Presidential candidates are bemoaning the loss of jobs in producing Oreo cookies in Chicago. Mondelez International, which produces Oreos here, plans to move 600 jobs from Chicago to Mexico. Political leaders in Chicago have voiced their concerns about such losses over a longer period of time.
Although Chicago still has a significant presence in the confectionery industry, it has lost about two-thirds of its jobs in candy production and the like over time. Chicago use to produce one-third of the candy in the United States with over 25,000 workers.
At one point, Brach confections, which was founded in Chicago in 1904, employed 4,500 workers. In 2003, it closed its plant here and moved to Mexico. Our nation’s losses in this industry are partly a result of our international trade policies — not the signing of trade treaties or agreements, but our own unilateral protection of the domestic sugar industry.
Since 1981, the United States has protected the sugar industry. This has kept the domestic price of sugar at about twice the world price. Thus, it has become cheaper to produce candy and cookies in countries such as Mexico and Canada. Cheaper labor makes Mexico even more attractive.
Support for such policies is bipartisan, running from Republican Sen. Marco Rubio, who represents sugar cane growers in Florida, to Democratic Sen. Al Franken, who represents sugar beet growers In Minnesota. Both American consumers and (arguably) workers are hurt by such actions. The Wall Street Journal estimates that for every job that is saved in sugar production in the United States, three jobs are lost in manufacturing.
The Chicago confectionery industry experience suggests that protectionist trade policies can have a negative effect on the economy and jobs. Other industries in Chicago and downstate Illinois could be hurt by similar policies. In particular, agricultural exports from Illinois to China have increased by more than 300 percent since 2000. Overall, Illinois is one of the top five states exporting to China.
Restrictions on imports from China could adversely affect the ability of Illinois farmers and manufacturers to export to China.
Similarly, exports to Mexico have increased by more than 400 percent since passage of the North American Free Trade Agreement in 1994. Canada and Mexico are the largest export markets for Illinois goods. In the last decade, exports to Mexico from Illinois have more than doubled.
The point is that there are not only costs from freer trade, but benefits as well. A basic principle of economics is that increases in trade make countries richer on average and that the net effect on employment is close to zero. The problem is that some workers lose their jobs. This is contributing to domestic and global inequality.
The issue is complex. For example, the decline in manufacturing jobs in old rust belt cities like Chicago is as much tied to improvements in technology as it is to trade. In fact, manufacturing output has increased over time as jobs in this sector have declined.
These experiences are not unlike what has happened in agricultural in the U.S. If one goes back in time, a very high percentage of workers were in this sector of the economy. Today, fewer than 2 percent of workers produce most of our food and a significant amount of food for the rest of the world. This is a result of improvements in technology.
On the other hand, the decline in employment in the U.S. apparel industry is more the result of cheaper labor abroad. Employment in this industry has dropped from almost 900,000 jobs in 1990 to a little over 100,000 today.
Our next president will face these same economic and political dilemmas. Trying to turn back the clock will be a road of empty promises and further disappointment. A key issue going forward is how workers might be helped to cope with on-going changes in the economy.
William Sander is a professor of economics at DePaul University in Chicago.
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