| Free trade is an often misunderstood and polarizing | | | | highest corporate sales tax in the world. These things |
| subject. In my musings with everyday folks to | | | | tilt the scales and often make it more profitable to do |
| academics it is shocking how confused the subject | | | | business overseas. Many people like to spout the |
| can become. Speaking in generalities, most Americans | | | | mantra "Buy American" but in a global economy this is |
| want a healthy, robust economy here in the United | | | | often difficult to do and racked with confusion. Toyota |
| States. That is what I want and that is why I am an | | | | has three of the top ten most American vehicles. |
| avid supporter of free trade. This is why the issue of | | | | Saying "Buy American" doesn't hold much weight |
| shipping jobs overseas has particular importance to | | | | unless you talk with your wallet. People act in a fashion |
| me. In my experience most people see shipping jobs | | | | that gives the most bang for their buck. That is why |
| overseas and the decline of American manufacturing | | | | we get cheap clothing and electronics from overseas. |
| as an unequivocally bad development. Avid supporters | | | | Buying American is great as long as the price makes |
| of free trade often take a negative stance towards | | | | sense. When the price doesn't make sense, it can hurt |
| businesses who shift operations overseas. This line of | | | | the economy and cost us jobs. I know this sounds |
| thinking is simply wrong. If this sounds crazy or offends | | | | scary and goes against what some of you might feel |
| you then that is exactly why you need to read on and | | | | in your heart but it's true. When you spend inefficiently |
| gain some perspective. I want jobs in the United States | | | | and buy American products that cost more than |
| and I want people and businesses to prosper and | | | | equivalent foreign products, the difference in price is |
| flourish but demonizing businesses for making shrewd | | | | money that would have been spent in another part of |
| decisions to stay competitive is pointing the finger at | | | | the economy. If you spend $100 more on an American |
| the wrong party. The problem isn't the business that | | | | bed than you would have spent at IKEA, that is $100 |
| "ships jobs overseas," it is the policies that make the | | | | taken from another part of the economy. The |
| business "ship jobs overseas." | | | | aggregate effect of this mentality could cost American |
| To illustrate the point I would like to talk about the | | | | salesmen jobs or American distributors. This is just like |
| sugar industry in the United States. Beginning in 1816 the | | | | spending more on sugar to prop up American sugar |
| United States implemented tariffs on sugar imports. | | | | growers while costing thousands of jobs in the food |
| These were designed to placate the newly acquired | | | | manufacturing industry in America. |
| Louisiana territory and their sugar plantation owners. | | | | It is misguided to blame companies for making tough |
| These tariffs were intended to protect the sugar | | | | decisions to stay competitive. If an American |
| industry in the United States and provide incentive to | | | | manufacturer decides to keep jobs in the U.S. when it |
| buy American sugar. In 1934 the government | | | | is more efficient to outsource their jobs, they become |
| implemented import quotas to complement the tariffs | | | | less competitive. That means their prices will likely be |
| and funnel subsidies to American sugar growers. For | | | | higher. Their profits will be lower which means they |
| almost two hundred years these policies have | | | | have less money to expand or invest in research and |
| protected sugar growers in the United States but this | | | | development. If they cannot stay competitive then they |
| encroachment on free trade has not come without its | | | | will likely go under costing all of their jobs rather than |
| costs. | | | | just jobs they would have sent overseas. These are |
| For 59 of the last 60 years sugar prices have been | | | | all things that need to be considered in free trade. |
| equal to or higher than the world market price. At one | | | | Tariffs and subsidies cause distortions in the market |
| point sugar in the US sold for 21 cents per pound when | | | | where the negatives often outweigh the positives. |
| the world market price was 3 cents per pound. Every | | | | Forcing "Buy American" policies when the price doesn't |
| cent the price of sugar goes up costs the US | | | | makes sense may prop up one industry but at a cost |
| economy between $250 million and $300 million to | | | | to other industries and we often forget that. |
| consumers. A commerce department study estimated | | | | Free trade works but we can't pick and choose what |
| this costs consumers more than $3 billion dollars a | | | | kinds of free trade we like. When companies move |
| year in the United States. In 2002 Kraft moved its | | | | overseas we need to stop blaming the companies and |
| Lifesaver factory to Canada. In 2004 Brach's moved | | | | look at the policies that push them to do it. We can't |
| its candy production to Mexico. Hershey Foods shut | | | | pretend that shipping jobs overseas has only one |
| down operations in Pennsylvania, Colorado, and | | | | effect that is negative or that usurping free trade to |
| California and relocated them in Canada. Chicago, | | | | keep certain jobs here doesn't have negative effects. |
| once the candy manufacturing capital of the U.S. has | | | | Companies don't ship jobs overseas to satisfy some |
| lost thousands of jobs. In 1984 both Coke and Pepsi | | | | insatiable greed, they do it to survive in a competitive |
| stopped using sugar in their products and switched to | | | | world market. It gives us low prices so our dollar goes |
| high fructose corn syrup causing a drop in sugar | | | | further and our quality of life is higher. If we want |
| consumption in the U.S. of 500,000 tons per year. Since | | | | manufacturing in America we need to address the |
| then a slew of manufacturers have made the switch | | | | reasons why businesses outsource manufacturing. |
| to high fructose corn syrup. In 2006, a Commerce | | | | We need to address things like our corporate tax rate, |
| Department study concluded that for each sugar | | | | minimum wage, tariffs, and import quotas. Free trade is |
| industry job saved nearly three food manufacturing | | | | an amazing way to allocate funds efficiently for a |
| jobs were lost. | | | | maximum benefit to society. When we see things |
| When businesses pull the trigger and move operations | | | | happening in the economy we don't like you are likely |
| overseas we need to have a deeper understanding of | | | | to find that the source is a policy that hampers free |
| why they are moving business overseas. In a previous | | | | trade rather than free trade itself. Get rid of the sugar |
| article I spoke of our minimum wage that raises the | | | | program and we will see more jobs in America. |
| cost of labor. The United States also has the second | | | | |