Americans overwhelmingly know that free trade offshored our factories.
It’s the same story for our farms and ranches. However, unlike with industrial products, there are actually a handful of agricultural commodities where unlimited free trade was rejected.
For example, after a disastrous flirtation with free trade in the 1970s, U.S. sugar policy since the 1981 farm bill has treated imports as something to be managed and limited. “Let the chips fall where they may” free trade was rejected.
Instead of putting U.S. sugar cane growers and sugar beet farmers into unlimited price competition with every plantation on the planet, USDA projects on a seasonal basis how much sugar should be imported.
The volume of sugar imports needed is determined by the spread between domestic consumption (think consumers buying sugar at the grocery store and confectioners buying it in bulk) and production (U.S. refiners’ output).
With the volume of sugar imports forecast, USDA works with the Office of U.S. Trade Representative (USTR) to allocate quota among various trusted foreign nations.
That’s been the operating logic behind several commodities governed by Section 22 of the Agricultural Adjustment Act for almost a hundred years.
‘Absolute Quota’ and ‘Tariff-Rate Quota’
The Department of Commerce has been taking its own forays into quota allocation in its Section 232 national security tariff actions.
For example, in the spring of 2018, just a few months into the Steel Section 232 tariff, imports of covered steel items from Argentina, Brazil, and Korea were limited to 500,000kg annually. This was what U.S. Customs and Border Protection (CBP) calls “absolute quota”, meaning no imports were allowed once the quota was filled.
The Biden Administration authorized more steel quotas for the UK, Europe, and Japan, but in the form of “tariff-rate quotas” (TRQs). Europe was given 3.3 million metric tons of duty-free quota (where the Section 232 tariff didn’t apply), but after that, imports could continue (and they did) but subject to the 25% tariff until the quota allotment was replenished for the next term.
Commerce’s Quota: First Come, First Served
One thing that all of Commerce’s quota allocations have in common, however, is that they are “first come, first served” and open to all. This means that overseas manufacturers will typically set up their own U.S. importer of record to import under quota and distribute domestically.
In many cases, though, the corporate entity making use of the quota is a barely-capitalized shell that exists only to facilitate paperwork.
USDA’s Innovation: Why Not Reserve Quota Imports for Manufacturers?
First-come, first-served open-to-all quota does create problems. In addition to being captured by overseas manufacturers, it enables exploitation by middlemen-traders.
Take peanuts, for example. As background, the peanut to peanut butter supply chain remains one of the most secured in the United States. Imports of peanut butter for 2025 are capped at 20,000 MT. 14.5 MT of that is reserved for Canada, by far the largest beneficiary, followed by 3.65 MT for Argentina, and 1.85 MT for the rest of the world. While the Canadian peanut butter quota allocation is large, the peanuts used for the Canadian peanut-butter quota allocation must be from Canada, the U.S., or Mexico.
But what about that Argentinian quota? In the late 1990s, a Canadian peanut butter manufacturer saw a rent-capturing opportunity. It leased space in a Niagara Falls warehouse to store 3.9 million pounds of Argentinian peanuts. As soon as the quota allocation refreshed itself on April 1, 1997, the Canadian company moved millions of pounds of its Niagara-housed Argentinian peanuts into U.S. commerce, gobbling up Argentina’s quota. It offered no value-add; it did not transform the peanuts into peanut butter, it merely snatched up Argentina’s peanut quota that may have otherwise been used by a domestic peanut butter manufacturer. According to USDA economists, this was “a very profitable transaction – so profitable that such trades have ignited a minor trade dispute between the United States and Argentina.” (See Skully, David. 1999. “U.S. Tariff-Rate Quotas for Peanuts.” Oil Crops Situation and Outlook Yearbook, U.S. Department of Agriculture, Economic Research Service, Market and Trade Economics Division. October (OCS-1999) pp. 45-53 at 49.)
USDA’s Import Licensing
USDA has mitigated the problems of traders gobbling up quota by licensing domestic manufacturers as the only eligible importers.
The Commerce Department should look to 7 C.F.R. Part 6 as a terrific example of how USDA has ensured that quota allocation benefits domestic manufacturers, not speculators.
Start with the threshold requirement. To obtain a license to import dairy (aside from cheese), per § 6.27, the applicant must be “[t]he owner or operator of a plant listed in the most current issue of “Dairy Plants Surveyed and Approved for USDA Grading Service” and ha[ve] manufactured, processed or packaged at least 450,000 kilograms of dairy products in its own plant in the United States”.
These licenses are necessary to import in-quota covered goods. Anyone can still import without a license, but they pay the higher, “over-quota” rate, which in agriculture is often prohibitive (not a measly 25%).
USDA’s regulations also ban manufacturers from importing for speculation. Per § 6.27, “Limitations on use of license”.
(a) A licensee shall not obtain or use a license for speculation, brokering, or offering for sale, or permit any other person to use the license for profit.
(b) A licensee who is eligible as a manufacturer or processor, pursuant to § 6.23, shall process at least 75 percent of its licensed imports in such person’s own facilities and maintain the records necessary to so substantiate.
USDA’s licensing approach to managing imports reflects principles desperately needed across Section 232 tariff actions:
To the extent our country is import reliant on a particular product, imports of that product should be capped so as to give domestic producers certainty as to the size of their home market; and
For manufacturing inputs, import relief should be limited to those actually building and making things in America.
Aluminum Association Lobbied For Import Licensing To Deal With Overly Generous Quota
Prior to February 2025, the steel and aluminum tariff actions were subject to scores of blanket product exclusions, as well as country-wide exemptions.
The United States is woefully import reliant on primary aluminum, so imports are a necessity, and a quota is a sensible tool to ensure sufficient primary aluminum supply while also giving domestic smelters certainty as to the size of the domestic market. However, when authorizing in-quota primary aluminum shipments, why not ensure that the billets will go to manufacturers, as opposed to Wall Street owned warehouses? That was the request of the Aluminum Association in the group’s Trade Policy Framework proposal:
“Restrict volumes for importers, particularly for traders and distributors that re-sell (and do not consume) imported products, to limit anti-competitive behavior;” and
“Restrict eligibility of requestors, to mirror the restrictions on objectors.”
Commerce dipping its toes, but improvement needed
The Biden Administration’s Commerce Department did not heed that advocacy.
But, in the new Trump Administration, Commerce has started moving in this direction via the Automotive 232 action. The Auto 232 framework imposes tariffs on automobiles and parts—but it also authorizes tariff refunds for automakers assembling vehicles in the United States.
To be clear, this isn’t a quota system, it’s a subsidy for purchasing imports. Under the Auto 232 framework, automakers can receive an “import adjustment offset amount” (a credit) calculated from the value of vehicles they assemble here, and it restricts use of that credit to importers of record authorized by that automaker.
The credit is complicated, and The Automotive 232’s failure to adopt a protective over-quota tariff is a fatal flaw. A 27.5% tariff (2.5% MFN plus 25% Section 232 tariff) will not stop car imports. And worse yet, Europe, Korea, and Japan have been authorized unlimited vehicle imports into the United States at a mere 15% tariff. And especially relevant for our purposes, the United States has ample domestic capacity for many vehicle parts for which a rebate is available, which represents the tired-old sacrificing of smaller domestic producers for the benefit of the most powerful OEMs.
So, while the Automotive 232 can be described as “problematic” to say the least, it is an example of limiting tariff-relief to real manufacturers, not traders. As Commerce goes forward, rather than reinventing the wheel, it should look to USDA’s approach to import management.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Licensing Imports: Commerce Should Borrow Sugar and Dairy’s Managed-Trade Playbook for 232 Actions
Americans overwhelmingly know that free trade offshored our factories.
It’s the same story for our farms and ranches. However, unlike with industrial products, there are actually a handful of agricultural commodities where unlimited free trade was rejected.
For example, after a disastrous flirtation with free trade in the 1970s, U.S. sugar policy since the 1981 farm bill has treated imports as something to be managed and limited. “Let the chips fall where they may” free trade was rejected.
Instead of putting U.S. sugar cane growers and sugar beet farmers into unlimited price competition with every plantation on the planet, USDA projects on a seasonal basis how much sugar should be imported.
The volume of sugar imports needed is determined by the spread between domestic consumption (think consumers buying sugar at the grocery store and confectioners buying it in bulk) and production (U.S. refiners’ output).
With the volume of sugar imports forecast, USDA works with the Office of U.S. Trade Representative (USTR) to allocate quota among various trusted foreign nations.
That’s been the operating logic behind several commodities governed by Section 22 of the Agricultural Adjustment Act for almost a hundred years.
‘Absolute Quota’ and ‘Tariff-Rate Quota’
The Department of Commerce has been taking its own forays into quota allocation in its Section 232 national security tariff actions.
For example, in the spring of 2018, just a few months into the Steel Section 232 tariff, imports of covered steel items from Argentina, Brazil, and Korea were limited to 500,000kg annually. This was what U.S. Customs and Border Protection (CBP) calls “absolute quota”, meaning no imports were allowed once the quota was filled.
The Biden Administration authorized more steel quotas for the UK, Europe, and Japan, but in the form of “tariff-rate quotas” (TRQs). Europe was given 3.3 million metric tons of duty-free quota (where the Section 232 tariff didn’t apply), but after that, imports could continue (and they did) but subject to the 25% tariff until the quota allotment was replenished for the next term.
Commerce’s Quota: First Come, First Served
One thing that all of Commerce’s quota allocations have in common, however, is that they are “first come, first served” and open to all. This means that overseas manufacturers will typically set up their own U.S. importer of record to import under quota and distribute domestically.
In many cases, though, the corporate entity making use of the quota is a barely-capitalized shell that exists only to facilitate paperwork.
USDA’s Innovation: Why Not Reserve Quota Imports for Manufacturers?
First-come, first-served open-to-all quota does create problems. In addition to being captured by overseas manufacturers, it enables exploitation by middlemen-traders.
Take peanuts, for example. As background, the peanut to peanut butter supply chain remains one of the most secured in the United States. Imports of peanut butter for 2025 are capped at 20,000 MT. 14.5 MT of that is reserved for Canada, by far the largest beneficiary, followed by 3.65 MT for Argentina, and 1.85 MT for the rest of the world. While the Canadian peanut butter quota allocation is large, the peanuts used for the Canadian peanut-butter quota allocation must be from Canada, the U.S., or Mexico.
But what about that Argentinian quota? In the late 1990s, a Canadian peanut butter manufacturer saw a rent-capturing opportunity. It leased space in a Niagara Falls warehouse to store 3.9 million pounds of Argentinian peanuts. As soon as the quota allocation refreshed itself on April 1, 1997, the Canadian company moved millions of pounds of its Niagara-housed Argentinian peanuts into U.S. commerce, gobbling up Argentina’s quota. It offered no value-add; it did not transform the peanuts into peanut butter, it merely snatched up Argentina’s peanut quota that may have otherwise been used by a domestic peanut butter manufacturer. According to USDA economists, this was “a very profitable transaction – so profitable that such trades have ignited a minor trade dispute between the United States and Argentina.” (See Skully, David. 1999. “U.S. Tariff-Rate Quotas for Peanuts.” Oil Crops Situation and Outlook Yearbook, U.S. Department of Agriculture, Economic Research Service, Market and Trade Economics Division. October (OCS-1999) pp. 45-53 at 49.)
USDA’s Import Licensing
USDA has mitigated the problems of traders gobbling up quota by licensing domestic manufacturers as the only eligible importers.
The Commerce Department should look to 7 C.F.R. Part 6 as a terrific example of how USDA has ensured that quota allocation benefits domestic manufacturers, not speculators.
Start with the threshold requirement. To obtain a license to import dairy (aside from cheese), per § 6.27, the applicant must be “[t]he owner or operator of a plant listed in the most current issue of “Dairy Plants Surveyed and Approved for USDA Grading Service” and ha[ve] manufactured, processed or packaged at least 450,000 kilograms of dairy products in its own plant in the United States”.
These licenses are necessary to import in-quota covered goods. Anyone can still import without a license, but they pay the higher, “over-quota” rate, which in agriculture is often prohibitive (not a measly 25%).
USDA’s regulations also ban manufacturers from importing for speculation. Per § 6.27, “Limitations on use of license”.
(a) A licensee shall not obtain or use a license for speculation, brokering, or offering for sale, or permit any other person to use the license for profit.
(b) A licensee who is eligible as a manufacturer or processor, pursuant to § 6.23, shall process at least 75 percent of its licensed imports in such person’s own facilities and maintain the records necessary to so substantiate.
USDA’s licensing approach to managing imports reflects principles desperately needed across Section 232 tariff actions:
The Coalition for a Prosperous America has detailed how the sugar model could be used to manage imports subject to the Pharmaceutical 232 action.
Aluminum Association Lobbied For Import Licensing To Deal With Overly Generous Quota
Prior to February 2025, the steel and aluminum tariff actions were subject to scores of blanket product exclusions, as well as country-wide exemptions.
The aluminum supply chain has long been susceptible to market manipulation. Throughout the Obama Administration, Wall Street banks artificially inflated aluminum prices by way of jamming up warehouse wait times.
The United States is woefully import reliant on primary aluminum, so imports are a necessity, and a quota is a sensible tool to ensure sufficient primary aluminum supply while also giving domestic smelters certainty as to the size of the domestic market. However, when authorizing in-quota primary aluminum shipments, why not ensure that the billets will go to manufacturers, as opposed to Wall Street owned warehouses?
That was the request of the Aluminum Association in the group’s Trade Policy Framework proposal:
Commerce dipping its toes, but improvement needed
The Biden Administration’s Commerce Department did not heed that advocacy.
But, in the new Trump Administration, Commerce has started moving in this direction via the Automotive 232 action. The Auto 232 framework imposes tariffs on automobiles and parts—but it also authorizes tariff refunds for automakers assembling vehicles in the United States.
To be clear, this isn’t a quota system, it’s a subsidy for purchasing imports. Under the Auto 232 framework, automakers can receive an “import adjustment offset amount” (a credit) calculated from the value of vehicles they assemble here, and it restricts use of that credit to importers of record authorized by that automaker.
The credit is complicated, and The Automotive 232’s failure to adopt a protective over-quota tariff is a fatal flaw. A 27.5% tariff (2.5% MFN plus 25% Section 232 tariff) will not stop car imports. And worse yet, Europe, Korea, and Japan have been authorized unlimited vehicle imports into the United States at a mere 15% tariff. And especially relevant for our purposes, the United States has ample domestic capacity for many vehicle parts for which a rebate is available, which represents the tired-old sacrificing of smaller domestic producers for the benefit of the most powerful OEMs.
So, while the Automotive 232 can be described as “problematic” to say the least, it is an example of limiting tariff-relief to real manufacturers, not traders. As Commerce goes forward, rather than reinventing the wheel, it should look to USDA’s approach to import management.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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