Trade Diversion

Jagdish Bhagwati and Alan Blinder discussed “Offshoring of American Jobs: What Response from U.S. Economic Policy?” at a Harvard symposium in 2007, with comments from Richard B. Freeman, Doug Irwin, Lori Kletzer and Robert Z. Lawrence. Those papers now appears as a book edited by Benjamin Friedman. Bhagwati and Blinder discussed offshoring last week on Bloomberg Radio (mp3).

Richard Cooper summarizes:

This stimulating collection, like the Harvard symposium that led to it, is built around Blinder’s strong and much-debated thesis that within two decades, 30-40 million U.S. jobs, mainly those in the services industries that require no direct contact between the provider and the customer, could be sent offshore — especially to India, where wages are low and English-speaking university graduates are plenty. Blinder argues that the United States should adapt its educational and labor policies to prepare for this possibility. Bhagwati, for his part, points out that offshoring is just one more dimension of an open trading system, which will produce higher living standards for Americans — and Indians. The contributors observe that this possibility will be similar in proportion to the adjustments that the U.S. economy has already made in past decades, particularly to the decline in manufacturing employment; that for a variety of reasons, not nearly so many jobs will move offshore; and that other countries will offshore some of their jobs to the United States.

The latter comment echoes Richard Baldwin’s argument that offshoring is more likely to be a two-way, intraindustry exchange than a one-way departure of jobs.

The Onion: American Robot’s Job Outsourced To Overseas Robot

Does offshoring look like old trade theory or new trade theory? Richard Baldwin reminds those trembling at the sight of Alan Blinder’s big numbers (”30-40 million jobs are potentially offshorable”) that the US is a net onshorer. Trade in services isn’t destined to be a one-way street.

Wolfgang Keller and Stephen Yeaple: There is “a clear negative relationship between the sales of US multinational affiliates and the trade costs (physical and policy barriers) from the US. In addition to the usual gravity finding – larger markets attract more sales – Figure 1 indicates that offshoring is helped by geographic proximity.”

Fresh policy brief from J. Bradford Jensen and Lori G. Kletzer of the Peterson Institute on “‘fear’ and offshoring“:

Commentators, including Princeton University’s Alan Blinder, estimate 40 million jobs could be at risk of being offshored over the next 20 years and suggest American workers should specialize in services that can be delivered face-to-face. In contrast, Jensen and Kletzer expect the process of globalization in services will proceed much as it has in manufacturing: They estimate only 15–20 million jobs are at risk of being offshored to low-wage, labor-abundant countries; approximately 40 percent of these jobs will be in the manufacturing sector, long considered “at risk.”

They expect these losses to be offset by job gains in high-wage activities from services exporting. The United States will retain its comparative advantage in high-skill, high-wage production and increase these activities in tradable service industries as trade barriers diminish. While the loss of low-wage activities that are offshored and the gain from high-wage service exports will cause dislocation, the globalization of services production is likely to have productivity-enhancing effects similar to the impact of globalization in the manufacturing sector, offering significant potential to improve living standards in the United States and around the world.

More thoughts after I read it this evening.

Barack Obama’s victory speech in South Carolina included the following line:

The Maytag worker who is now competing with his own teenager for a $7-an-hour job at Wal-Mart because the factory he gave his life to shut its doors – he needs us to stop giving tax breaks to companies that ship our jobs overseas and start putting them in the pockets of working Americans who deserve it.

Presumably this refers to the United States not collecting corporate taxes on unrepatriated overseas earnings, which encourages investment abroad when foreign corporate tax rates are lower. Is it really a tax “break” if those taxes have never been collected? Significant structural changes in the global economy are driving recent outsourcing and offshoring trends, not the tax code.

And how will Obama remedy this problem? He can’t tell Democrats the fix is to lower the US corporate tax rate, and imposing taxes on foreign-incorporated subsidiaries would likely encourage parents to go abroad too.

As best I can tell, this an applause line that bears little relation to the economic issues Obama would actually need to address as president.

From a story in the Minneapolis Star Tribune today:

Sure, outsourcing is part and parcel of 21st century life; even the Star Tribune has started to have some of its advertising work done in India…

But still. There’s just something… off about having “Minnesota Nice” sweatshirts with “Made in Pakistan” on the label or “Up North” t-shirts from way down south (Honduras).

What’s off?

Andrew Leonard says Indian call centres are so last year:

Azim Premji, Wipro’s chairman, raised eyebrows on Wall Street when he talked this year of setting up divisions in Idaho, Virginia and Georgia — U.S. states he said were attractive because they were “less developed.”