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

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.

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.

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.

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)

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.

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)

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)

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)

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)

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.