Free Trade and Outsourcing: Good or Bad?

Is it Bad?

Does free trade and outsourcing damage the U.S. economy by purging jobs and discouraging domestic investment or does it eventually strengthen the U.S. economy? Many seemingly well-educated people believe outsourcing is bad for the economy. They see hardworking Americans’ jobs shipped overseas leaving many people jobless, weakening the economy. President Bush feels so strongly about it that he recently signed a bill forbidding the outsourcing of federal contracts overseas (www.economist.com).

Paul Craig Roberts, a former assistant Treasury secretary for economic policy in the Reagan administration and current chairman of the Institute for Political Economy, believes it is hard to see the benefit to the country whose firms outsource. He reasons that with domestic capital and technology reallocated to the employment of foreign labor, there is less to employ domestic labor. So either unemployment results or the remaining capital is spread more thinly with a decline in labor productivity and real incomes (www.careerjournal.com).

Outsourcing jobs to foreign labor in places like India and China has caused many American manufacturing plants to close because they cannot compete with the cheap labor overseas. Many small manufacturing towns across the nation now feel helpless because their town-supporting factory has shutdown. Many experts believe that outsourcing is not only closing factorings, but will also cause wages and salaries to fall so that domestic businesses can try to compete with foreign competitors. Sarah Anderson and John Cavanagh of www.TheNation.com believe “global outsourcing of service jobs is one of the most disturbing manifestations of the U.S. government’s corporate-friendly approach to globalization and requires a fundamental reorientation of policy that will aid workers at home and abroad” (www.thenation.com).

No, It is Good.

The biggest argument opponents of outsourcing make is America’s economy has, overall, lost 2.3 million jobs since the start of the decade, largely due to the outsourcing of jobs, which would be considered a structural flaw. In reality, the vast majority of these job losses are cyclical in nature, not structural (www.economist.com). The investment explosion of the late 1990s gave us an unsustainable unemployment rate of 4.2%. Unsustainable because that is below the natural rate that most economist put at about 5%. That means perhaps two-thirds of those 2.3 million jobs