In this article, we consider how anti-outsourcing policies would mark a sharp break from the traditional dynamics of protectionism. In general, the objective of protectionist policies is to protect businesses within the country from foreign trade. Protectionism against outsourcing however presents unique considerations and requires careful consideration.
Protectionism against outsourcing does not intend to protect or support US companies. Business principles dictate that a company should always opt for the least costly option, when the service, product or good is of equal standard. Thus, protectionism against outsourcing is not in the interests of US companies.
Hence, any potent protectionist policy against outsourcing would likely be confronted with considerable displeasure and criticism from the business world. Protectionism against outsourcing thus requires careful consideration, for any such policy is self-destructive; it hurts a country’s own companies. Protectionism against outsourcing contradicts the “norm” which is to help domestic business.
Who are the intended beneficiaries of protectionism against outsourcing? The intended beneficiaries are US workers. Protectionism against outsourcing would seek to redress the balance between US and foreign workers. However, surely protectionism against outsourcing is a classic case of “cutting your nose to spite your face”?
With the exception of public government organizations, it is private sector businesses which are the source of job creation. Is it logical to “hurt” the source of job creation in an attempt to prevent job outsourcing? Surely, job creation is best stimulated when businesses are given a platform from which they can operate at their highest levels of efficiency and competitiveness? And, outsourcing is fundamental for companies to achieve their levels of maximum efficiency and competitiveness. Therefore protectionism against outsourcing is inherently contradictory; to preserve or create jobs by creating an environment from which companies are less productive and competitive.
For instance, protectionism by way of subsidies for US farmers will make them more competitive in the domestic and international markets. The same is true if tariffs are imposed on imported cars; it makes US car manufactures more competitive. But protectionism against outsourcing makes US companies less competitive! One of the prime considerations when imposing protectionism is if such policies outweigh the consumer surplus generated from lower prices. But, protectionism against outsourcing not only requires the above consideration but also consideration of the fact that such policies will make it more difficult for US companies to compete on the domestic and global market by way of decreased competitiveness. If US companies experience a decrease in the share of their market, the consequence will be job loss not job creation.
In conclusion, the intention of any government to preserve jobs or create more jobs is correct. Protectionism against outsourcing is however the wrong approach in achieving this objective. US employment levels will flourish most with continued and greater US global market domination. Global market domination can only be achieved if US companies are more productive, innovative and competitive than their counterparts. Whether we accept it or not, outsourcing is critical to achieving this. Before we jump on the bandwagon of anti-outsourcing policies we must give due and unique thought to the repercussion of any enactment of protectionism.