On one hand he decries “Big Oil” for fostering the US’s dependence on oil which has supposedly led to the price spikes of the last few years. He reasons that since ethanol cannot compete with oil economically (because there are very few people willing to pay a premium to for the environmental trade-off) the government should force us tax payers to give money directly to the ethanol producers (a large portion of whom happen to reside in Mr. Obama’s home state of Illinois) so that they can sell to consumers at a price closer to that of traditional gasoline. At the same time he has staunchly fought against opening trade restrictions (such as a $0.52 per gallon tariff on ethanol imports) that would allow Brazil to sell ethanol to Americans, which would effectively make the fuel cheaper here at the expense of domestic producers who would be forced to lower prices to compete with the new supply influx.
Most American tax payers have already voted through the dollars they spend that the benefits of ethanol compared to gasoline are not worth the premium. By granting tax subsides the government does enable to domestic ethanol producers to lower nominal prices, but if we are still paying higher taxes to fund those subsidies, we are still paying the same high price, it just isn’t explicit. As with most protectionist tax and trade polices, the economics don’t change, the costs are just shifted from prices to taxes and from only the consumers who choose to pay the ethanol premium to all consumers.
If Mr. Obama’s real desire was to lower prices enough to make ethanol a viable competitor to oil, why would he vote to block the cheap Brazilian supply?
Opening trade would lower ethanol prices substantially and 300M consumers in America would benefit from lower prices and more efficient suppliers built through a completive market place. The only interest who would be hurt by this policy is that of the inefficient domestic producers who could not compete with the foreign interests.
Restrictive trade policy and tax subsidies on the other hand do not lower prices at all; they just rearranged them so that ALL of us have to pay instead of just those drivers who use their free will to choose to pay the premium for the ethanol. Consumers don’t benefit because they are forced to pay higher-than-market prices for ethanol. In this case the only group that benefits is the domestic producers who are allowed to maintain their currently inefficient operations because they are not threatened by foreign competitors.
As is almost always the case, the best solution to this problem is less, not more restrictive trade policy.
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