Mish's Global Economic Trend Analysis

Sweet Deals and Cookie Crumbles; Sugar, Sugar

Posted: 22 Aug 2015 07:24 PM PDT

Nearly every week I receive emails from readers asking me to explain my stance against tariffs. The typical claim I hear is that we need tariffs to preserve jobs.

I respond that tariffs don't protect jobs, they cost jobs. Take steel for example.

Yes, tariffs will save a few hundred or a few thousand steel manufacturing jobs.

But at what cost?

US car manufacturers have to pay more for steel as do US manufacturers of any product that contains steel. And consumers have to pay more.

That's money consumers would otherwise spend elsewhere but cannot.

Get Me the Hell Out of Here

I recently spoke of manufacturing leaving Chicago. Indeed, six corporations fled in July, and another business did so in August. I mentioned the companies in my August 13 post Get Me the Hell Out of Here.

One of the companies that fled Illinois was Mondelez International, maker of Oreo Cookies. Back in May, WGN noted Oreos Maker to Decide between Chicago, Mexico for New Investment.

Chicago is competing with Mexico to land a plant that makes Oreos and Chips Ahoy cookies.

Mondelez International Plans to invest $130 million to put up four new manufacturing lines that would make Nabisco cookies and crackers.

The company is starting talks with its labor unions here in Chicago and says it will base its decision on a variety of factors.

The company's plant at 73rd and Kedzie has more than 1,000 union members.

Chicago Unions, Illinois Taxes, Sugar

Dealing with Chicago unions and Illinois taxes is bad enough. The decision to leave Chicago was sound enough on that basis alone.

And poof ... 600 to 1,000 jobs will vanish.

There is another aspect of the deal that has not been discussed much: sugar tariffs

How the Cookie Crumbles

Please consider How US Sugar Policies Just Helped America Lose 600 Jobs.

The manufacturer of Oreo cookies recently announced plans to move production of Oreos from Chicago to Mexico, resulting in a loss of 600 U.S. jobs.

This should be a wake-up call to defenders of the U.S. sugar program and other job-destroying trade barriers.

The leading ingredient in Oreos is sugar, and U.S. trade barriers currently require Americans to pay twice the average world prices for sugar.

Sugar-using industries now have a big incentive to relocate from the United States to countries where access to their primary ingredient is not restricted.

If the government wants people making Oreo cookies and similar products to keep their jobs, a logical starting point would be to eliminate the U.S. sugar program, including barriers to imported sugar.

This obvious connection between the lost jobs and sugar quotas was missed by many observers. According to one online comment: "This is why tariff[s] on products coming to U.S must be raised."

According to a 2006 report from the government's International Trade Administration: "Chicago, one of the largest U.S. cities for confectionery manufacturing, has lost nearly one-third of its SCP manufacturing jobs over the last 13 years. These losses are attributed, in part, to high U.S. sugar prices."

For example, The Bakery, Confectionery, Tobacco Workers and Grain Millers Union consistently has opposed free trade agreements with sugar-producing countries like Australia, Brazil, and Mexico—the kind of trade deals that just might protect their members' jobs.

Sweet Deals

As I have stated, tariffs costs jobs. Yet we hear asinine cries to "raise tariffs" to protect jobs.

Such sweet deals preserve a few jobs (in this case of overly expensive sugar production that is really far better suited to the tropics), at the huge expense of any manufacturer in the US that needs sugar.

Net-net sugar tariffs have cost the US countless jobs.

And in the sweet deal Obama worked out in the Trans-Pacific Partnership protects among other things sugar.

For details please

Mish's Proposed Free Trade Agreement

To call TPP a "free trade" agreement is ridiculous.

An excellent free trade agreement would consist of precisely one line of text. I propose "All tariffs and all government subsidies on all goods and services will be eliminated immediately."

Sugar vs. Sugar

Unlike oil, where there are differences between grades, sugar is pretty much sugar. But there are two futures prices. Sugar #11 (the global price), and sugar #16, the US price thanks to tariffs.

Sugar #11: $10.44
Sugar #16: $24.50

US sugar costs 135% more than other countries pay!

And economic fools, including unions, want more tariffs to "protect US jobs".

Sugar, Sugar

As some might have expected, I have a musical tribute to this madness.

Link if video does not play: Sugar, Sugar - Archies

Job Flight Out of Illinois

Finally, it's safe to say that inane policies cost Illinois those jobs. And it's equally safe to say they fled Illinois to Mexico rather than to another state because of inane tariffs.

High Fructose Corn Syrup

For icing in the cake, please note that sugar tariffs and corn support are behind the use of high fructose corn syrup in US manufactured candy, cookies, and crackers instead of sugar.

Still like them tariffs?

Mike "Mish" Shedlock

Don't Worry, IMF Says "Premature" to Speak of Chinese Crisis

Posted: 22 Aug 2015 10:40 AM PDT

Growth in China is slowing rapidly. How rapidly is a subject of much debate. Today, a senior IMF official says 'Premature' to Speak of Chinese Crisis.

China's economic slowdown and a sharp fall in its stock market herald not a crisis but a "necessary" adjustment for the world's second biggest economy, a senior International Monetary Fund official said on Saturday.

Fresh evidence of easing growth in China hammered global stock markets on Friday, driving Wall Street to its steepest one-day drop in nearly four years.

"Monetary policies have been very expansive in recent years and an adjustment is necessary," said Carlo Cottarelli, an IMF executive director representing countries such as Italy and Greece on its board.

"It's totally premature to speak of a crisis in China," he told a press conference.

He reiterated an IMF forecast for a 6.8 percent expansion in the Chinese economy this year, below the 7.4 percent growth achieved in 2014.

"China's real economy is slowing but it's perfectly natural that this should happen ... What happened in recent days is a shock on financial markets which is natural," he added.

China's stock markets have fallen more than 30 percent since mid-year. Following a slew of poor economic data, Beijing devalued the yuan in a surprise move last week.

Crisis Talk Premature?

Is crisis talk premature? The answer depends on what "crisis" means. It may depend on growth estimates as well.

While, I concur this is a "necessary" adjustment, necessary does not imply "no crisis". For example, the US housing crash was a necessary adjustment as well.

Another crash or lengthy correction in equities is coming as well. Does that constitute a crisis?

It certainly will to pension plans that are still hugely underwater despite the massive rally in equities globally.

And what about the IMF forecast for a 6.8 percent expansion in the Chinese economy this year? That estimate I believe we can all laugh at. Actually, nearly all IMF growth forecasts are laughable.

And no one, except apparently the IMF, remotely believes China's stated GDP numbers in recent years. Looking ahead, four percent or even two percent growth are more likely than 6.8 percent (no matter what numbers China officially says).

Would four percent growth constitute a crisis? Two percent?

It depends on your definition, but it will likely come with a very "necessary" (and steep) correction in global equities and junk bonds.

Don't Worry

But hey, don't worry yet. Wait until it's universally clear a crisis is underway. Then worry. That's the apparent message from the IMF.

Mike "Mish" Shedlock

Economy News

22.8.15

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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