Free trade is an often misunderstood and polarizing issue. In my reflections with ordinary people and academics, it is shocking how confusing the subject can become. Generally speaking, most Americans want a healthy and robust economy here in the United States. That is what I want and that is why I am an ardent supporter of free trade. This is why the topic of sending jobs abroad is of particular importance to me. In my experience, most people see overseas shipping jobs and the decline of American manufacturing as an unequivocally bad development. Avid supporters of free trade often take a negative stance toward companies that move their operations abroad. This line of thinking is simply wrong. If this sounds crazy or offends you, then that’s exactly why you need to read on and get some perspective. I want jobs in America and I want people and businesses to thrive and flourish, but demonizing businesses for making smart decisions to stay competitive is pointing the finger at the wrong party. The problem is not the business that “sends jobs abroad,” but the policies that make the business “send jobs abroad.”
To illustrate the point I would like to talk about the sugar industry in the United States. Beginning in 1816, the United States implemented tariffs on sugar imports. These were designed to locate the newly acquired Louisiana Territory and its sugar plantation owners. These tariffs were intended to protect the sugar industry in the United States and provide an incentive to buy American sugar. In 1934, the government implemented import quotas to supplement tariffs and channel subsidies to American sugar growers. For nearly a hundred years, these policies have protected sugar farmers in the United States, but this encroachment on free trade has come at a cost.
For 59 of the last 60 years, sugar prices have been equal to or higher than the world market price. At one point, sugar in the US was selling for 21 cents a pound when the world market price was 3 cents a pound. Every penny that goes up in the price of sugar costs the US economy between $250 million and $300 million for consumers. A Commerce Department study estimated that this costs consumers more than $3 billion a year in the United States. In 2002, Kraft moved its Lifesaver factory to Canada. In 2004, Brach’s moved its candy production to Mexico. Hershey Foods closed its operations in Pennsylvania, Colorado and California and relocated them to Canada. Chicago, once the candy-making capital of the US, has lost thousands of jobs. In 1984, both Coca-Cola and Pepsi stopped using sugar in their products and switched to high-fructose corn syrup, causing US sugar consumption to drop by 500,000 tons per year . Since then, a large number of manufacturers have switched to high fructose corn syrup. In 2006, a Commerce Department study found that for every job saved in the sugar industry, almost three jobs were lost in food manufacturing.
When companies pull the trigger and move their operations abroad, we need to have a deeper understanding of why they are moving business abroad. In a previous article I talked about our minimum wage that raises the cost of labor. The United States also has the second highest corporate sales tax in the world. These things tip the balance and often make it more profitable to do business abroad. Many people like to spout the “Buy American” mantra, but in a global economy this is often difficult to do and plagued by confusion. Toyota has three of the top ten most American vehicles. Saying “Buy American” doesn’t carry much weight unless you’re talking to your wallet. People act in a way that gives the maximum return on their investment. That’s why we source cheap clothing and electronics from abroad.
Buying American is great as long as the price makes sense. When the price doesn’t make sense, it can hurt the economy and cost us jobs. I know this sounds scary and goes against what some of you may feel in your heart, but it is true. When you spend inefficiently and buy American products that cost more than equivalent foreign products, the price difference is money that would have been spent elsewhere in the economy. If you spend $100 more on an American bed than you would have spent at IKEA, that’s $100 taken from another part of the economy. The added effect of this mentality could cost US sellers or US distributors jobs. This is like spending more on sugar to prop up American sugar farmers while costing thousands of jobs in America’s food manufacturing industry.
It is a mistake to blame companies for making difficult decisions to remain competitive. If a US manufacturer decides to keep their jobs in the US when it is more efficient to outsource their jobs, they become less competitive. That means their prices will likely be higher. Their profits will be lower, which means they will have less money to expand or invest in research and development. If they can’t stay competitive, they are likely to lose the cost of all their jobs instead of just the jobs they would have shipped overseas. These are all things that need to be taken into account in free trade. Tariffs and subsidies cause market distortions where the negatives often outweigh the positives. Forcing “Buy American” policies when the price doesn’t make sense can prop up an industry, but at the cost of other industries, and we often forget that.
Free trade works, but we can’t choose what kind of free trade we like. When companies move abroad, we need to stop blaming the companies and look at the policies that drive them to do so. We cannot pretend that sending jobs abroad has a single negative effect or that usurping free trade to keep certain jobs here has no negative effects. Companies don’t send jobs abroad to satisfy insatiable greed, they do so to survive in a competitive global market. It gives us low prices so that our dollar goes further and our quality of life is higher. If we want to manufacture in America, we need to address the reasons why companies outsource manufacturing. We need to address things like our corporate tax rate, minimum wage, tariffs, and import quotas. Free trade is an amazing way to efficiently allocate funds for the maximum benefit of society. When we see things happening in the economy that we don’t like, you’re likely to find that the source is a policy that hinders free trade rather than free trade itself. Get rid of the sugar program and we will see more jobs in America.