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).
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]
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.”
“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