Bush strikes back at critics of outsourcing

The Financial Times ^ | 9. March 2004 | Edward Alden

[1rudeboy]

President George W. Bush hit back at Democratic critics of his administration's job-creation efforts on Tuesday, branding them as "economic isolationists" who would raise new trade barriers and damage the US economy.

The comments came as part of what appeared to be a co-ordinated administration effort to respond to growing political pressures over the slow pace of US job growth, which has helped push Mr Bush's likely Democratic opponent, John Kerry, ahead of the president in several recent polls.

In a speech in Virginia, Mr Bush said: "There are economic isolationists in our country who believe we should separate ourselves from the rest of the world by raising up barriers and closing off markets. They're wrong. If we are to continue growing this economy and creating new jobs, America must remain confident and strong about our ability to trade in the world."

Robert Zoellick, the US trade representative, similarly warned Congress on Tuesday that "given the fact we're now in a stage of an economic recovery, the absolutely worst thing we could do would be to turn to economic isolationism".

Mr Zoellick told the Senate finance committee that increasing US exports to countries such as China and India, encouraging foreign investment in the US, and helping workers adjust to the loss of some jobs abroad were better responses than "bureaucratic interventions that will increase prices to our people".

Mr Bush's comments came less than a week after the Senate passed legislation aimed at preventing US government contracts from being carried out by workers in developing countries.

The administration has been uncertain over how to respond to the continued slow pace of job creation. Mr Bush has sought to distance himself from recent remarks by a senior economic adviser, Gregory Mankiw, that outsourcing of jobs is just a part of trade and therefore good for the US economy. But the administration now appears set to mount a more robust defence of companies that move US jobs abroad.

"US companies with foreign affiliates now account for about 58 per cent of our exports," said Mr Zoellick. "So the companies that do business overseas are also exporting overseas."

"I think the challenge is: How do you help people in a way that doesn't hurt or kill other jobs?" he said, pointing out that the US currently runs a $60bn annual trade surplus in the service sector, which has seen a growing number of jobs moved to lower-wage countries.

[Mr. Bird]

How many taxpayer dollars will be recirculated through the local economy from low wage India compared to local government employees?

There is zero net benefit to the economy when you add a government job. It's actually detrimental. The government employee is being paid with dollars that would otherwise be spent by a private citizen. The government employee produces nothing; the private citizen's expenditure fuels growth. On top of that, the government employee is taxed on the wages, so you rob Peter of $100 bucks and pay Paul $65, and the state gets $35. If you keep "circulating" money that way, pretty soon we'll all be broke. Not very productive.

Now, if we determine that the government job is absolutely necessary, we want to minimize its costs to the economy. If I can rob Peter of only $20 dollars to get the job done somewhere else, he has $80 more than he would have with the job staying local, and the overall economy has $15 more.

So, yes, Paul stays unemployed, but then again, he wasn't producing anything anyway.

[MinuteGal]

You're correct....crippling gas prices will enter heavily into the mix also before election. The prices are negating President Bush's personal tax cuts.

See # 260.

Leni

[brightx]

I'll second that!!

[SolutionsOnly]

Corporations are not evil. But that's not to say I'm a big fan of them either (They are burearcacies as nimble as a battleship). I'm a much bigger proponent of small business - that's where innovation comes from.

And many of those small businesses are skilled labor operations like Tool and Die shops. They cannot compete with the low wages and lack of government intrusion (OSHA, EPA), etc that exist overseas. So we end up with dispalced Tool and Die makers finding new jobs at Home Depot. It's otn a one for one lateral shift. I consider skilled manufacturing/engineering jobs far more important to the country than the retail/service sector. A job is not a job is of a job. What kind of job is important. If we move out manufacturing base overseas, expect to export our manufacturing innovation along with it.

So I see this as different than the wave of displaced middle managers of the late 80's/early 90's.

Yes, the obvious answer is that Government should get out of the way and reduce regulations and taxes on US industry.
The trouble is that the marketplace changes faster than the government does. We can see an entire industry sector vaporize in the time it takes the government to reform.
Indeed, "Government Reform" is an oxymoron.

So the question is "At what point does this become harmful?" Case in point: I would maintain that we do not want to move manufacture of M1 Abrams tanks or the F22 to China even though we could save a lot of money by doing so.

Yes, less expensive widgets may seem a good thing. But there are less obvious implications that should not be glossed over and dismissed out of hand.

[night reader]

How would you grow the market for any industry without growing globally? The US market is very stagnent and the foriegn markets are necessary for our manufacturers growth.
Can you address this issue without growing the infrastructure of foreign lands?

If Michael Dell (for example) wants to make computers for Indians, I have no problem with him setting up a factory in India to manufacture them. If he wants to sell me a computer, I'd prefer it be made here in the USofA.

I'd back a corporate tax on companies that would amount to 110% of the money they save by off-shoring jobs.

[InterceptPoint]

lower internal taxes and raise tariffs by that same amount

Well Governments now take something like 20% of the national income and it could be more. It's going to take some pretty hefty tariffs to cut into that bill. You should take a look at the practical application of your idea. I'm against income taxes and in favor of consumption taxes but I'm afraid it will take a lot more than raising tariffs to make a dent in the IRS. Lowering Government spending is the right thing to do but I'm not holding my breath.

[InterceptPoint]

In this case, price fixing would be to disallow competition from outside, or to artificially inflate the cost of imported goods to the consumer, in order to protect the native producer.

Right on the mark. Why is this such a difficult concept for people to comprehend? I am amazed at the number of generally astute Freepers who are died in the wool isolationists.

[1rudeboy]

Don't forget that Mel Gibson "outsourced" The Passion of Christ.

[1rudeboy]

I have advised my children to not even consider a college education to prepare for the private sector in a few years. What does that say about our future as a nation?

Absolutely nothing. It does say something about parenthood, however.

[american spirit]

Sorry, it's hard to buy into any arguments advanced by someone who has probably never had to meet a payroll or compete in the marketplace on a daily basis as many of us do. It's always interesting to see how the spin applied to discussions of the trade deficit issue never seems to address the fallout from such a misguided policy, namely the explosion of debt at the personal, corporate & fedgov levels that's occurred during these golden years of free trade.

One basic question remains unanswered....if this free trade initiative has been so beneficial why are we as a nation awash in levels of debt that would've seemed unimaginable a few years ago and in turn helps mask it's devastating effects on our economy.

One of the main culprits obfuscating the truth is the fedgov, which eagerly reports public debt of 'only' 7 trillion but one has to dig far and deep to find out that the fedgov is also on the hook for over 40 trillion in 'unfunded liabilities" which in part is due to the gross waste, fraud and mismanagement we've come to expect from our seemingly unaccountable public servants, but the fact remains if free trade had delivered on the promises that were made by it's proponents it's pretty obvious that the fedgov's overall expense for welfare type services would be much lower than it's current levels. Sorry, the spin doctors at the Cato Institute can offer soothing explanantions all day long regarding this issue but the fact is our country's financial position is more precarious as each day passes.

[1rudeboy]

If we have been increasing US exports, why has the trade deficit hit a record at 43.1 billion?

Because we are wealthy and we buy stuff? What do I win?

[1rudeboy]

We are now running 40 BILLION dollar monthly trade deficits. So, if we put a Tariff of 10 percent on everything that comes in, thats 4 billion a month, 48 billion dollars a year, into the U.S. treasury.

You cannot be serious. How much less will come in to the U.S. Treasury when other countries retaliate?

[americanbychoice2]

I enjoy your contributions here.
This is again, a very complexituation and quite a few try to solve it with a few simple one-liners. It just doesn't work that way.
Just a couple of points, there are so many................
We are fortunate that we don't have as MANY regulations as they do in Europe, which is one of the reasons for their high unemployment.
If we cut taxes to zero, instituted a VAT tax in place of it, many corporations who had set up manufacturing in Europe would consider moving home.
One of the big problems is the fact that 30% of our youngsters do not graduate, however those are the individuals asking for higher wages and are embracing Socialism. They are not educated enough to even think for themselves or to be able to think things through.
Enter the UNIONS, while many years ago the unions fulfilled their part, today they are just managing to price us out of the world market, judt like they did in Europe.
When we import lower priced products everyone wants to buy them. They are also the same people who scream and yell that outsourcing is taking jobs away and want higher wages. If they would purchase those products produced in this country, they would again revolt that the price is too high. You can't have it both ways.
Health Insurance: They believe that Hillary care would have been free. Far from it. If they looked at Germany, for instance they would realize that 15.9% of their income would be going for premiums and the system is broke.
Because of their inability to think rationally they are constantly exploited by marxist politicians and Unions who promise them the moon, only to realize when it is too late that the grass on the other side is only greener because they worked hard and spent money on fertilizer.
So many points.........so little room ......:)

[expat_panama]

new jobs numbers are dismal,

Oh, I thought you were talking about actual workers earning money as counted by the BLS.  In the bush-bashing fantasy world of 2+2=5, new jobs numbers are dismal.  Just say it over and over again: "new jobs numbers are dismal, new jobs numbers are dismal, new jobs numbers are dismal".

[CSM]

"If we cut taxes to zero, instituted a VAT tax in place of it, many corporations who had set up manufacturing in Europe would consider moving home."

Wrong. The gauranteed employment laws in Europe are so restrictive, they couldn't afford to move back. Of course, they don't want to hire new people either, leading to double digit unemployment rates.

I agree with the rest of your post!

[Mr. Jeeves]

Because there are other issues. In the early 80's I saw the steel mills close in Pittsburgh. It was the end of the world to them, yet Reagan was still re-elected in 84.

You are in IT, some people are getting outsourced but the extent is not that of what happened to steel in the early 80's. The world does not revolve around you or your industry.

94.4% of the workdorce is employed.

When the steel workers were laid off, entire communities of people in Pennsylvania and West Virginia got angry and voted for Democrats. No surprise, but no great impact on the electorate, either.

When IT workers get laid off, they go on the Internet and make a lot of noise about how they are going to "starve to death". Many, many more people read these anecdotes and fear the same fate than ever heard about - or cared about - the steelworkers in a "foreign country" like West Virginia.

The national political impact of outsourcing IT and finance jobs is much greater than the regional political impact of outsourcing manufacturing jobs. The arguments in favor of free trade may be perfectly sound from an economist's point of view, but the Internet horror anecdotes are going to be a bigger influence on the mindset of the average American voter, even if the risk that their job will ever be outsourced is wildly exaggerated.

It's the threat that Bush and Rove need to fear, not the reality.

[americanbychoice2]

yes, no.
While employment laws are indeed very restrictive, it would not have an effect on a company shutting down. Just like here, where you see people getting settlements to retire early. That is actually a cost saving for a company rather than to keep them employed at full salry while the demand dries up.

[expat_panama]

those illegal aliens can't get across the border fast enough...   George Jr's "Viva la Mexico" globalistas...

So it's bad if it's outsourcing to Mexico but OK if it's outsourcing to Aryans like Italy and New Zealand.  C'mon guy's Mexicans are nice people.  Did you guys know that 16 of those who died defending the Alamo were Mexicans (actually they were all Mexicans, but 16 were born in Mexico).

BTW, the article is about out-sourcing-- nobody is outsourcing to immigrants, legal or not. Let's keep it on topic.

[CSM]

You didn't answer the question. How would you grow a stagnent market when you eliminate the ability to reach out to other areas of the world?

Instead, you propose the closure of that market. Without the ability to import to establish markets, capitol will not be spent in growing/potential markets. Therefore, we will never be able to realize that market.

What you propose can only result in constant inflation in the price of products, sending us into a circle of doom!

[Prodigal Son]

Hank, is that you?

LOL. Could be ;-)