Does Free Trade Cost U.S. jobs? The Case Of Hersheys and NAFTA

There was a recent survey that asked the question: Does free trade create or cost US jobs? The response was surprising: 43% of those surveyed said that it created U.S. jobs while 43% said that it caused Americans to lose their jobs. I thought this question was already settled. We know that the Free Trade has lost US jobs, most of them well-paying. And this is the major reason why the United States middle-class working class has not received a raise in over 20 years.

So, why would 43% believe that Free-trade  created US jobs? For some of the population it is because they have no or little information about the problem. But it is, also, difficult to see the connection, because it is complicated. For instance, I could name hundreds of examples of companies eliminating  US jobs and relocating them to different countries, but people still can’t see the direct correlation to Free Trade.

I will make the case that Free Trade causes the loss of US jobs very simple. I will follow one Free-Trade rule and one US company to see the impact of US jobs. The Free-Trade rule is the North American Free Trade Act (NAFTA) which decreased import taxes between Canada and Mexico and the United States. NAFTA meant that goods coming from Mexico would be cheaper than they had been, and to take full advantage of this “loophole”, American companies started taking the traditional US jobs and moved them to other countries where the costs of doing business are lower.

The Free Trade Act

NAFTA became law on January 1, 1994. However, the elimination of tariffs was not complete until 10 years later which meant the following: THE LOSS OF US JOBS WOULD NOT BE DETECTED UNTIL AFTER 2004! (that is why you didn’t hear “the giant sucking sound” coming from Mexico right away.

The Company

The company that we are following is Hershey’s chocolate. In 1994, 100% of Hershey’s chocolate was made in USA or Canada. Once NAFTA went into effect in 2004, Hershey’s announced that it was cutting its US manufacturing chocolate to 80% by 2010 (1). This was followed by a slew of US chocolate plant closings: Reading, Pennsylvania(2) – loss of 160 jobs in 2007; Naugatuck, CT(3), loss of 150 jobs, closed 11/16/07; Oakdale, CA(4) , loss of 575 jobs, closed on 2/1/08; Smiths Falls Ontario, Canada(5), loss of 400 jobs (in a town of 9,000)  2008; Hershey, PA(6), the original 1903 East plant, loss of 600 jobs, closed 04/27/2012. And to add insult to injury, Hershey opened its brand new $800 Million plant in Monterrey, Mexico in 2009 with a workforce of 1300 employees(7).

The Original 1903 Hershey's East Plant being torn down on 11/05/2012

The Original 1903 Hershey’s East Plant being torn down on 11/05/2012

Does Hershey’s Still Make Chocolate in the USA?

Hershey’s does still make chocolate in the USA(8). Hershey’s did expand their West Plant in Hershey Pennsylvania in 2012 and still makes Hershey’s Kisses. The West Plant employs about 1,000 people. There are other Hershey’s chocolate owned plants across the United States although none of the products have the label “Hersheys”. The other factories: Ashland Oregon makes Scharffenberger Premium chocolate and Dagoba Organic  (purchased the company in 2005); Robinson Illinois makes Heath bars (purchased in 1986); Hazelton, PA makes Kitkat (contracted with Nestle), Cadbury (contracted with Kraft, 2010) and Cadbury Caramello; Stuart’s Draft, Virginia makes products with peanuts; Lancaster, Pennsylvania makes Twizzlers (purchased in 1977) and Memphis, Tennessee makes mints, licorice and Icebreakers (purchased in 2000 and 2011).

hershey bar

However, their main production plants are outside of the United States. The best known is Monterrey, Mexico. All the above US plant closing were done to move their production to Monterrey, Mexico to take advantage of the NAFTA rules. The Hershey CEO, Richard Lenny said in 2010, that the move to Mexico, would save the shareholders $190 million dollars(9). I had also heard that the Hershey’s CEO gets $4.7 million in salary although I can not substantiate that. Since that time, Hersheys has taken advantage of other Free Trade Rules (namely The World Trade Organization) and has expanded well abroad – China, Brazil, India and Malaysia).

Hershey’s Chocolate Manufacturing Plants Outside of the USA (alphabetic by country)

  1. Sao Paulo, Brazil
  2. Sao Rogue, Brazil
  3. Shanghai, China
  4. Yudond, China
  5. Zhoukou, China
  6. Inner Mongolia, China
  7. Mandideep Madhya Pradesh, India
  8. Juhor, Malaysia (2nd largest)
  9. El Salto, Mexico
  10. Monterrey, Mexico
Hershey's Monterrey Mexico Factory opened in 2009, 1300 employees

Hershey’s Monterrey Mexico Factory opened in 2009, 1300 employees

Can You Taste The Difference Between Mexican Made and US Made Hershey’s Chocolate?

There was a great blog entry that looked at exactly this subject. The blog is called the candyblog. What they did is they looked at some of the Mexican made Hershey’s chocolate: Milk Chocolate miniatures, Special Dark, Krackel, and Mr. Goodbar and compared them to the original American made. The result, not much difference. The reader’s comments, however, were pretty unanimous in condemning Hershey’s for outsourcing US jobs.

The Final Cost of Offshoring US jobs by Hersheys

We know that 1,500 manufacturing jobs in the United States were eliminated by Hersheys, because it is well documented. And Hershey’s did it simply to make more money, even though they knew it was creating a hardship to lots of small town workers. The number of American manufacturing jobs lost by offshoring of Hershey’s may seem small (especially if you are a Wall Street analyst), because it only looks at manufacturing jobs. It does not include associated jobs. Associated jobs are the ones directly related to the manufacturing like marketing, packaging, distribution, administrative, etc.

But, also indirectly- associated effects need to be considered.  These include other business’ loss of income (and other loss of jobs) that are directly related due to the loss of these manufacturing jobs. This would include just about everything in the neighborhood or town, especially in these small towns like Oakdale, CA loss of 575 jobs in a town of 15,000, or Smiths Town, Ontario, loss of 400 jobs in a town of 9,000. For these small towns, more than 40% of that town’s population is affected – this all creates problems with: real estate prices, auto sales, downtown businesses, bars, restaurants, insurance agents, grocery stores, home improvement, doctors, lawyers, schools, Little League, town income, etc.

Don’t forget that Free Trade has had much wider implications for the US economy in general. The below is just one of them – Trade deficit. For more  reasons, see my entry: Why Free Trade is Devastating to the USA?

US Trade Deficit After Free Trade Started

US Trade Deficit After Free Trade Started

Final Message

Not only are all these U.S. Hersheys’ manufacturing jobs and associated jobs gone forever, but all future expansion will be made outside of the country. A message for all the Free Trade economists, your formulas always forget to put in a variable – that there is a finite number of good paying jobs in the world (just like there is a finite amount of resources). This, in essence, means that any expansion outside of the United States comes at the expense of the United States. Buy American, support businesses that hire American workers.

Hersheys’ References

  1. FinanzNachrichten.de25.04.2007 Hershey to Close Plant in Conn.
  2. Lancaster Online April 24, 2007 Hershey to Close Reading Plant
  3. Newstimes.com April 24,2007 Hershey Co. to Close Peter Paul Plant in Naugatuck.
  4. San Diego Union Tribune.com July 13, 2008 Town Draws Candy Maker After Hershey Plant Closes.
  5. CBC News Ottawa Feb 22, 2007 Hershey Confirms Smiths Falls Plant will close.
  6. NPR.org Oct. 6, 2010 Original Hershey Chocolate Factory Set to Close.
  7. Pennlive.com April 30, 2009 Hershey Co. monitors Swine Flu’s impact on Mexico plant; declares products safe.
  8. The Hershey Company.com This is Hershey – Global Locations
  9. Truth or Fiction.com/hershey.

1 Response to “Does Free Trade Cost U.S. jobs? The Case Of Hersheys and NAFTA”

  1. May 8, 2016 at 5:05 pm

    I love my Cadbury chocolate. Now that Hershey is made out side of the US, it’s just not worth it.
    When we were kids, imported used to be something special. Now it just means more unemployment.

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