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Job shipping is a two-way street – exports alone will be detrimental to US economy

In the article, “A war on job shipping by Congress would hurt US export?” it was examined how protectionist policies against job shipping could lead to economic retaliation by foreign countries on US exports. In this article, we consider a scenario where the US implements protectionist policies against job shipping but where US exports are not subject to protectionist policies from foreign countries, i.e. no foreign protectionist retaliation. US public opinion may hold such a scenario as ideal, but does job shipping serve a greater purpose than simply making wealthy CEOs even wealthier?

Job shipping is prudent

As in the words of Adam Smith, the Father of modern economics, “It is maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy.” Even if the US implemented policies against job shipping and did not fall victim to or escaped economic retaliation via foreign protectionist policies against US exports, is it wise to “make at home that which will cost less to buy?”

The answer is no. The negative impacts of protectionism against job shipping stem further than just the possibility of foreign economic retaliation on US exports. Inefficiency is created when imports (or the lack of them) do not reflect the true prices of supply and demand. In the case of job shipping, inefficiency represents a lack of competitiveness.

Globalization is irreversible; in fact, we have only witnessed the beginning. As advancements in technology (in particular computer and internet technology) continue, the world will inevitably continue to get smaller. Hence, US firms are at present and will continue to increasingly compete on a more global and competitive market. The competition resides in both the domestic and international market. To out-compete companies from Europe, Japan, China, and India, the US must have access to the greatest talent at the lowest cost. With Indian salaries a fraction of US salaries, an Indian software company will undoubtedly hold an advantage over a US software company, if the later does not send jobs overseas.

By not sending jobs abroad, US companies will be in a less advantageous position than foreign companies. Ultimately, this could jeopardize US dominance in both the domestic and international market. The emergence of the Indian and Chinese market represents considerable opportunity; it is essential America capitalizes on these two huge markets. This opportunity can however only be materialized if US companies can compete internationally; job shipping is fundamental to a company realizing its maximum productivity.

The benefits of job shipping however also extend not only to business but also consumers. It results in lower costs for consumer goods and services which results in a higher standard of living for US citizens. A consumer surplus is created as a result of job shipping and this outweighs any advocated economic loss through job loss.

Additionally, the benefits gained from US domestic and international dominance undoubtedly outweighs any “economic” loss incurred from jobs shipped overseas. This is particularly true when one considers that it is job shipping that helps contribute to US dominance.

Furthermore, the actual “economic loss” incurred due to job shipping is also debatable. It cannot be denied that those who actually lose their job to job shipping are likely to experience detriment in one form or another; whether due to relocation, time out of work, re-training etc. However, it is debatable whether the US economy actually experiences any actual overall economic loss.

The McKinsey Global Institute estimated that for every dollar spent on shipping jobs to India, the US reaps between US$1.12 and US $1.14 in benefits. There are numerous factors behind such a conclusion. Job shipping makes US firms more competitive. In turn this leads to greater exports, which in turn leads to increased revenue and dominance. A successful and profitable company is in a position to re-invest, expand, innovate, and ultimately create new and more jobs in the US.

The converse is true for an “unsuccessful” company struggling to compete. Job terminations and not job creation is likely. It is possible that a company which does not ship jobs could potentially lose more jobs as a result of a lack of competitiveness.

It is paramount that US companies maintain their competitive edge over foreign companies. By not sending jobs abroad it is difficult to envisage such an eventuality. If US companies are less effective than their foreign counterparts, we will lose out on market dominance which will result in vast US job loss. Job shipping may lead to immediate jobs loss but will result in long-term job gains.

Job shipping is not just about a trade-off, “give us access to your markets and we will give you access to ours.” Job shipping is more than a bargaining tool; it is beneficial in terms of increased effectiveness and it is this effectiveness that enables US firms to dominate world markets and in turn create more US jobs.

 


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