America’s protectionist policies send production and jobs overseas and damage the US economy

American Enterprise Institute ^ | 10/21/13 | Mark J. Perry

[BfloGuy]

America’s long-standing protectionist farm policies protect inefficient domestic sugar beet growers from more efficient foreign competition, which have driven up average wholesale sugar prices in the US to twice the world price: 29 cents per pound on average in the US vs. 14.6 cents in the world market since 1982 (see chart above, data here). And as a result, US manufacturers of products with high sugar content have increasingly moved their production overseas to avoid America’s artificially high sugar prices and take advantage of the lower world price for their main input.

Predictably, our protectionist trade and agricultural policies reap generous benefits on one very small special interest group – US sugar beet farmers – but that comes at a dear price – the loss of thousands of US jobs in sugar-using industries, higher sugar prices for hundreds of millions of Americans, and the loss of thousands of jobs in unseen industries that would have prospered if consumers hadn’t spent so much of their income on artificially high prices for sugar-containing products.

For example, an article on the front page of the WSJ today reports that “Cheaper Sugar Sends Candy Makers Abroad“:

Despite a prolonged slide in domestic sugar prices, U.S. candy makers are expanding production in other countries as federal price supports and a global glut of the sweet stuff give an ever-greater advantage to foreign rivals. A 50% drop in U.S. sugar prices in the last two years hasn’t been enough to eliminate problems from a longtime price gap between domestic and foreign sugar. On Friday, the U.S. sugar contract in the futures market settled at 22.28 cents a pound, or 14% higher than the benchmark global price.

U.S. prices can’t fall much lower because of a federal government program that guarantees sugar processors a minimum price. The rest of the world also has a surfeit of sugar, but fewer price restrictions, and big growers like Brazil are expecting a record crop for the current season.

The squeeze explains why Atkinson Candy Co. has moved 80% of its peppermint candy production to a factory in Guatemala that opened in 2010. That means it can sell bite-size Mint Twists to retailers for 10% to 20% less. “It wasn’t like we did it for profit reasons. We did it for survival reasons,” said Eric Atkinson, president of the family-owned candy maker, based in Lufkin, Texas. “These are 60 jobs down there…that could be in the U.S.,” he added. “It’s a damn shame.”

MP: This example also helps illustrate a point made by Don Boudreaux recently about the minimum wage lawunfair government practice of forcing many unskilled and low-skilled workers to remain unemployed, as I reported on CD, and summarize again here using the sugar example above.

Most people, even proponents of the minimum wageunfair government practice of forcing many unskilled and low-skilled workers to remain unemployed, readily understand that profit-seeking American firms producing candy and other products with high sugar content, whose main cost of production is sugar, will seek to minimize their cost of production, which frequently involves moving or outsourcing the production of candy to other countries where sugar costs are lower than in America. But then some of those same people suddenly suffer from “economic amnesia” and assume those same profit-seeking firms become suddenly completely indifferent to the costs of labor in America, and make no adjustments when faced with an increase in the minimum wageunfair government practice of forcing many unskilled and low-skilled workers to remain unemployed?

[BfloGuy]

The mercantilists amongst us should be out soon proclaiming how tariffs and trade barriers will make us more prosperous.

[Uncle Miltie]

Now here’s something you’re welcome to be upset about!

[ScottfromNJ]

“The mercantilists amongst us should be out soon proclaiming how tariffs and trade barriers will make us more prosperous.”

As they also wonder how the lack of even handed tariff and trade policies that allow an American automobile to sell for 3-4 times higher in China for example is supposed to makes us more prosperous.

[Colonel Kangaroo]

Everything comes at a cost, even the prosperity arising from free trade. Maximizing consumption needs to be balanced with the security afforded by a protected manufacturing base and industrial workforce. The debate tends toward absolutist arguments, but a prudent middle ground might be best.

[Soul of the South]

“Everything comes at a cost, even the prosperity arising from free trade. Maximizing consumption needs to be balanced with the security afforded by a protected manufacturing base and industrial workforce. The debate tends toward absolutist arguments, but a prudent middle ground might be best.”

A middle ground would be to return to the tariff and trade policies in effect during the Ronald Reagan administration when the US had a robust manufacturing sector and thriving middle class.

For those who believe a mercantilist trade policy cannot lead to prosperity I submit:

1) China since the 1980’s.
2) The United States from 1865 to 1929.

[Cringing Negativism Network]

China is not a free market.

China is an EXPORTING market, virtually closed to outside competition.

We need American jobs. Now.

Bring back American jobs.

[Uncle Miltie]

Bring back American candy manufacturing jobs!

End Big Sugar Protectionism!

[Colonel Kangaroo]

An argument can be made that a fanatical attachment to pure free trade proved fatal to the British Empire. A commonsense use of industrial protection isn’t mindless self-destructive autarchy no matter what the ivory tower economist apostles of the One World economy might charge.

[BfloGuy]

Maximizing consumption needs to be balanced with the security afforded by a protected manufacturing base

To start with, I don't believe in maximizing consumption. Left up to me, we would maximize savings. Nonetheless, the protection you write about invariably consists in favors to well-connected industrialists.

In other words, the crony-capitalism we're all so used to.

[BfloGuy]

As they also wonder how the lack of even handed tariff and trade policies that allow an American automobile to sell for 3-4 times higher in China for example is supposed to makes us more prosperous.

It won't! Putting tariffs on Chinese goods won't, either! That will just burden American consumers with higher prices.

The only way we become prosperous is to create an economic climate which rewards the successful investment of capital. Until we have that, nothing will make us prosperous -- especially not your blessed protectionism.