Shipping Jobs Overseas?

Posted by Dave at 1/28/2009 12:33 PM
Categories: economics, trade, taxes, politics, manufacturing

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A common refrain among protectionists, economic nationalists, and other advocates of strong government intervention in the economy is that so-called "big corporations" are "shipping jobs overseas".  This charge is used particularly often with regards to manufacturing jobs, where the specter of jobs fleeing en masse to China, India, and Mexico is described in breathless terms. 

Whether the goal is "renegotiating" (or ending altogether) free trade agreements like NAFTA, bailouts of domestic industries, or some sort of tax code manipulation to "reward" companies who "create American jobs", the bogeyman of choice is what Ross Perot dubbed the "giant sucking sound" in the 1990s — particularly when a politician is campaigning in former manufacturing centers in "Rust Belt" areas of Pennsylvania, Ohio, and Michigan.  Along with the loss of jobs themselves, the so-called "trade deficit" is often mentioned, noting that it is at record highs and that it somehow signifies loss of American jobs and a manufacturing base; foreign capital investment is often also a target of political derision.  The tactic is familiar to politicians on the left, like President Barack Obama and Ohio Senator Sherrod Brown, and on the right, like commentators Pat Buchanan and Phyllis Schafly.

The facts, however, continue to show otherwise.  As documented by the pro-trade Center for Trade Policy Studies, foreign investment by multi-national companies tends to be focused on opening up new markets to goods and services — to making these companies more profitable by reaching new customers — rather than a method for shipping out American jobs and moving capital out of the US.  As Dan Griswold, Director of the Center, points out, "[a] successful company operating in a favorable business climate will tend to expand employment at both its domestic and overseas operations. More activity and sales abroad often require the hiring of more managers, accountants, lawyers, engineers, and production workers at the parent company."

One by one, Griswold's research (meticulously referenced to easily obtainable data) punctures the myths promulgated by the anti-trade crowd.  Worried about the US manufacturing base moving factories to China, India, and Mexico?  Then consider this:  "[b]between 2003 and 2007, U.S. manufacturing companies sent an average of $2 billion a year in direct investment to China and $1.9 billion to Mexico"; meanwhile, US corporations were investing $165 billion per year in the USA.  An additional $15 billion per year was being invested in manufacturing in the United States by foreign corporations during this time.  These data show that while, yes, American companies were spreading their manufacturing wings overseas, they were investing over 80 times as much here at home.

But what about the loss of manufacturing jobs?  True, the US workforce employed in manufacturing shrank by 3 million in the years 2000-2006.  But, as shown above, corporations were making capital investments in the US; those investments, rather than workers, were in technology and automation.  Those jobs weren't being shipped overseas, they were being replaced with more efficient technology, creating other high-tech jobs elsewhere in the labor market.  Meanwhile, "[a]n increase in 172,000 jobs at U.S.-owned affiliates in China was partially offset by an actual decline of almost 100,000 jobs at affiliates in Mexico".  The "giant sucking sound" is a fabrication, a myth.

One by one, the justifications for increased government intrusion in the marketplace fall by the wayside when examined more closely, when facts are employed rather than innuendo.  A free market and free trade, unencumbered by government interference, management, or directives is still the best way to promote prosperity.

 

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