It turns out that the rest of the world is shipping jobs to the U.S.
For years, a hot topic in the United States and many other advanced economies had been outsourcing. Politicians and pundits lamented corporations shipping jobs to low-wage markets, such as China, India, Pakistan, and Vietnam. Over the last 20 years, every administration has attempted to rein in this practice through taxation, tariffs, and good old-fashioned handwringing. But it was rare for anybody to discuss the opposite development in the U.S. economy: insourcing. Yet, according to pre-pandemic Bureau of Economic Analysis (BEA) data, thousands of additional jobs were insourced into all 50 states by foreign entities. Put simply, the world is sending its employment opportunities to America.
Make America Competitive Again
In 2019, approximately 8,000 foreign-based businesses outsourced both jobs and output into the United States. Before the COVID-19 public health crisis, 7.95 million American workers were employed by foreign multinational enterprises (MNEs), up 1.9%, or 150,000 positions, from the 7.8 million in 2018. In total, employment by foreign companies accounted for more than 6% of total U.S. private industry employment prior to COVID.
When it comes to the dollars and cents, insourcing contributed about $1.13 trillion to the economy. Moreover, these organizations offered $665 billion in compensation to U.S. workers, bringing the average compensation to a little more than $83,000 per worker. In the manufacturing sector, the average annual earnings paid by non-American firms was $94,000. In addition, the U.S. affiliates exported $409 billion in goods (24.4% of all U.S. exports) and imported $775 billion (29.9% of all U.S. imports).
Much of the insourcing took place in California, Texas, Illinois, Florida, New York, and Connecticut. But states like Washington, Arizona, Georgia, and Colorado also attracted a commendable amount of foreign capital. As the American Enterprise Institute (AEI) noted, if these 7.95 million Americans would live in the fifth-largest state based on non-farm payroll employee numbers – only California, Texas, New York, and Florida would have performed better.
This is not necessarily a new phenomenon. As Liberty Nation reported months before the once-in-a-century global health calamity, insourcing has been a development-in-the-making for a few years now. If the same patterns continue, these figures will escalate in the medium-term future. But will anybody be as vociferous about this as the neo-mercantilist crowd is about free trade? It might depend on the direction of the political winds.
Is America Stealing Jobs?
A common argument made by protectionists on both sides of the aisle is that other countries, like Japan and Mexico, are stealing American jobs. In this global and dynamic economy, corporations are utilizing international supply chains, taking advantage of cheaper production costs, and exploring competitive tax rates to generate lower prices and higher profits. The theft supposition is about as realistic as leftists’ views that the free-enterprise capitalist system is a zero-sum game. Or, as Gordon Gekko famously uttered in 1987’s Wall Street, “Somebody wins, somebody loses.”
“Just like it makes economic and business sense for thousands of foreign companies to outsource jobs and production from their countries to every US state (perhaps because the US is one of their major retail markets), it also makes economic and business sense for thousands of US companies to outsource jobs and production from the US to foreign countries … ” wrote AEI Senior Fellow Mark Perry.
Perry added that he hopes the United States can move beyond a “simplistic,” “nationalistic,” and “outdated” view of economics. However, considering that Republicans and Democrats typically need a scapegoat for when something goes against public opinion, it is unclear if Perry will get his wish. Until then, America will serve as a vast magnet for both foreign investors and outside corporate entities.
It would be easy and fun to partake in the partisan politics of Washington and give credit to one party or president for the insourcing boom, mainly since it has been transpiring for close to a decade, spanning two administrations. Be it Obamanomics or Trumponomics, insourcing has been a genuine and impactful trend. But it is not because of a GOP policy or a Democratic effort.
Over the years, there have been many factors that would drive foreign MNEs to establish operations in the Sunshine State or the Lone Star State. Crude oil prices have fluctuated, making cargo-ship fuel immensely expensive. The shipping container crisis is intensifying. Chinese wages are rising, while private-sector labor unions are becoming (somewhat) more reasonable. Most importantly, labor productivity, whether in a factory setting or office environment, is surging. The world’s largest economy is a hotbed of innovation, productivity, and capital in spite of all its domestic challenges. No wonder outsiders are drawn to the Land of the Free, regardless of politics.
Read more from Andrew Moran.