Monday, May 11, 2009

Don't Blame "Free Trade" for Losses of Sweet Jobs in Hershey, PA: Blame Sour Sugar Policy

As a campaign-season article by Max Deveson for the BBC pointed out, unionized workers in Hershey, Pennsylvania blame free trade for the potential relocation of hundreds of jobs from dear sweet Hershey to Mexico. Their claim is that trade deals like NAFTA make it impossible for American workers to compete with cheap foreign labor.

Now, I am no apologist for massive, complicated, rent-seeking alleged "free trade" deals like NAFTA. In fact, I am quite sympathetic to arguments made by Joseph Stiglitz in Fair Trade for All that when the West brokers so-called "free trade" deals, they deliberately slant the global table to make things better for themselves, under the guise of helping the global poor.

After all, our American 50 states have had truly free trade among them since the beginning, given the traditional interpretation of the Constitution's commerce clause. That is why we don't see Arkansas erecting trade barriers against Michigan, for example. And that freedom to trade among all our citizens has led to rapid increases in the quality of life for all Americans--regardless of which specific state they happen to call home. So we have bona fide free trade among our 50 states, it has led to amazing long-term growth, and it has all happened with just a few words included in the constitution--not some massive, bloated piece of legislation that's enormous because of all the rent-seeking attempts of those who might stand to benefit.

But the BBC article overlooks something very important. While the Chocolate Workers union was quick to blame free trade for US job losses in the confectionary industry during the last election cycle, that blame is misplaced. In fact, a more serious threat stems from a US policy designed to protect jobs for Americans: sugar price supports.

Federal legislation designed to protect the jobs of US sugar growers--mostly cane growers in Florida and beet growers in Michigan--keeps the price that we all pay for sugar in the US market artificially above the price at which sugar trades in global markets. So US consumers pay higher prices for sugar at the grocery, and confectioners pay a premium price for a key input (meaning higher candy prices for you and me)--all in an effort to make sure US demanders keep buying sugar from relatively wealthy US growers, rather than from poorer international growers.

But like most policy changes, sugar price supports deliver unintended consequences. For example, according to an article from the Atlanta Journal-Constitution,

Between 1997 and 2002, nearly 10,000 American jobs were cut as U.S. manufacturers such as Hershey's relocated their plants to Canada and Mexico, where they can tap into world sugar prices.

The U.S. Department of Commerce estimated in 2006 that for each job growing and harvesting sugar that was saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs were lost (bold and italics added for emphasis).

We tasted the bitter end of the sugar price program right here in West Michigan a few years ago. Kraft Foods, parent company of Life Savers candy, suspended US production of Life Savers and consolidated all operations in Canada, where it could pay the lower world price for its main ingredient. So the Holland, Michigan facility closed its doors after 35 years of operation, and put 600 or so local residents out of work. You can read detailed coverage from the Michigan Daily, as well as a repost of a feature from the Los Angeles Times.

So rather than blame free trade for job losses in Hershey, perhaps the protectionist sugar price support program is the real culprit.

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