Steven Pearlstein has a lengthy and somewhat confused discussion of offshoring in his Post column today. First of all, the discussion would be much more straightforward if it just referred to trade. There is no theoretical difference between the impact of imports through trade in general and the impact of outsourcing. It makes little difference to the U.S. economy whether a Chinese manufacturer sells computers to retail stores in the United States like Wal-Mart and Costco, or if Apple contracts with a Chinese manufacturer to produce computers that it will sell to Wal-Mart and Costco. By treating outsourcing as a special entity that is distinct from trade, Pearlstein creates unnecessary confusion.
This unnecessary confusion prevents the piece from getting any clear grip on the issues involved. At one point it tells readers:
"For economists, the theoretical argument in favor of offshoring is that, like all other forms of specialization and exchange, it is a win-win proposition for all the countries involved. But the theory is based on a number of assumptions, one of which is that trade is reasonably balanced — that once we started importing more goods and services from the rest of the world, the rest of the world will use that extra income to buy equal amounts of goods and services from us. Years of large and growing trade deficits have now called that assumption into question.
There is a vigorous debate among economists about how many jobs are forgone by running a persistent $500 billion annual trade deficit. There are some purists who would say none, but a lot of studies put the number at a couple of million."
This is wrong. Economists would in principle say that the country is benefitting from trade even if it is very far from balanced if the economy is fully employed. Given economists standard assumptions about the efficiency of markets, the U.S. economy could benefit from trade even if it had a trade deficit of 6 percent of GDP ($900 billion in today's economy) as it did in 2006. The argument would be that the country was taking advantage of low-priced goods and services from abroad in order to build up its domestic capital stock, both physical and human. Of course that is a hard argument to make about the housing bubble years, but that would be the standard economic argument about trade.
When the economy is below full employment, as most economists would concede today, then a trade deficit costs jobs. There is not much ambiguity about this fact.
More generally, the argument is that trade redistributes jobs. The current pattern of trade has cost the jobs of millions of manufacturing workers driving down the wages of large segments of the workforce.
This fact makes it difficult to understand Pearlstein's concern that:
"But now that many categories of high tech have moved virtually all production offshore, companies are finding that they also need to move more and more of engineering and design work overseas as well."
Moving engineering and design work overseas would imply savings to consumers in exactly the same way as moving manufacturing operations overseas provided savings to consumers. It is not clear why Pearlstein doesn't want to see consumers save money. The lower cost of products due to cheaper engineering and design services would free up money to buy other goods thereby leading to more economic growth.
Unless the intent to redistribute income from manufacturing workers to more highly-educated workers, there is no more reason to oppose the offshoring of highly skilled jobs than there is to oppose the offshoring of manufacturing jobs.
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