comparative advantage without the creation of a new theoretical basis upon which to base the free trade doctrine.
Countries competing against one another in the same array of products and services is not covered by Ricardian trade theory.
Offshoring doesn’t fit the Ricardian or the competitive idea of free trade. In fact, offshoring is not trade.
Offshoring is the practice of a firm relocating its production of goods or services for its home market to a foreign country. When an American firm moves production offshore, US GDP declines by the amount of the offshored production, and foreign GDP increases by that amount. Employment and consumer income decline in the US and rise abroad. The US tax base shrinks, resulting in reductions in public services or in higher taxes or a switch from tax finance to bond finance and higher debt service cost.
When the offshored production comes back to the US to be marketed, the US trade deficit increases dollar for dollar. The trade deficit is financed by turning over to foreigners US assets and their future income streams. Profits, dividends, interest, capital gains, rents, and tolls from leased toll roads now flow from American pockets to foreign pockets, thus worsening the current account deficit as well.
Who benefits from these income losses suffered by Americans? Clearly, the beneficiary is the foreign country to which the production is moved. The other prominent beneficiaries are the shareholders and the executives of the companies that offshore production. The lower labor costs raise profits, the share price, and the “performance bonuses” of corporate management.
Offshoring’s proponents claim that the lost incomes from job losses are offset by benefits to consumers from lower prices. Allegedly, the harm done to those who lose their jobs is more than offset by the benefit consumers in general get from the alleged lower prices. Yet, proponents are unable to cite studies that support this claim. The claim is based on the unexamined assumption that offshoring is free trade and, thereby, mutually beneficial.
Proponents of jobs offshoring also claim that the Americans who are left unemployed soon find equal or better jobs. This claim is based on the assumption that the demand for labor ensures full employment, and that people whose jobs have been moved abroad can be retrained for new jobs that are equal to or better than the jobs that were lost.
This claim is false. Offshoring affects all tradable goods and services. The nonfarm payroll data collected by the US Bureau of Labor Statistics makes clear that in the 21st century the US economy has been able to create net new jobs only in nontradable domestic services. Such employment is lowly paid compared to high value-added manufacturing jobs and professional services such as engineering. (Tradable goods and services are those that can be exported or that are substitutes for imports. Nontradable goods and services are those that only have domestic markets and no import competition. For example, barbers and dentists offer nontradable services.)
Moreover, even domestic services, such as school teachers and nurses, which cannot be offshored, can, and are, being performed by foreigners brought in on work visas.
The growing number of displaced and discouraged unemployed Americans is an external cost inflicted by offshoring firms on the displaced workers themselves, on taxpayers who provide unemployment and welfare benefits, and on the viability of the American political and economic system. The costs inflicted on the economy, taxpayers, and the displaced workers far exceeds the benefits to a few corporate executives and shareholders. The imposition of external costs on society in order to reward a very few is a powerful indication of the failure of laissez faire capitalism.
Some offshoring apologists go so far as to imply, and others even to claim, that offshore outsourcing is offset by
Countries competing against one another in the same array of products and services is not covered by Ricardian trade theory.
Offshoring doesn’t fit the Ricardian or the competitive idea of free trade. In fact, offshoring is not trade.
Offshoring is the practice of a firm relocating its production of goods or services for its home market to a foreign country. When an American firm moves production offshore, US GDP declines by the amount of the offshored production, and foreign GDP increases by that amount. Employment and consumer income decline in the US and rise abroad. The US tax base shrinks, resulting in reductions in public services or in higher taxes or a switch from tax finance to bond finance and higher debt service cost.
When the offshored production comes back to the US to be marketed, the US trade deficit increases dollar for dollar. The trade deficit is financed by turning over to foreigners US assets and their future income streams. Profits, dividends, interest, capital gains, rents, and tolls from leased toll roads now flow from American pockets to foreign pockets, thus worsening the current account deficit as well.
Who benefits from these income losses suffered by Americans? Clearly, the beneficiary is the foreign country to which the production is moved. The other prominent beneficiaries are the shareholders and the executives of the companies that offshore production. The lower labor costs raise profits, the share price, and the “performance bonuses” of corporate management.
Offshoring’s proponents claim that the lost incomes from job losses are offset by benefits to consumers from lower prices. Allegedly, the harm done to those who lose their jobs is more than offset by the benefit consumers in general get from the alleged lower prices. Yet, proponents are unable to cite studies that support this claim. The claim is based on the unexamined assumption that offshoring is free trade and, thereby, mutually beneficial.
Proponents of jobs offshoring also claim that the Americans who are left unemployed soon find equal or better jobs. This claim is based on the assumption that the demand for labor ensures full employment, and that people whose jobs have been moved abroad can be retrained for new jobs that are equal to or better than the jobs that were lost.
This claim is false. Offshoring affects all tradable goods and services. The nonfarm payroll data collected by the US Bureau of Labor Statistics makes clear that in the 21st century the US economy has been able to create net new jobs only in nontradable domestic services. Such employment is lowly paid compared to high value-added manufacturing jobs and professional services such as engineering. (Tradable goods and services are those that can be exported or that are substitutes for imports. Nontradable goods and services are those that only have domestic markets and no import competition. For example, barbers and dentists offer nontradable services.)
Moreover, even domestic services, such as school teachers and nurses, which cannot be offshored, can, and are, being performed by foreigners brought in on work visas.
The growing number of displaced and discouraged unemployed Americans is an external cost inflicted by offshoring firms on the displaced workers themselves, on taxpayers who provide unemployment and welfare benefits, and on the viability of the American political and economic system. The costs inflicted on the economy, taxpayers, and the displaced workers far exceeds the benefits to a few corporate executives and shareholders. The imposition of external costs on society in order to reward a very few is a powerful indication of the failure of laissez faire capitalism.
Some offshoring apologists go so far as to imply, and others even to claim, that offshore outsourcing is offset by
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