Tuesday, 14 December 2004

Offshore outsourcing: Who gains, who loses

A recent Businessweek article looks at the effects of globalisation and offshore outsourcing on the US and concludes as follows:

[I]f white-collar offshoring swells enough, the resulting job losses could undercut a large swath of U.S. consumers...and more than half the U.S. workforce of 130 million could feel the impact. Then, economists conclude, the benefits of globalization would flow mostly to companies and shareholders who profit from the cheaper labor, with little pass-through to workers and consumers.

Brad DeLong disagrees:

Pass-through to consumers is very large. Workers making tradeables (and their households) lose; workers making non-tradeables (and their households) gain; shareholders gain.

And I might add that the recipients of outsourcing gain too. In fact, it is perfectly conceivable that the gains in emerging economies may be so large that there may be a net loss in developed economies but still leave a net gain globally.

Which leads to Brad DeLong's other post yesterday on the US government's intention to impose new curbs on imported clothing, which will adversely affect China:

[T]he U.S. has a *massive* national security interest in encouraging the industrialization of China as fast as possible. A poor China is an unstable China, and unstable countries ruled by oligarchies often turn to aggressive expansion as a way of using nationalism to slow the crumbling of their rule. A world sixty years from now in which Chinese schoolchildren are taught that the U.S. did what it could to speed Chinese economic growth is a much safer world for my great-grandchildren than a world in which Chinese schoolchildren are taught that the U.S. did all it could to keep China poor.

The Chinese, however, are quite ready to argue for their own interests.

Protectionism goes against free trade
The US Government should seriously think over the impact of any protectionist trade policy on the global trade order and make the right move. The WTO arrangements of trade are a double-edged sword for a specific economy as each country has its advantages and disadvantages in competition with others. China, for example, will see its farmers suffer greatly from cheaper imports after its full WTO accession.

The US side needs to re-evaluate its trade policy to live up to its free-trade advocator trademark.

Free trade arguments, however, may be no match against self-interests.

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