Trade Diversion

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.”

Hal Varian in the NYT:

Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn.

But this list of companies isn’t a satisfactory answer either: They only do final assembly. What about the 451 parts that go into the iPod? Where are they made and by whom?

Varian summarizes research (pdf) that traces the production of an iPod across the globe:

Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The researchers – Greg Linden, Kenneth L. Kraemer and Jason Dedrick – calculate value-added for each step of the production process. Read the full column.

[HT: Arnold Kling]

FT:

A contentious €500m ($672m) European Union “shock ab­sorber” fund to help workers who lose their jobs to global competition has received just two requests for aid since its launch, raising questions about the extent of “de­localisation” of European jobs.

The low level of take-up from the fund, created at the end of last year, has prompted claims from liberals in the European Commission that the threat from the offshoring of jobs to Asia and elsewhere has been exaggerated…

“In a way we have exposed that by creating the globalisation fund,” said one. “It wasn’t set up in a way that would make it difficult to get the money.”

Full story.

“Live by becoming a base for the offshored industrial production of more advanced nations, die by offshoring your own industrial production to less advanced nations.” — Andrew Leonard on South Korea’s new troubles

Clive Crook:

Lately, though, Mr Blinder has been emphasising the downside. Perhaps he has found this arouses more interest. At the moment, as the title of his newest article indicates, he is anxious more than excited. “These forces,” he points out, “don’t look so benign from the point of view of an American computer programmer or accountant”, whose job might be at risk from foreign competition for the first time.

That is true, but how benign did those forces look to factory workers 20 years ago? Do accountants have larger claims on our sympathies than steel workers? Mr Blinder used to argue that trade creates jobs as well as destroying them and raises living standards in the process. He used to say that growing imports imply growing exports. He noted the age-old error of thinking that trade raises unemployment and said it was called the “lump of labour” fallacy. Those arguments were correct then and, in Mr Blinder’s view, still are. So, again, what has changed?…

In short, when it comes to policy prescriptions, Mr Blinder’s big new view amounts to nothing. Perhaps understanding this, he defends his grave new stance as constructive from a rhetorical point of view. He says he wants to save free trade from itself. “If we economists stubbornly insist on chanting ‘free trade is good for you’ to people who know that it is not, we will quickly become irrelevant to the public debate.” Yes, that is always a risk. But is it really going to be more effective to chant “you’re right, free trade is bad for you”?

Let me suggest another approach. Keep on patiently explaining why, implausible as it seems to non-economists, liberal trade in goods and services really is good for importers and exporters alike. Explain why, odd as it may seem, offshoring really is no different. Keep arguing for policies that widen the gains and help the victims, to be sure, but never concede those main points, or suppose they do not need defending. No question, it is thankless and repetitive work, but until it can be offshored, we need Alan Blinder to pull his weight.

More along that line here.

FT:

Retailers and consumer goods companies in the developed world are increasingly shifting logistics operations from their home countries to China. Goods are sorted, labelled and even placed in displays for direct shipment to individual stores before leaving Chinese ports.

Shipping lines, logistics companies and warehouse operators say costs spur customers to move the sorting process away from consuming countries, continuing the outsourcing trend to lower-wage economies that began with manufacturing going to China.