recently he was giving a talk at the Kiwanis Club in town. It's kind of like a Rotary club. And he explained he could expand his operations in a huge way right here in Ohio and not send any candy canes to Mexico at all.

[Kirk Vashaw]

And I said, I just need one thing. People get excited. And then I asked them to guess what's the one thing that you need? And people guess, you know, all kinds of things. Lower tax rates and how about workers comp reform and let's get rid of OSHA and let's repeal the Food Safety Modernization act or pass a right to work law or let's get some government development money. These are some of the things I guess amongst other things. And I said, no, it's not any of those. In fact, it's not all of those put together. If I paid zero taxes and got all those other things, which some of them don't even matter to us, it's not as important as the one thing that I need and people are still guessing what it is. And I said, let us buy sugar on the Free market. And there's this silence and then this kind of collective, huh, why can't you do that? And then I say, it's a story, and I'm about to tell it to you.

[Reporter Zoe Chase]

Before we dive in, here's the most important thing you have to know to get into this story. There are two prices for sugar. The price you pay when you're in the United States and the price you pay almost everywhere else in the world

[Reporter Jess Jiang]

on average over the last decade. The price you pay in the United states, it's about 15 cents more than you pay outside the country. 15 cents more per pound of sugar.

[Reporter Zoe Chase]

15 cents extra per pound of sugar if you're in the business of making candy. Adds up to a lot of money.

[Various Interviewees]

We're using 100,000 pounds a day, that's $15,000 a day. That's $75,000 a week. Multiply that by 52 weeks, it's three to four million dollars.

[Reporter Jess Jiang]

Three to four million dollars a year. That's what these guys call the sugar penalty. Now who would do this? Who would impose this utterly random tax on U.S. candy makers?

[Reporter Zoe Chase]

The U.S. congress. The Food Conservation and Energy Act. It is better known as the US Farm Bill. And I'm just going to read this one part that this whole story is really about. Subtitle D Sugar section 156 Sugar Program subsection B Sugar Beets it says that the US Government will guarantee this minimum price for sugar that is not to drop below, quote, 22.9 cents per pound, end quote.

[Reporter Jess Jiang]

That's the guarantee no matter how low the price goes in the rest of the world. In the United States you will be paying at least 22.9 cents per pound.

[Reporter Zoe Chase]

And it's all in the name of these guys.

[Various Interviewees]

We're driving into the field where we're going to plant sugar beets in 2013. And the snow is only about 3 inches deep at the moment.

[Reporter Zoe Chase]

Right here looks like a barren wasteland.

[Professor Carolyn Freund]

Yep.

[Reporter Jess Jiang]

Blaine Benedict, he's a sugar beet farmer here in Sabin, Minnesota and he runs a farm with his two brothers. It's a hard conversation to come out onto someone's fourth generation farm and say, why do you get this special treatment? Why do you deserve a special line written in a bill that guarantees a minimum price for your product?

[Various Interviewees]

There's government involvement in most developed countries at some level or another with a price control on sugar.

[Reporter Jess Jiang]

The US Sugar guys say, just look at Brazil. The Brazilian government gives a couple billion dollars in subsidies to their sugar industry. They say the Mexican government actually owns most of its factories that make sugar.

[Various Interviewees]

I think our biggest fear is that we're all on a fair playing, competitive field, you know, when. If you're competing against other government policies, you know, and I mean, that's, that's what makes us nervous.

[Reporter Zoe Chase]

As a producer, a lot of people told us there is this really big reason that sugar has a price guarantee embedded in the law. And this reason has nothing to do with Brazil or actually economics at all.

[Reporter Jess Jiang]

The sugar lobby, it is really powerful, super well organized. Each year, it gives a lot of money to political campaigns, and it spends a lot lobbying for or against bills.

[Reporter Zoe Chase]

A big chunk of that money goes to people like this guy, U.S. representative Colin Peterson. He is a Democrat from Minnesota, and until recently he was chair of the Agriculture Committee in the House.

[Various Interviewees]

I've been called a communist before. I'm okay with that.

[Reporter Zoe Chase]

That's because Colin Peterson is a big advocate of the central planning of the sugar supply and the guaranteed minimum. We asked him if the reason he's such a champion of the sugar program is that the sugar companies like American Crystal are the biggest contributors to his campaign.

[Various Interviewees]

If American Crystal gave me zero, I would take the same position.

[Reporter Zoe Chase]

Really?

[Various Interviewees]

It wouldn't make any difference.

[Reporter Zoe Chase]

Well, how do you, how do you

[Various Interviewees]

know this is 25% of the economy in my district. You think I'm not going to fight for this? If you eliminate the sugar program, what will happen is we will not grow sugar in the United States.

[Reporter Zoe Chase]

And why is that such a bad thing?

[Various Interviewees]

Because it's a huge economic activity in many parts of this country that have created a lot of jobs and a lot of economic activity.

[Reporter Jess Jiang]

Now, the other side of this, the candy manufacturers, they make the same argument, just in reverse. Peterson says jobs might be lost. The candy guys say jobs that might otherwise have been created weren't.

[Reporter Zoe Chase]

That's what's so strange about this whole thing. We're not so different, you and I. They're both these classic American industries. Minnesota farming, Ohio manufacturing.

[Reporter Jess Jiang]

In Minnesota, there's four generations of farmers farming this land. But in Ohio, Those guys are fourth generation, too. The Spangler factory has been around since 1906, always run by a Spangler.

[Host Robert Smith]

Jess Jiang and Zoe Chase from 2013. In the more than a decade since we've aired this story, many, many people have tried to get rid of the sugar pot protections, and they have all failed. We are still paying more than twice as much for sugar as the rest of the world. You're welcome. Let's bring back in our professor Carolyn Freund from UC San Diego. Hey, Carolyn.

[Professor Carolyn Freund]

Hi. Glad to be here.

[Host Robert Smith]

This sugar story blows my mind because obviously I'm eating sugar in some form every single day, and I'm paying every single day a little bit more in everything I use then I have to pay. Right?

[Professor Carolyn Freund]

Absolutely. And I think we're at a point now where it's roughly twice the price of world sugar.

[Host Robert Smith]

And, you know, this isn't just a recent thing. I look back, the first tariff on Sugar was in 1789, mostly to raise money at that point. But almost continuously since this nation's founding, we have supported sugar farmers in one way or another through tariffs and quotas and subsidies, at one point even mandating that excess sugar has to go to ethanol and the government has to buy it. Why is sugar so important to the government of the United States of America to make it more expensive for everybody?

[Professor Carolyn Freund]

Well, it's because, one, when you have tariffs historically, they're very hard to get rid of. And that's a big danger because companies, farms get used to having that protection and they want to maintain it. That's the way they've built their business. So the history really, really matters. So that's one part of it, because

[Host Robert Smith]

there is literally no one alive in the sugar industry who has ever competed on a global stance with sugar.

[Professor Carolyn Freund]

Yes. So they've made all their investments and designed their whole farms around assuming they have that protections. You take that protection away, and many wouldn't be profitable. So they want to keep it. So they are going to lobby super hard in Washington. So the only people who will get elected are people who will support them, who will then push their interests in Washington.

[Host Robert Smith]

There is a term in political economy called institutional path dependence. Which means what?

[Professor Carolyn Freund]

Basically it means history matters. So if you set up this type of policy historically, everything develops around that policy being in place, and it's super hard to reverse. And I think that is one fear around the escalation in protection now is it took us a long time for countries to slowly reduce tariffs, yet they can go up overnight. And that's. I think, one of the things I'm most worried about is the persistence of protection. It's much easier to raise a tariff than it is to lower it, because now there's somebody who probably wants to keep it in place and is going to fight to keep it there.

[Host Robert Smith]

So I feel like we're agreeing too much here. So let me take another point of view. United States of America, greatest economy in the world. I can't imagine a scenario under which you say the United States just can't compete on sugar. We can't have any of our own sugar. So maybe it's worth all of these problems it creates in order to just have a thriving, or at least a surviving American sugar industry.

[Professor Carolyn Freund]

I think one could make that argument for some things that are really critical, like medicines or I guess the reason for steel is because it goes into weapons, semiconductors. But it's hard to say, given how many countries around the world make sugar and that sugar is not even good for you, that it matters that we have a thriving sugar industry.

[Host Robert Smith]

And I guess because there's no objective reason why we need to have a sugar industry, that's why there are so many lobbyists and industry associations who work so hard to keep these protections in place. It costs all of us a few extra pennies, but it really matters for the sugar beet farmers. May they enjoy our pennies. Coming up, our second case study, and this is a doozy. What happens when there is a trade barrier that no one really wants? We visit the New York International Auto show after the break.

[Sponsor Announcer]

This message comes from BetterHelp President Fernando Madera shares BetterHelp's commitment to expanding access to therapy.

[Various Interviewees]

Our State of Stigma report helped us understand that believing in mental health is easy, but asking for help is not. Now, with the report on our hands, we can work to make mental health care more accessible.

[Sponsor Announcer]

To get matched with a therapist, visit betterhelp.com NPR for 10% off your first

[Announcer]

month support for this podcast and the following message come from E. Trade from Morgan Stanley Simplify your finances and discover the convenience of investing in banking all in one place. Plus get up to $1,500 when you open a brokerage account with a qualifying deposit today. Learn [e-mail] offer banking products and services are provided by Morgan Stanley Private Bank, national association member FDIC Terms and other fees apply. Investing involves risks. Morgan Stanley Smith Barney LLC Member SIPP this message comes from Insperity. Excellence takes drive, work, perseverance. Tiger woods brings it to the course. Insperity brings it to your business. Want to be the best? Work with the best. Insperity how you HR matters. Learn [e-mail] Tiger

[Host Robert Smith]

okay everyone, quiet down. We have a guest in the classroom and a second case study. We talked at the beginning of the class about protectionism using regulations and this is a great example. We in the United States are not getting all the cool cars from around the world. There are regulations in place that make it too expensive to bring some international cars here and that keep some Cool US Cars from being affordable in the rest of the world. All of this in the name of safety. Professor Freund, what should the students be listening for in this story?

[Professor Carolyn Freund]

I think they should think about whether they feel safer in US Cars than in cars elsewhere. If they've been abroad and rented a car.

[Host Robert Smith]

Great. This next story comes from 2014, when Zoe Chase and I went to the New York International Auto Show. And it was a scene, I tell you, cars on those big rotating stages. Fashion models pointing out the different features of the cars. There was even this place where you could Test drive big SUVs right in front of the convention center. We definitely wanted to do that and we approached the Jeep representative.

[Various Interviewees]

Would you like to ride in the Cherokee, the Wrangler or the Grand Cherokee?

[Host Robert Smith]

We'll get into anything.

[Various Interviewees]

Okay.

[Reporter Zoe Chase]

We're getting a test drive. Since this is Manhattan, we can't really take it off road, but Jeep has built a driving track, a bunch of fake hills and bumps all set up right in the middle of the city.

[Various Interviewees]

Well, welcome to Camp Jeep, you guys. My name's Steve and I'll be your operator. And we are going to slide around the track here in our Jeep Wrangler. This is the unlimited. So it has the four door and

[Host Robert Smith]

all of a sudden the Jeep takes off and we are going up this incline and I swear, I swear the car is about to tip over.

[Reporter Zoe Chase]

And then we whip around the corner and we start bouncing up and down over a bunch of stumps in the road.

[Host Robert Smith]

Are you okay? You're gonna destroy this thing.

[Various Interviewees]

All right, so made it.

[Host Robert Smith]

Could you drive this Jeep off road? You can drive it on dirt roads?

[Various Interviewees]

Yeah, absolutely. That's what this, this particular Jeep, this is the iconic Jeep brand, the Wrangler.

[Host Robert Smith]

Could you drive it through a river?

[Various Interviewees]

You can water forward with it. That's one of the things that makes Jeep a trail rated vehicle is water fording.

[Host Robert Smith]

So can you drive this thing anywhere?

[Various Interviewees]

You can drive in a lot of places.

[Host Robert Smith]

You can't drive your Cadillac, but you cannot drive this car anywhere because Steve doesn't mention one very large place that will not allow this car on their roads. Europe. This particular Jeep would be illegal in Paris.

[Reporter Zoe Chase]

It would be illegal in Milan.

[Host Robert Smith]

It would be breaking the law in Berlin because of a technicality. All of the safety features on this Jeep, the airbags, the bumper, they're built to U.S. safety standards. And there is an entirely different set of standards in Europe. And so in order to sell this particular Jeep in Europe, Jeep will have to replace a bunch of parts Redesign other parts.

[Reporter Zoe Chase]

And the Europeans have the same issue. Each country develops their own regulations. They have their own laws, their own testing standards. And sometimes even the expert car guys, which admittedly is not us even, they cannot figure out some rationale for the standards being different.

[Host Robert Smith]

That's why we met up with Dave Shepherdson. He covers cars for the Detroit News. And we met him at the Fiat section of the auto show. And he points to this beautiful car, I think, Anyway, the Fiat 500.

[Reporter Zoe Chase]

So cute.

[Host Robert Smith]

And in order to bring this from Italy, where you can drive it all over the place, to America, they had to change a bunch of things, including the windshield wipers. American regulations require that the windshield wipers capture a larger part of the windshield versus European ones. But I mean, what is the evening logic behind that? You know, I, I guess Americans might be taller on average, therefore they would be looking at a different part. I mean, I'm struggling here. I agree with you.

[Various Interviewees]

To come up with a rationalization.

[Reporter Zoe Chase]

Yeah. Some of the regulations seem totally arbitrary. Like the very fact that a rule exists at all for this thing seems kind of crazy, Let alone that there are two different rules in different countries. Like, we found these two brand new Porsches on the show floor. One Porsche for the US and one for Europe. And they had two different colored turn signals.

[Various Interviewees]

This is a Porsche Panamera. Looking at the US Version, we have the amber turn signal indicator. Whereas here on the German version, we've got the clear.

[Host Robert Smith]

That is actually a law, that is a rule. We don't care if your car is worth a million dollars, and this car is worth a million dollars. You have to have an amber turn signal in America and you have to swap out this little piece of plastic if you're in Europe.

[Reporter Zoe Chase]

And this may sound kind of silly, but the rules go from the very small to the very big. Because a car can be a very big and very serious thing. Because cars can kill you. Which is why the government feels like they have a compelling interest to get all up in how you make your car and tell you what you can and cannot do. Cars are one of the leading causes of death in this country.

[Host Robert Smith]

Yeah. And different countries have different assumptions about exactly how these cars are going to kill you. Take crash tests in Europe, you have to put crash test dummies into a car and you drive that car into a wall head on.

[Reporter Zoe Chase]

But the US also looks at what it'll be like if the crash happens at a slight angle.

[Host Robert Smith]

A small difference, but a big deal for designers because this presents them with a problem. Now, a car company could design a car that will withstand both kinds of tests. A car that would be legal in both the United States and Europe. And a lot of, you know, super luxury cars do this, but it can be really expensive to make the frame that way. And so what a lot of other car companies do is they do the sort of second most expensive thing. They just redesign the car. They say, this one's for us, this one's for Europe, and then they re crash it and they retest it.

[Reporter Zoe Chase]

And you might think I did first, I just assumed that Europe is just a safer place to drive. And in the US they are more lax. I figured in Europe they're more strict. So in Europe they're probably safer.

[Host Robert Smith]

But this is not the case.

[Reporter Zoe Chase]

No.

[Host Robert Smith]

Everyone tells us, and studies back this up, that in general, when you take all the regulations, both Europe and the U.S. both places are pretty safe.

[Reporter Zoe Chase]

They're just different.

[Host Robert Smith]

The U.S. may require a certain test like this at a certain higher speed, and Europe may require more kinds of tests, but it doesn't result in significant differences in the number of deaths. The difference is almost a philosophical one. What does it mean to make a car safe?

[Reporter Zoe Chase]

Well, here's one big philosophical difference, which is who are the rules designed to protect? So in the US Cars are tested to make sure the people inside the car are protected, the driver and the passenger.

[Host Robert Smith]

In Europe, cars are also tested to see if they protect pedestrians, people walking in front of the car. Cities are denser, they drive less. So European regulators want the front of their cars to be basically softer. And there's this test that Europe requires,

[Various Interviewees]

the baby head test. Okay, all the European cars have to

[Host Robert Smith]

meet this test, the baby head test. They don't use actual baby heads, but they roll a ball about the size of a baby head all over the car to make sure there are no sharp edges. It's all done by computer so the cars look smoother than they used to.

[Reporter Zoe Chase]

Now maybe the baby head test makes sense and having smoother cars is a safer thing to do. But is an amber turn signal really better than a clear one or vice versa? The question is, why haven't at this point all the regulators just come into a room and sort of just voted, looked at all the data, decided what works best, what's the safest thing to do, and then just picked one and then enforce the same set of standards all over the world.

[Host Robert Smith]

Now, normally when we encounter something like this, a trade barrier, we look for the person who is pushing for it. There's usually some industry or some farmer wants to be protected. And they go to their government and they demand a rule, a set of regulations that keeps out foreign competition. But this difference in car regulations, it is hated by all of the car companies equally. We couldn't find anyone who wants these differences. It protects no one in particular. And the car companies say it actually hurts them all. But it's not up to them. If it were, we would have one simple list for everyone. That's what a global engineer at Cadillac told us.

[Reporter Zoe Chase]

Do you think if all the companies in the auto show right now, though, sat together, you guys could just come up with what the list would be?

[Various Interviewees]

We would love to.

[Reporter Zoe Chase]

Really?

[Various Interviewees]

Yeah.

[Reporter Zoe Chase]

Everybody feels this way, huh?

[Various Interviewees]

We could. No, absolutely. It would make life so much simpler. And I could use the same part around the world without all the unique testing and certification requirement and design. And it gets to exhaust systems and it gets to seat belts, and it gets to glass, and it gets to mirrors and tires. And it's millions. It's not thousands. It's millions of dollars that we spend annually to make sure that our vehicles meet the requirements of the global market. We sell Cadillacs in over 40 countries around the world.

[Reporter Zoe Chase]

Just imagine rolling a Cadillac off the production line in the US and just sending it out anywhere in the world, just testing it once and then selling it to whoever wants to buy it. And that could save tens of millions of dollars. Cars might be cheaper for us because complying with these two sets of rules gets baked into the price, and there'd be a bigger selection of cars to choose from.

[Host Robert Smith]

You know, it was hard at first for us to just puzzle out, like, why do these two different sets of rules persist? And we asked everyone at the car show, no one had a good answer. And when it came right down to it, it seemed ridiculous. We have the same human bodies, we have the same size baby heads on both sides of the Atlantic. And we couldn't quite figure it out until this one moment when we suddenly understood, now, we may all be physiologically the same, but culturally, we're different. So in America and Europe, we actually drive differently.

[Reporter Zoe Chase]

Take a very basic example. Seat belts. In every car, you're required to wear them in Europe, you are required to wear them in the United States. But in the United States, let's be honest, people do not always wear their seatbelt.

[Host Robert Smith]

Now try and run this by a European.

[Reporter Zoe Chase]

I found a German person.

[Host Robert Smith]

Do you wear your seatbelt? Yes, of course. Every time it's more safety, you don't

[Reporter Zoe Chase]

get that feeling like, I just don't really want to bother.

[Various Interviewees]

Oh, no. No way.

[Host Robert Smith]

Never.

[Reporter Zoe Chase]

Can you understand how some of us might feel that way?

[Various Interviewees]

We have a lot of rules in

[Host Robert Smith]

Germany and it's kind of mentality.

[Various Interviewees]

So everybody puts on the seat belt

[Host Robert Smith]

and the mentality is to follow the rules. Yes. Yes. Philip Clanett, who is one of the car cleaners here, he just looked at us like we were crazy. Now look at this through the eyes of a regulator. They see that Americans sometimes don't wear their seatbelts, that Germans like Philip always wear theirs. So when they get together, when the Germans get together to design their airbags, they assume everyone's wearing a seatbelt. Their airbags can be smaller, more targeted. They know where the head of a person is going to go in a crash because a German is wearing his seatbelt.

[Reporter Zoe Chase]

In America, we assume that people will break the law and we want those people to live as well. So our airbags are bigger for some idiot who is not wearing a seatbelt who goes flying around the car.

[Host Robert Smith]

So you can see the problem here, right? In theory, all regulations should be the same. But if you have two different kinds of people and you have two different kinds of airbags, that means that car manufacturers have to manufacture a different kind of dashboard for Europe and the US and two different dashboards means essentially two different cars.

[Reporter Zoe Chase]

So it's a trade barrier, but it's an emotional trade barrier, which is possibly why it is taking so long to straighten this out.

[Host Robert Smith]

That was Zoe Chase and I back in the good old days of 2014. It's more than 10 years later, and guess what? Institutional path dependence. We have still not fixed the regulatory differences in cars between Europe and the United States. We'll be back with our professor in a minute to explain why.

[Announcer]

This message comes from NPR sponsor Charles Schwab. When is the right time to sell a stock? How do you protect against inflation? Financial decisions can be tricky, and often your own cognitive and emotional biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help join host Marc Reap as he offers practical solutions to help overcome the cognitive and emotional biases that may affect your investing decisions. Download the latest episode and [e-mail] FinancialDecoder

[Host Robert Smith]

we are almost at the end of class, everyone, but I wanted to bring back in Carolyn Freund from UC San Diego for just a moment. Hey, Carolyn.

[Professor Carolyn Freund]

Thank you.

[Host Robert Smith]

So in the auto show story, there was a mystery. These safety regulations act as a trade barrier. They make European cars more expensive in the US and probably keep out Some great cheap cars from Europe. But no one in the car industry supports this. It seems like a collective action problem, but it acts like it is a regular trade barrier. So how did these regulations come about in the first place?

[Professor Carolyn Freund]

Part of it was actually protecting the car industries from having to compete with car companies from abroad. Because if there are regulatory differences, it creates increased costs for a foreign producer to produce its type of car and sell it in your market.

[Host Robert Smith]

So back in the old days, a European car manufacturer might have gone to their government and said, you know, we really like our turn signals better. Why don't we put a law in place that says that our turn signals are better? And then the United States has to replace their. The color of their turn signals for us?

[Professor Carolyn Freund]

Yeah, the car companies would work with the regulators to come up with differences. And some of it for sure is safety. And it's just that the regulatory agencies worked independently and did what they thought was right. But some are so clearly absurd that there had to be more than that involved and maybe even at a higher level. Just saying we don't want regulatory cooperation so that our regulations are different. Then we have our market for ourselves, they have their market. And then we can all go around to the rest of the world saying our regulations are better. And if we get Mexico on our regulations, it's easier for us to compete in Mexico than for Europe, because now Mexico's on our regulation. So there was also this race around the world to get countries onto either European regulations or US Regulations.

[Host Robert Smith]

Interesting. Now, back when those regulations came in, US Cars were mostly in the United States. European cars were mostly in Europe. But the industry changed. Now the car industry is far more global. So when I talk to people at this car show, they threw up their hands. They're just like, why can't we have free trade in cars? Why can't we harmonize these differences?

[Professor Carolyn Freund]

So it's a real interesting case of global supply chains completely changing the political economy of the industry, and frankly, the US Industry becoming more competitive. Let's remember when I was a kid in the 70s, US cars weren't that great. We'd get in in the morning and my mom's Dodge Dart in Chicago in a cold winter and pray that it would start. Whereas the Toyota was starting right away. The competition actually helped US Cars become more competitive, which was a good thing. And now that they're more competitive and parts and components are being produced all over the world, and they have factories in different places, they all want to sell everywhere. So now the car industry would actually like to have a single standard, but for all these historical reasons, both protecting the industry and the views of the regulators and protecting people and how they developed independently, we don't have that. We have these different color little tail lights, these different windshield thicknesses, different paddings here and there, et cetera, et cetera.

[Host Robert Smith]

But going forward, how do we just get rid of the differences in these regulations so I can drive more cool cars here in the United States of America?

[Professor Carolyn Freund]

Well, there's one really easy way to do it quickly, which is mutual recognition. So we both say, okay, we have different standards, but they're both safe. So I'm going to recognize European standards, Europeans will recognize U.S. standards, and our goods can be traded over time. That would likely lead to one standard because industry would have the incentive over time to just have to produce one car rather than two Ford Fusions and, you know, so forth.

[Host Robert Smith]

That's such a beautiful concept where it essentially says, I trust my trading partner to make something safe, and they trust us to make something safe. And yes, we're different, but maybe difference is fine. So, Carolyn, before you leave, we wanted to do some vocabulary words, some concepts that people can take with them out into the world when they. They see an unfair price for sugar. Protectionism. What is protectionism?

[Professor Carolyn Freund]

It's different government interventions to protect our industry, whether tariffs or quotas or such.

[Host Robert Smith]

We should probably define the word quotas. What's a quota?

[Professor Carolyn Freund]

A quota is a quantity restraint on incoming products. So say the number of cars or the pounds of sugar that are allowed in.

[Host Robert Smith]

We talked about how once a tariff is in place, it often stays. And the term path dependence, what does path dependence mean?

[Professor Carolyn Freund]

That history matters. So because you put something in in the past, it changes how things are in the future. So the sugar example was a perfect example of that. The historical protection has been so hard to get rid of.

[Host Robert Smith]

Thank you so much, Carolyn, for coming in and doing this. I appreciate it.

[Professor Carolyn Freund]

Thank you. My pleasure.

[Host Robert Smith]

Carolyn Freund is the Dean of the School of Global Policy and Strategy at UC San Diego. Next week on Summer School. Oh, this is very exciting. Our commencement ceremony recorded live at the Bell House in Brooklyn. If you could not make it in the audience, you can still be involved in the fun. Nothing says you can't listen to the final episode while wearing your own own graduation robe. Do it. Send us a photo. Plus, there will be a final online quiz and if you pass a souvenir diploma suitable for display on LinkedIn and in the back of your zoom calls, everyone will love it and respect you. Summer School is produced by Eric Mennel and edited by Alex Goldmark. It was fact checked by Emily Crawford. Devin Meller is our project manager. I'm Robert Smith. This is npr. Thanks for listening.

[Sponsor Announcer]

Support comes from our 2026 lead sponsor of Planet Money, Amazon Business. How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. Simplify how you stock up to get ahead. Go to amazonbusiness.com for support.

[Announcer]

This message comes from Greenlight. Parents say financial literacy is the hardest life skill to teach. Greenlight's debit card and money app for families makes it easy for kids to learn to earn, save and spend wisely. Start today risk [e-mail] NPR this message comes from Capital One. Capital One offers checking accounts with no fees or minimums. What's in your wallet terms apply. See capitalone. Com bank for details. Capital One NA Member FDIC.