Our nation’s unemployment rate is an important focus for the upcoming Presidential election. It’s also been a potent campaign tool, as both parties have accused the other of “outsourcing” and “sending jobs overseas.”

“Outsourcing” continues to make headlines. But an important question goes unaddressed: what are its real consequences?

According to The Heritage Foundation’s Amy Payne, outsourcing opponents fail to understand “the reality of jobs in America, and the ways to bring even more jobs to the home front.”

There are a lot of myths about outsourced jobs, particularly in the manufacturing sector. The truth is that the U.S. actually leads the world in manufacturing, producing 21 percent of global manufactured products. And several big manufacturers are building new plants in the U.S., including BMW and Airbus, creating more manufacturing jobs.

In fact, Payne reports, outsourcing benefits the U.S. as international firms locate operations here: “the total value of foreign investment in the United States exceeds the value of U.S. investments in other countries by more than $4 trillion. Foreign-owned multinational corporations employ 5.5 million people in the United States.”

On C-SPAN recently, Heritage’s Bryan Riley pointed out the facts on investment:

If the goal is to reduce unemployment, policymakers should focus on problems like red tape that discourage job creation. The U.S. regulatory burden continue to increase, making businesses more expensive and more difficult to operate.

Bryan Riley explains that the deficit is also dragging the economy down:

Excessive federal spending and the resulting budget deficit continue to be a problem. Foreign investors spent more than $400 billion on U.S. Treasury securities in 2011. This is another way to say that the government borrowed more than $400 billion from foreign investors. Those dollars could have been invested otherwise in the private sector of the U.S. economy or spent on U.S. exports.

Do you think that outsourcing is bad for U.S. economic recovery?

Comments (44)

Ellen - July 27, 2012

The best way to bring unemployment down in the U.S. is to keep the jobs here. But because of the large amount of government red tape businesses must go through, they have chosen to out source jobs overseas. Until the red tape is gone, businesses will continue this trend and unemployment will stay high. For businesses to remain competitive they have to keep costs down. Right now the best way to do that is to ship the jobs overseas. The government oppression of red tape that businesses suffer from, is hurting all of us.

John S. Hull - July 27, 2012

Outsourcing can be even more advantageous if our manufacturers are the owners of those offshore facilities, particularily if they are located in tax free zones, which allows the repatriation of tax free profits back to the USA allowing more highly skilled staff to be hired here at home. BizHarmony plans to launch that model this fall offering consulting services to manufacturers in the lower middle market sector. http://www.bls.gov/bed shows that we have significantly more business failures than startups (since 2008), so hopefully, we will begin to reverse that trend.

Roger Conklin - July 27, 2012

The US has a massive 12-month merchandise trade deficit of $753 billion, which is 60% of the total trade deficits of the some 130 nations that have trade deficits.

But the reason for this trade deficit and the 7.9 million domestic jobs that this trade deficit has destroyed, is not outsourcing. These destroyed jobs also destroy some $136 billion in tax revenues. Double taxing our citizens abroad produces a meager $5 billion, which is so insignificant that it is not worth talking about.

Take Germany, for example: On a per-capita basis that country imports 2.2 times more than the US; yet it has a $224 billion trade surplus and at 6.8% the lowest unemployment rate in 20 years.

How can this possibly be? Very simple. Germany’s exports are 4.3 times per-captita greater than those of the US. Although its economy is only 1/5th the size of ours, its total exports are more than the US. It’s trade surplus is, in fact, exceeds that of China by 36%. Germany even has a trade surplus with China to which it exports 7.9 times more per-captita than the US. and that is in spite of the fact that the Euro has increased in value with respect to the US dollar by 55% in just 10 years. German products are not cheap, but they go all out to sell them and are very successful.

Key to Germany’s success and the US failure to export is tax policy. Germans who relocate abroad to capture foreign markets are considered patriots because they sell the products that create jobs and prosperity at home. Germans who relocate abroad pay taxes to their host countries, but they are never double taxed back home in Germany.

The US does just the opposite. We subject our expatriates to US taxation like they never left home, And we burden them with FATCA and FBAR reports and a multitude of other IRS tax forms that are so complex that they must spend thousands of dollars for professional assitance in filing these forms. We consider our expats not as patriots, but as tax evading traitors. The double tax burden is so great that in many countries a US citizen can only survive if he becmes a citizen of that country and renounces his US citizenship. So Americans stay home and we depend on the feeble efforts of foreign mercinaries to attempt to sell our exports.

This is probably the largest “overregulation” problem which makes our politicians, on both sides of the aisle, mistakenly think we have an outsourcing problem. No other civilized nation double taxes its diaspora. It is exclusively a US policy which has done more to destroy American jobs manufacturing for export than any other single factor. It is time that the US abandon citizenship-based taxation and adopt the residence-based territorial taxation of every other nation on the face of the earth. Our system places a totally non-productive and highly destructive export tax on US labor. This is a barrier we have erected against our own exports.

Dennis Krieg - July 27, 2012

Outsourcing can be good for both countries. But it has to be both ways. Americans shop to buy cheaper goods and we should expect that the US can sell our goods in their country as well. The world is full of shoppers! Just make it level.

John Hazeltine - July 27, 2012

You mention manufacturing outsourcing. Also there is lots of clerical and professional services outsourcing. I would like to know how many jobs are outsourced from and to the US. (A Toyota plant in the US has jobs outsourced from Japan.) We are long on rhetoric and short on facts.
A human tragedy concerning outsourcing jobs from the US to the rest of the world is that our state-run education facilities are leaving many displaced workers without skills (that private education isn’t yet providing) that US companies want.

John Jones - July 27, 2012

You are missing the entire problem. We are “out sourceing” the wrong products. Building Cadillacs in China is more than stupid. China builds toys and even those are “junk”. We must manufacture those products where we excell, obtain those products we do not do well from foreign countries that do manufacture them well, and get our production back in order. We are capable of doing more than making hot dogs at McDonald’s and we have moved our production requirements to foreign countrys.. We have essentially moved our production capability to foreign countrys and the buyers are in the USA.

john mcwilliams - July 27, 2012

john stossel had a good program on this subject wednesday night on fox news. He had many other good points for out sourcing including free trade benefits both countries.

Carl Nelson - July 27, 2012

As you pointed out, outsourcing is not a simple problem. In the beginning, 1950s and 60s many Americans rushed to the nearest electronic stores to buy the less expensive models. To be compettive the US manufactures had to be a lot more efficient, cut their own pay scales or capitize on the cheaper foreign labor market. So we may say that we the people did alot to push our companies to outsource.

ROBERT J. PICOU - July 27, 2012

I would like to know where Bryan Riley is from? What industries has he worked in? I CAN TELL YOU THAT THE USA DOES NOT LEAD THE WORLD IN MANUFACTURING. Who’s BS are you listening to? I
personally know of Tool & Die makers, Textile Mills, injection molders, paperbox companies,packaging film companies THAT ARE ALL CLOSED TODAY. Because of BILL CLINTON’S WORLD ECONOMY!! You guys in Washington D.C. need to enter the REAL world and quit listening the lies from Washington.

Patrick Guire - July 27, 2012

Outsourcing should be an option with those nations with which we have a cooperative trade relationship. Outsourcing with hostile/enemy nations should not be supported by our Federal and State governments.

Lynn Tolbert - July 27, 2012

For the employed: Real earnings, adjusted for inflation, are in full retreat for the middle class.
For the unemployed: bagging groceries is a serious option. Professional opportunities are rare.
I am impressed with the Rick Santorum and Newt Gingrich recommendation of 12 percent corporate tax for U.S. companies which employ a majority of U.S. citizen employees (and full-time “consultants”) on U.S. soil.

Victress Jenkins - July 27, 2012

We need to bring jobs back to the USA and improve our balance of trade with the world. I’m not against people in other countries making a living but we should be protecting American jobs. At one time we had a great ready to wear industry – clothing & shoes which were well made. Moving the GE manufacture of medical equipment overseas took away jobs.

Rob - July 27, 2012

If you look at the Fair Tax, it eliminates all business taxes. Companies in other countries would look favorably on doing business here when there are no business taxes.

Mac - July 27, 2012

Yes. Whether or not outsourcing has damaged our manufacturing capabilities, at the very least it is damaging our national pride, our dignity, our “heart.” It is extremely discouraging to see virtually every consumer product smaller than an automobile is made in China, or Mexico. “Made in USA” is nearly non-existent in my experience.

JA Showalter - July 27, 2012

Just as the saying “perception is reality” is a universally-accepted principle from within the art of deciphering stock-market reactions, it should be equally as well applied to the economic models we use when analyzing the consummate-affects of outsourcing jobs.

What is the greatest cry of business today? “We don’t have an adequate source of qualified candidates who are replete with the necessary technical skills and knowledge in order to secure our maximum productivity.”

Why might this be?

Perhaps the motivation to follow technical majors in secondary and post-secondary education has been rotted-out out from underneath the feet of those students who would have chosen such education/career tracks if the industries who profited by them had not seen fit to destroy their own domestic employee-base by outsourcing to the lowest-bidder with no forethought whatsoever.

There is a reason that nearly every college campus in the United States is presently suffering a dearth of domestic applicants for Engineering, Math and Sciences; domestic employees in those fields have experienced a severe economic-contraction of their respective job markets, i.e. fewer jobs and pay-cuts by half. Kids aren’t stupid. They want opportunities. If those opportunities aren’t presenting themselves within the job market, then, Shazam! nobody applies to those majors of study.

It’s not rocket science but we will shortly have no “Rocket Scientists” as a result of the myopathy exhibited over the last quarter-century by business leaders who saw the economic-destruction of their technically-gifted employees as a direct path to greater net-profits, all the while ignoring the longer-term impact of an ever-shrinking domestic brain-trust.

Perhaps the next class of MBAs graduating will have a newly-found respect for those technically-gifted, domestic sources of intellectual horsepower that their forefathers so easily spat upon. I’m not holding my breath.

Patric Hale - July 27, 2012

In 2009, our trade deficit was $359 billion; it is now $750 billion. At the rate of 10,000 jobs per billion, that’s a loss of 3.5 million jobs just under Pres. Obama. That would be bad enough if it weren’t for our $4 trillion international investment deficit, up in just one year from $2.5 trillion. That makes another 15 million jobs. So as much as Obama wants to point malignantly at the puny number of jobs Romney “might” have outsourced – but he says nothing of how many US jobs he created – but the real fact is that Obama is the biggest outsourcer of US jobs in our history!

Deke Forbes - July 27, 2012

Outsourcing is driven by a need to be competitive in the world market. If we had lower corporate taxes and less costly regulation, those two points alone could improve cost competitiveness and ameliorate the need to outsource.

Dennis Sulivan - July 27, 2012

Outsourcing is not necesarily bad for the economy and in fact may be good within the parameters of fair trade.

Robert Ammel - July 27, 2012

We should not outsource our jobs to overseas unless it is of such nature that we cannot do the job requirements here. We should buy only what we cannot produce ourselves or do not have here.Inner-mingling people, jobs and products changes the whole concept of race, cultures, religion and life! (babylon re-born)….There are things about this organization that leaves me with a lot of questions.

Leonard Hartman - July 27, 2012

Trusting “Out Sourcing” is with out price subsidies, it shows what local production needs to equal in a free market economy to win work orders.

Robert Spellmann - July 27, 2012

I am retired. My thoughts are based on over 40 years of watching outsourcing develop. Employers in my career included IBM, Computer Science Corporation (CSC), and Lockheed Martin. All of those companies were outsourcers – they would take on responsibilities for major parts of other businesses. Obvously, none of that business went overseas as these are all American companies. All of those ‘outsourced’ jobs were American jobs performed by Americans. So, when I read the criticisim of ‘outsourcing’ in a general a way, I am not certain he who criticizes is fully knowledgable of that which he critiques.

As far as foreign outsourcing, those foreigners performing services for American companies don’t use our schools, our hospitals, or any of our national facilities financed by tax taken from us by our government or directly by our expenditures of our own earned dollars. Very few of those foreign outsourcing businesses have the governmental regulation (read cost), than an American business must pay for if the work is done here. In many of the situations that I have observed where staff work was outsourced by my employer, it was new service provided to customers. That is, Americans did not lose a job they had. In other situations where Americans lost the service role they had performed, each employer simply assigned employees to other roles within the company with no loss of income to the employee.

I observed that all consumers of products from those companies – whether my employer produced computers or fighter planes, or provided information technology support and development – paid less because of overseas outsourcing. In addition to the financial burden placed by our government on American businesses, Americans cost more. I know that is stating the obvious but it seems worth emphasizing since such blanket criticism is being made of outsourcing. It is about cost – not just cost to the business, but the final cost to us, the consumers of products and services. And interestingly enough, I’ve yet to hear an American say they want to pay more for products and services. Conversely, I’ve also never heard a consumer praise a company for selling a cheaper product by outsourcing overseas. So, what do we really want? How should we choose: more Americans working or less out of our wallet? Isn’t it easier to worry about meeting our monthly budget than whether the producer of items we purchase could have hired another American by charging us more? But, if you are responsible for managing your own business or a business owned by stockholders, you better not raise costs if you want to keep YOUR job.

And lastly, how many products in each of our homes say made in the U.S.A.? How many foreigners have benefited from each of our consumer choices? Why should we not call that ‘outsourcing’? I have to look at myself and the countless items I see in my home that have stickers that read “Made in China” or wherever, and realize that I label myself Hypocrite if I can do that which costs a fellow American a job but a corporation cannot.

Simon A Tucker - July 27, 2012

GM and GE is a prime of how outsourcing hurts american workers. How many high paying jobs have GM and GE sent to China over the past 3 years at the expense of the taxpayers?????????

Joel - July 28, 2012

I do believe offshoring, not necessarily outsourcing is not good for our economy. I am in the technology sector and I’ve personally had to lay off good, experienced employees because the company decided to offshore their work to less expensive and less experienced people. Too many companies look to offshoring for short term financial gain rather than long term outcomes and its the American worker who pays the price.

Graham Dozier - July 28, 2012

I thank Mr. Riley for his well balanced report on outsourcing ; Especially his point about our deficit and
foreign investment.
I believe his article should be given to Mitt Romney and his team post haste.

Jim Cipa - July 28, 2012

Outsourcing is good for the economy. It allows manufacturers to acquire goods and services that cannot be produced in the U.S economically. This allows manufacturers the flexibility to remain competitive and stay in business, saving jobs and creating wealth.

EDWARD MC KIERNAN - July 28, 2012

Again from the information you provide,it is the government that is the roadblock to a thriving economy.
Government medling in areas they have no knowledge or expertise will be our undoing.In addition, government has no constitutional right to be doing any of what they are doing in the private sector.The answer is simple,” get government out of the way” and turn American entrepreneurs lose to do what they do best.

Ron Puckett - July 28, 2012

I am behind the Heritage Foundation 100%!
If and when Obama is voted out of office you better be prepared. When a democrat president leaves office they never stop trying to run this country. You can bet, obama will not leave quietly. He probably has no plan of leaving win our lose.

rusell - July 28, 2012

It is not the outsourcing but the balance of trade. when we have more imports then exports from china and to pay for this we have to borrow from china.

Bill - July 28, 2012

Where unions expect unrealistatic high wages outsourcing with lower costs can save a company.

Estelle - July 28, 2012

Hurray! Someone finally said what we’ve all been thinking about the outsourcing issue! Way to go Heritage Foundation.

Donald DaCosta - July 28, 2012

Perhaps the best counter argument to the outsourcing “problem” is the favorable impact on the domestic economy of insourcing. Two such major European companies are mentioned in this article, BMW and Airbus but there are many more from around the world that still find America a good place to set up shop as many have already done. This is almost miraculous given the events of the past 3 ½ years.

The real problem, as long as the free market is allowed to operate as intended, is that as a result of excessive corporate taxation and the oppressive burden of an increasingly complicated and costly regulatory policy, more domestic companies are being forced to conclude that their stockholders and customers are better served if they set up shop outside their mother country.

The liberal has yet to grasp that business, especially one that operates in a global market, no matter where it’s location, can only remain a viable entity if it can effectively compete in that market. What is perhaps a difficult concept to grasp and even more so, to accept, is that other than to stockholders, company management and customers, it makes little difference to the thousands of Americans that lose their jobs why their employer closes shop. To them, going overseas or going out of business results in equal outcomes; unemployment and loss of income. It is most unfortunate that the resulting human misery is used to bludgeon the demon created by the left, the “greedy American capitalist” when far more often it is government interference in the private markets that is the real culprit and the economic malaise in America today is a classic case in point.

The left in America become apoplectic with such “irresponsible, unpatriotic behavior” by American businesses and react by increasing the tax and regulatory burdens as a punitive measure to encourage and achieve the desired behavior modification; pay higher taxes, comply with the exponentially increasing regulations and stop all attempts at evasion, including, of course, moving off shore. And when human nature doesn’t comport with these liberal dictates it must be the inherent evil in the “greedy,” free market, Capitalist, profit driven, competitive environment. Short of a communist/socialist/progressive takeover, their only solution is higher taxes, more regulation and more government control. In their eyes, American business is not even close to “paying its fair share.”

Should this liberal, big government, high tax, excessive regulation movement continue unabated, it will be the catalyst for an accelerated economic decline; the current limp will become a critical, debilitating illness. Outsourcing will indeed become excessive and a problem but it, in itself, will be a result, not the primary cause of GDP “growth” going negative. Nevertheless, public perceptions will not change unless the conservative movement does a much better job of countering the simplistic, liberal, anti-capitalist blame game. Given the current, rampant, liberal media bias, the “dumbing down” of the American electorate and the absence of a strong, charismatic, conservative leader, this will be an almost insurmountable task.

Marti - July 28, 2012

It would be nice to call a “customer service” and actually get an American who understands your questions.

C Graham Wayne - July 29, 2012

No! K McNair effectively shows that the US is at an advantage in the 2-way outsourcing game. I, myself, have one of the 5.5 M jobs for a multinational employer. More are being added at my workplace because Japanese corp. leadership opted to invest more capital here than ops in China. Customer manufacturers, including at least one Japan-based, are still in the US in spite of Washington’s misguidance.

Harriett Fazio - July 29, 2012

I feel outsourcing is bad period!!! We do need to get rid of a lot of regulations, but not those involving clean air and water. Listening to Rep Kelly, where a mirror was 1/4 inch too high, those are the ridiculous types of regulations that must go. I am sick and tired of calling a company I have a problem with and getting someone who can hardly speak english. I want our products built and made here. Everything that comes from China is BAD!!!! We know this and no american company should be producing products there that then are imported here. We need the jobs here. Make it easier to produce things here and stop oursourcing jobs that have foreigners answering our phone calls and things will be a lot better.

Doug Perle - July 29, 2012

If out sourcing is so good why haven’t we seen more foreign countries out source to the USA? The hundreds of thousands of jobs lost by our Governments failure to keep business at home, not offering any insentive to stay in the USA or penalty from going over seas. If 21% is so good what was the per centage when we were a “leading manufature”. Tell me Detroit hasn’t been destroyed because of the lack of Government insentives to creat jobs or keep them in country.

Charlene L. - July 29, 2012

Outsourcing may be bad for the economy, but the governement has made it extremely hard for American
companies to stay in business. The government needs
to make it viable for business to stay operational in our country.

Kirbydoug - July 30, 2012

What is often forgotten is that outsourcing jobs creates more wealth in the US because the products we consume are then made for a lower cost. This THEN gives the U.S. consumer more buying power with the increased savings. Economies grow with increased productivity – not by the Government taking money from consumers/investors and creating make-work WPA jobs.

William M Snedden Sr - August 9, 2012

The increasing outsourcing trend is a symptom not the problem itself. Some would say it is a result not a symptom, but that is less important than looking at why it is increasing. It can save a company money and time, if done properly, BUT it will cost American jobs! If a company outsources to obtain skilled technical help that is unavailable in this country that suggests that our education system is failing to bring enough or the right qualtity of talent to the job market. If we look at where some companies get this talent we may figure out what they are doing that we are not, to produce the quality workers we need.
If outsourcing is done simply to reduce costs and increase profits, that is a basic issue for all businesses! There is an inherent problem therefore with the cost of doing business in the USA if companies are going elsewhere for less expensive labor, materials, or merely to make operation of the company more efficient. If the higher cost is labor related (as it usually is) we know we may have a problem created by the unions, & or our government regulations, & the government tax costs related to our workers. Reducing materials costs will always be with us; i.e. to search for the least cost, quality acceptable materials to build products so there isn’t much of a basis for improvement there.
My conclusion to add to the conclusion of the Heritage Foundation paper is that government regulation cost burdens, the oppressive regulations, and intractable union persistence in gaining ever higher wages and benefits to the detriment of many businesses and government itself are driving companies out of the country! I disagree with the statement that we are still world leaders in manufacturing. There are too many places we go where it is becoming much more difficult to find the “made in USA” product label!

Mike - January 5, 2013

I found that your title was longer than the five lines, not paragraphs (which are 5-6 sentences long). You didn’t even state the “real fix”, as you call it. I Found that by reading this I wasted time that i could have Spent reading a better one.

SwampFox - October 13, 2014

The government would merely have to pass one law putting an import duty on all products coming in to the U.S. making all products coming in to the U.S. just as expensive or more so than products made right here in the good ole USA! After all here is where all these products are sold! Unfortunately our government doesn’t work for “We The People” anymore!

Scottj - June 8, 2016

I’m in information technology. People in our industry spend years and years getting trained as experts in what we do, particularly application development. You can come up with all of your overall statistics until the cows come home. Those stats mean nothing to us. In my industry, starting in 2008, there is and has been horrific and staggering unemployment that is never mentioned in statistics; not mentioned in yours as well as others.

Lisa Prince - February 24, 2017

Outsourcing has turned our economy into a nightmare. People who can barely speak English, who are incompetent, deliver substandard service , and take an act of Congress to fire. If we deal with a pissed off customer, we have to deal with it. They hang up on you and get away with it. Not to mention they have moved from the lottery scam and now use legitimate businesses to scam people. They’re as protected as the spotted owl because all they have to do is accuse anyone pointing any of this out as a bigot. Employers are more concerned with offending them than the fact that at best they’re incompetent and at worse often rip off their customers. Thanks to them MapQuest is a nightmare. Three times this month alone they’ve made me late for cases with my nursing registry because not a single part of the directions were correct. Get them out of our economy. If you don’t, you’re fixing to see a mass revolt in the workforce of the likes you’ve never seen.

sean - May 27, 2017

They still build trains & helicopters in the united states, because that is something americans are really good at building/ Compare american made ( that is designed & manufactured here by an american company) helicopters & locomotives to foreign ones , no competition at all.

King lo - March 25, 2018

Hong kong has the highest gdp because their factories in shenzhen hire farmer labor for $1 a day, should we really be impressed with that GDP?

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