Outsourcing Woes: John Kerry's Benedict Arnold Myth
April 11, 2004
by Joe Mariani
According to the Liberal school of economic thought, a free market economy is the worst thing for this country. They point to outsourcing of jobs as "proof" that President Bush is somehow a bad President, though it's been happening steadily since the signing of NAFTA by then-President Clinton in 1993. What they refuse to see is that free trade moves jobs both ways, and that the US is actually insourcing" more jobs from other countries than we send overseas... especially those manufacturing jobs that seem to be at the forefront of Democrat hand-wringing during the election campaign.
Even though the US economy is roaring like a river in full spate, the Democrats need to make it seem as though the economy is failing in some way in order to win the 2004 election. All gauges by which the economy can be measured have been indicating for months that everything was moving in the right direction, and that job growth (always the last thing to happen in a recovery) was on the way. The media complained about the "jobless recovery," as though the recovery was somehow over, not in progress. Now jobs have been created at a rate even the Left can't ignore -- 308,000 new jobs in March 2004 alone, and 205,000 during January and February (nearly double the original estimates). The Democrats have switched their arguments from "no jobs have been created" to "jobs are being sent overseas" and "the only jobs in America are burger-flipping."
Professor Michael L. Walden of N.C. State University has a slightly different perspective to offer, one that doesn't get a lot of play in the US media for some reason. "Consider what's happened in heavy manufacturing, which includes the manufacturing of vehicles, computers, electronics and other machinery. Since the mid-1990s, foreign companies have added 400,000 jobs in these industries in the U.S. Over the same time period, U.S. companies moved 300,000 jobs to foreign countries in the same sectors. The insourced jobs in these industries are also high-paying, with average compensation per employee of over $65,000." From the media soundbites, one would think that millions of jobs have been "sent overseas" with no jobs coming to American shores. Instead, the facts show that the US has increased overall jobs by a net 100,000 due to free trade.
"Any way you slice it, the world is creating or transferring more jobs to the U.S. than we are doing to the rest of the world," said Daniel T. Griswold, a trade specialist at the Cato Institute, a research organization in Washington.
India's Essel Propack Ltd., Taiwan's Teco Electric & Machinery Co. and Denmark's Vestas Wind Systems A/S all have built plants in the United States in the last year and a half.
Other non-U.S. companies announced plans to increase hiring in the United States last year including Japan's Nissan Motor Co., with 3,350 jobs in Canton, Miss.; DaimlerChrysler AG of Germany, with 2,000 at a new Mercedes-Benz plant in Vance, Ala.; German appliance distributor BSH Bosch and Siemens Hausergate GmbH, with 1,300 in New Bern, N.C.; and Magna International Inc. of Canada, with as many as 800 in Bowling Green, Ky.
What outsourcing does is move the point of manufacture closer to the consumer. Among other things, this cuts international shipping costs, risks and time. Since the US is the world's largest consumer nation, goods destined to be sold here can be cheaper -- despite the increased cost of manufacturing -- to make here. If more people are buying Mercedes-Benz SL600 Roadsters here than in Germany, then by all means let Daimler-Chrysler employ Americans to make them in Alabama.
Passing laws to stop outsourcing is protectionism, which never works. "If anyone in our policy making framework thinks that by cutting off our outsourcing, we are going to encourage more insourcing and more investments in the United States, they are crazy," said Ernest Bower, president of the US-ASEAN Business Council (the largest US business group in Asia). President Bush tried protectionism in the steel industry for a short time by placing tariffs on foreign steel imports. He quickly removed the tarrifs when it became apparent that the worst part of the crisis had passed (and that they made our allies extremely unhappy).
Presidential hopeful John Kerry claims that he'll stop outsourcing of jobs (which would harm not only the US economy, but that of the entire world) by closing mysterious "tax loopholes" that give credits to "Benedict Arnold" companies for outsourcing what Kerry refers to as American jobs. The problem is that these loopholes remain largely a myth, according to James Hines, who teaches tax policy at the University of Michigan. US corporations owe the US government taxes on all profit, no matter where in the world they earn it, at the same rate of 35 percent. Companies can take a credit for taxes they pay to foreign governments, but still owe the remainder to the US. Companies can also defer taxes on foreign earnings that they invest abroad. That's a much smaller incentive than other countries' tax laws offer their corporations. For instance, German, Dutch, Canadian and Australian companies don't pay taxes on any money they earn outside their home countries. Since all those countries invest in the US, Americans are gaining about as many jobs from "tax loophole" insourcing as we lose to "tax loophole" outsourcing.
The biggest problem with this idea of altering the tax laws to stop companies from creating jobs overseas is the blind assumption that those companies would create those same jobs here in the US. The most likely outcome would be that the bulk of those jobs would never be created at all, for any workers, anywhere. Is it better to get a percentage of tax money from the overseas operations of some companies, or none at all? Is is better for US companies to employ some foreign workers, or none at all?
The real "Benedict Arnold" companies are those that move their headquarters overseas -- in the form of a rented office in Bermuda -- to avoid paying US taxes, not US-based companies with manufacturing centers in other countries. Those are the real tax cheats.
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