A confusing article in the New York Times discusses a possible tomato trade war with Mexico. First, it says:

The United States Department of Commerce signaled then that it might be willing to end a 16-year-old agreement between the United States and some Mexican growers that has kept the price of Mexican tomatoes relatively low for American consumers. American tomato growers say the price has been so low that they can barely compete.

Later, the article adds more detail:

As part of a complex arrangement dating to 1996, the United States has established a minimum price at which Mexican tomatoes can enter the American market. Over the years, Florida’s tomato sales have dropped as low as $250 million annually, from as much as $500 million, according to Reggie Brown, executive vice president of the Florida Tomato Exchange, which has led the push to rescind the agreement. The state is the country’s largest producer of fresh market tomatoes, followed by California.

In the meantime, Bruno Ferrari, the economy minister of Mexico, said the value of Mexico’s tomato exports to the United States had more than tripled to $1.8 billion since the agreement was signed, and the tomato industry there supports 350,000 jobs.

Note the agreement established a MINIMUM price.  If the agreement is dropped, then prices can go down further. In this interpretation, the agreement has not “kept the price of Mexican tomatoes relatively low for American consumers”.  It has kept them high.  This is probably good for Mexican farmers because it moves prices away from perfect competition and towards the monopoly price.  It is also good for Florida producers who are competing with more expensive Mexican tomatoes.  Obviously, it is bad for American consumers.  Overall, we should expect both Mexican and Floridian (?) producers to oppose the end of this agreement.

If the agreement is being dropped to be replaced by free trade, it seems I will be buying cheaper tomatoes.

But, finally the article says:

The agreement, which has been amended since it was struck, sets the floor price for Mexican tomatoes at 17 cents a pound in the summer and 21.6 cents in the winter. American growers say they cannot compete at that price.

So, really what is on the cards is even higher minimum prices.  This could still be good for Mexican growers as it should raise prices even more towards the monopoly price.  But the problem is that more Florida farmers could then afford to grow and sell tomatoes.  Then, the rationing rule that determines who makes the sale becomes important.  If domestic growers are favored disproportionately, Mexican farmers will suffer.  And I will be buying more expensive tomatoes or growing my own.

There should be some diagram that illustrates this so we can all use it in our Micro classes.

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