The Unintended Environmental Consequences of Managed Trade: Evidence from U.S.-Mexico Sugar Suspension Agreement

Managed trade policies are widely used in agricultural markets and have attracted renewed attention amid rising trade protectionism, yet their environmental consequences remain poorly understood. Managed trade policies, which refer to government interventions that utilize quantitative trade restrictions to achieve specific, measurable outcomes, have garnered significant recent attention. While such policies have long been used in agricultural and food markets to support commodity prices and shield domestic producers from international competition, the empirical evidence on their environmental consequences is notably limited, especially within the context of agricultural commodities in developed economies. Using the 2014 U.S.–Mexico Suspension Agreement as a quasi-experiment, this paper presents the first empirical study to quantify the causal environmental consequences of shifting from free trade to a managed trade agreement. Exploiting agronomic constraints that tie sugarcane production to sugar mill proximity, we employ a spatial difference-in-differences design with high-resolution remote sensing data on agricultural fires and land use. There are three primary findings. First, we document an approximately 15% increase in agricultural fires in treated fields three years later, with effects varying by exposure intensity. Second, results show substantial spatial and temporal heterogeneity. The increase in fire activity only significantly happen in Louisiana and is concentrated in the early harvest window. Third, the surge primarily driven by land-use conversion rather than intensified burning on existing sugarcane fields. A back-of-the-envelope calculation suggests that these effects translate into approximately $238 million in annual environmental costs, reflecting increased smoke-related mortality and wetland ecosystem loss.