Background on the Mexican Tomato Producers
In 1996, the U.S. Department of Commerce initiated a dumping investigation to determine if Mexican tomato producers were exporting their product to the U.S. below a “fair value.” This procedure was paused through a “Suspension Agreement,” which has been renewed multiple times over the past thirty years, allowing Mexican producers to continue exporting without tariffs.
Recent Tariff Imposition and Its Consequences
However, the agreement recently ended, and a 17.09% tariff was imposed on Mexican tomatoes. This move negatively impacts Mexican producers, their workers, and U.S. companies that have invested in the Mexican production chain and distribute Mexican tomatoes in the U.S.
- Mexican Producers and Workers: They will face reduced exports and potential job losses.
- U.S. Investors: Companies that have invested in Mexican tomato production will see a decline in returns.
- U.S. Consumers: Prices of tomatoes will rise by 6-17%, making the product more expensive. Access to preferred Mexican varieties may also be limited, as 90% of tomatoes consumed in the U.S. previously came from Mexico, especially Sinaloa.
Given the clear negative impact on U.S. consumers, one might question why tariffs were imposed. The answer likely lies in the relative ease with which U.S. tomato businesses can organize and lobby for protectionist measures, compared to consumers who struggle to mobilize and exert pressure on authorities.
Economic Competition Principles and Their Application
Although this situation involves international trade rather than pure economic competition, the principles of economic competition can shed light on the matter. One such principle is leveling the competitive playing field, which in practice can be challenging to implement. Questions arise:
- What constitutes a fair value for tomatoes? How is it calculated, and which economic variables should be considered in the analysis?
This issue mirrors the “predatory pricing” concern in economic competition, where goods are sold below cost to drive competitors out of the market. However, “dumping” is typically associated with international trade and relies on comparing domestic prices to export prices, rather than using cost references as in predatory pricing analysis.
Tariffs and Protectionism: Balancing Benefits and Drawbacks
While tariffs and protectionist policies generally restrict international trade, which usually benefits consumers, they are not always unjustified. Free trade differs from fair trade, and in cases like this one, they could harm U.S. consumers, Mexican producers, and workers.
Governments may aim to promote domestic production for job creation, but alternative strategies exist. For instance, public policies could focus on strengthening technological innovation in production and worker training.
