Summer School 7: Trade blocks and blockages

Summary

Planet Money Summer School 7: Trade Blocks and Blockages

Host: Robert Smith (NPR)
Guest Professor: Carolyn Freund (Dean, UC San Diego School of Global Policy and Strategy)
Air Date: August 20, 2025

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Overview

This episode dives into trade policy—specifically, the many hidden and not-so-hidden ways governments interfere with the free trade of goods and services. Focusing on “protectionism,” the discussion illuminates how policies like tariffs, quotas, and seemingly innocuous regulations end up costing American consumers and sometimes produce surprising, entrenched trade barriers. Case studies—sugar and cars—bring these concepts to life, revealing both the intended and wildly unintended consequences of protecting domestic industries.

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Key Discussion Points & Insights

1. What Is Protectionism?

• Definition: Protectionism is government action to shield domestic industries from foreign competition, typically through tariffs (taxes on imports), quotas (limits on quantities), or regulatory barriers.
• Historical Context: The U.S. has a long legacy of protectionism, dating back to its founding in 1789 with tariffs on sugar.

Key Quote:

“The policy of protecting a country's industries by keeping out foreign goods and services ... the U.S. has this long history ... since the very beginning of our country.”
—Robert Smith (00:44)

2. Tools of Protectionism

With Carolyn Freund:

• Tariffs: Taxes on imports, making foreign goods pricier.
• Quotas: Quantity limits, often set based on historical precedent, which may be a poor guide amidst market shocks, especially in agriculture.
• Regulations: Safety, packaging, and paperwork requirements that can be used to obscurely block imports.

Key Quote:

“Some regulations are really to protect the consumer, but some are completely there to make it harder for other countries to export.”
—Carolyn Freund (03:04)

• Unintended Consequences: These policies can backfire, hurting other domestic industries and distorting optimal resource allocation globally.

Saudi Dairy Example:
Trying to produce dairy in the desert (Saudi Arabia) illustrates how protectionist policy can waste resources.

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3. Case Study #1: The Sugar Penalty

(Segment Begins: 06:22)

• Story: Spangler Candy Company, maker of Dum Dums and candy canes, faces higher costs due to U.S. sugar price supports, leading them to move candy cane production to Mexico.
• Why Sugar Costs More: The U.S. Farm Bill guarantees a minimum price for sugar—currently about double the world price.
• Impact on Business:
  • 100,000 lbs of sugar a day = $3-4 million/year in extra costs
  • Sometimes cheaper to shift production overseas than buy U.S. sugar

Notable Quote:

“If I paid zero taxes and got all those other things ... it’s not as important as the one thing that I need. ... Let us buy sugar on the free market.”
—Kirk Vashaw, Spangler CEO (10:04)

• Why the Protection Exists:
  • Political lobbying by the sugar industry keeps these protections locked in.
  • “Institutional path dependence”: Once a policy is in place, industries orient themselves around it, making reversal difficult.

Contradictory Arguments:

• Farmers’ Side: Jobs and economic activity in rural districts depend on U.S. sugar.

• Manufacturers’ Side: Higher input prices kill potential growth and jobs for candy makers.

• Lobbying Power: Sugar has one of the most powerful lobbies, pouring money into politics to maintain the status quo.

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4. Institutional Path Dependence

(Segment Begins: 18:28)

• Explanation:
  • Policies once enacted get locked in as businesses, jobs, and politics organize around their presence.
  • Tariffs are hard to remove (“history matters”), especially once entire industries depend on them for survival.

Key Quote:

“If you set up this type of policy, historically, everything develops around that policy being in place, and it’s super hard to reverse.”
—Carolyn Freund (18:34)

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5. Case Study #2: Car Regulations as Trade Barriers

(Segment Begins: 21:38)

• Story: Reporting from the New York International Auto Show reveals that U.S. and European car safety standards are different—and this serves as a trade barrier.
• Examples:
  • Jeep Wrangler: Meets U.S. standards, illegal as sold in Europe.
  • Fiat 500: Minor, seemingly arbitrary differences (e.g., windshield wipers).
  • Porsche Panamera: Amber turn signals for U.S., clear for Europe.
• Why It Matters:
  • Manufacturers must redesign cars for each market, raising costs and limiting consumer choice.

Key Quotes:

“Could you drive this Jeep anywhere? You can’t drive this car anywhere because Steve doesn’t mention one very large place ... Europe. This particular Jeep would be illegal in Paris.”
—Robert Smith (23:15)

“We have the same human bodies, we have the same size baby heads on both sides of the Atlantic. ... But culturally, we’re different.”
—Robert Smith (30:42)

• Differences Are Arbitrary:
  • Some are based on real safety concerns (e.g., U.S. airbags assume less seatbelt use than Europe).
  • “Baby head test” in Europe: Ensures car fronts are less dangerous to pedestrians, based on the common urban environment.

Manufacturers’ Perspective:

• Both sides hate these duplicative requirements.
• Collective Action Problem: Regulations persist due to inertia and cultural differences, not active industry lobbying anymore.

Key Manufacturer Quote:

“We would love to [have one standard]... It would make life so much simpler ... it gets to exhaust systems and it gets to seat belts and it gets to glass and it gets to mirrors ... it’s millions of dollars that we spend annually to make sure that our vehicles meet the requirements of the global market.”
—Global Engineer, Cadillac (29:19)

• Regulatory Races: Countries tried to pull others into their own regulatory orbit to boost local industry competitiveness.

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Solutions and Future Paths

Mutual Recognition Approach

• Idea: Allow imports if they’re legal in the producing country, accepting different safety standards as long as outcomes (safety) are similar.
• Long-Term Effect: Might naturally nudge industries toward standardizing globally.

Quote:

“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...”
—Carolyn Freund (37:12)

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Vocabulary & Concepts

(Segment Begins: 38:14)

1. Protectionism:

   • "Different government interventions to protect our industry, whether tariffs or quotas or such."
     (Carolyn Freund, 38:14)

2. Quota:

   • “A quantity restraint on incoming products. So, say, the number of cars or the pounds of sugar that are allowed in.”
     (38:25)

3. Path Dependence:

   • “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 is so hard to get rid of.”
     (38:43)

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Memorable Moments & Quotes

• Candy CEO revelation:
  “Let us buy sugar on the free market.” (Kirk Vashaw, 10:04)
• Two sugar prices:
  “On average over the last decade, the price you pay in the U.S., it’s about 15 cents more than you pay outside the country. 15 cents more per pound of sugar.” (Dean Spangler, 11:19)
• Emotional trade barrier in cars:
  “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, 32:31)
• Car industry’s frustration:
  “We would love to [standardize]... It would make life so much simpler” (Cadillac Engineer, 29:20)

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Timestamps for Important Segments

• [00:44] - Introduction to protectionism
• [02:12] - Types of trade barriers (quotas, regulations)
• [03:36] - Dangers of government intervention in trade
• [06:22] - Case Study #1 - Sugar protectionism and Spangler Candy Co.
• [11:07] - U.S. vs world sugar price, explanation of the sugar penalty
• [14:17] - The sugar lobby’s sway and political power
• [18:28] - Explanation of “path dependence”
• [21:38] - Case Study #2 - Car safety regulations as trade barriers
• [23:15] - Jeep example and car safety regulations in Europe vs. US
• [27:21] - Safety differences (airbags, pedestrian protection)
• [29:19] - Car manufacturer’s perspective on regulatory duplication
• [32:31] - Cultural differences and why harmonization is so difficult
• [37:12] - Proposal: mutual recognition of standards
• [38:14] - Vocabulary review (protectionism, quotas, path dependence)

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Takeaways

• Trade policy isn’t just tariffs. Quotas, regulations, and standards shape what we pay and what we can buy every day, often in surprising ways.
• Protectionism has unintended ripple effects, sometimes hurting other domestic industries as much as it helps the intended beneficiaries.
• Removing trade barriers is politically and practically hard due to path dependence and cultural differences, even when both consumers and producers would benefit.
• Real policy change—like mutual recognition—may offer hope for a world with more choices and lower costs, but it requires trust, cooperation, and overcoming deep institutional inertia.

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Transcript

[Zoe Chase]

This is Planet Money from npr.

[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.

[Carolyn Freund]

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

[Robert Smith]

Come for the policy, stay for the strategy.

[Carolyn Freund]

Oh, I like that. Maybe we can use that as a solution.

[Robert Smith]

Put that on a T shirt.

[Carolyn Freund]

Thank you.

[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, 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.

[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.

[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?

[Carolyn Freund]

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

[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 to just make it difficult for another country to send us something and more expensive.

[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.

[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?

[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.

[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.

[Dean Spangler]

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[Robert Smith]

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[Carolyn Freund]

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

[Robert Smith]

In this case, sugar.

[Carolyn Freund]

In this case, sugar. Exactly.

[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.

[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.

[Dean Spangler]

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

[Jess Jiang]

You like orange?

[Robert Smith]

Sure.

[Jess Jiang]

It's a warm orange sun, though.

[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.

[Jess Jiang]

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

[Zoe Chase]

Yes.

[Dean Spangler]

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.

[Zoe Chase]

Imagine a kitchen made for giants with a couple busy little chefs running around in aprons and hair nets.

[Jess Jiang]

Metal. Metal detector.

[Zoe Chase]

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.

[Dean Spangler]

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

[Zoe Chase]

Dum Dum's 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.

[Jess Jiang]

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

[Robert Smith]

Where's the sugar?

[Jess Jiang]

In the sugar shack?

[Zoe Chase]

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

[Jess Jiang]

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

[Dean Spangler]

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.

[Jess Jiang]

Nothing delivers flavor like sugar.

[Zoe Chase]

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

[Dean Spangler]

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.

[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.

[Jess Jiang]

Cheap candy canes are treated like a commodity by the big box stores, 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.

[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.

[Dean Spangler]

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 ask 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 perform 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.

[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.

[Dean Spangler]

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.

[Zoe Chase]

15 cents extra per pound of sugar. If you're in the business of making candy and adds up to a lot.

[Jess Jiang]

Of money, 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.

[Dean Spangler]

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?

[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.

[Dean Spangler]

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.

[Zoe Chase]

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

[Jess Jiang]

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.

[Zoe Chase]

Right here looks like a barren wasteland.

[Carolyn Freund]

Yep.

[Dean Spangler]

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?

[Jess Jiang]

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

[Dean Spangler]

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.

[Jess Jiang]

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.

[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.

[Dean Spangler]

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.

[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.

[Jess Jiang]

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

[Zoe Chase]

That's because Colin Peterson is a big advocate of the central planning of the sugar supply and the guaranteed minimum. I 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.

[Jess Jiang]

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

[Zoe Chase]

Really?

[Jess Jiang]

It wouldn't make any difference.

[Zoe Chase]

Well, how do you know?

[Jess Jiang]

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.

[Zoe Chase]

And why is that such a bad thing?

[Jess Jiang]

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.

[Dean Spangler]

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.

[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.

[Dean Spangler]

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.

[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 potato, 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.

[Carolyn Freund]

Hi. Glad to be here.

[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?

[Carolyn Freund]

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

[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?

[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.

[Robert Smith]

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

[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.

[Robert Smith]

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

[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.

[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.

[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's not even good for you, that it matters that we have a thriving sugar industry.

[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 every. 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. 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 keeps some cool US Cars from being affordable in the rest of the world. All of this in the name of safety. Professor friend, what should the students be listening for in this story?

[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.

[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 or right in front of the convention center. We definitely wanted to do that. And we approached the Jeep representative.

[Jess Jiang]

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

[Robert Smith]

We'll get into anything. Okay.

[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.

[Jess Jiang]

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.

[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. Whoa.

[Zoe Chase]

This is crazy.

[Robert Smith]

This thing's on inside.

[Jess Jiang]

Okay, so.

[Zoe Chase]

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

[Robert Smith]

There's two streets.

[Jess Jiang]

There's one.

[Robert Smith]

Wait.

[Dean Spangler]

Are you okay?

[Robert Smith]

You're gonna destroy this thing.

[Jess Jiang]

All right, so made it.

[Robert Smith]

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

[Jess Jiang]

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

[Robert Smith]

Could you drive it through a river?

[Jess Jiang]

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

[Robert Smith]

So can you drive this thing anywhere?

[Jess Jiang]

You drive in a lot of places.

[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.

[Zoe Chase]

It would be illegal in Milan.

[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.

[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.

[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.

[Zoe Chase]

So cute.

[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. To come up with a rationalization.

[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.

[Jess Jiang]

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.

[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.

[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.

[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. And you drive that car into a wall head on.

[Zoe Chase]

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

[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 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.

[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.

[Robert Smith]

But this is not the case.

[Zoe Chase]

No.

[Robert Smith]

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

[Zoe Chase]

They're just different.

[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?

[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.

[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.

[Jess Jiang]

The baby head test. Okay? All the European cars have to meet.

[Robert Smith]

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.

[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.

[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, 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.

[Zoe Chase]

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

[Jess Jiang]

We would love to.

[Zoe Chase]

Really?

[Jess Jiang]

Yeah.

[Zoe Chase]

Everybody feels this way, huh?

[Jess Jiang]

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 of. 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.

[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.

[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.

[Zoe Chase]

Take a very basic example, seatbelts. 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.

[Robert Smith]

Now try and run this by a European.

[Zoe Chase]

I found a German person.

[Robert Smith]

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

[Zoe Chase]

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

[Jess Jiang]

Oh, no, no way.

[Robert Smith]

Never.

[Zoe Chase]

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

[Jess Jiang]

We have a lot of rules in.

[Robert Smith]

Germany and it's kind of mentality.

[Jess Jiang]

So everybody puts on the seatbelt and.

[Robert Smith]

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.

[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.

[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. Dashboards means essentially two different cars.

[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.

[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. 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.

[Carolyn Freund]

Thank you.

[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?

[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.

[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 the color of their turn signals for us?

[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.

[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.

[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 in 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.

[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?

[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 or 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.

[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 see an unfair price for sugar. Protectionism. What is protectionism?

[Carolyn Freund]

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

[Robert Smith]

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

[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.

[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?

[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 so hard to get rid of.

[Robert Smith]

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

[Carolyn Freund]

Thank you. My pleasure.

[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 see still be involved in the fun. Nothing says you can't listen to the final episode while wearing your 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 Mennell 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.