Topic Category: U.S.

Tainted Chinese imports have become a serious problem. The Chinese government realizes this and has taken swift action, including shutting down 180 food processing plants since December and executing the former director of the its drug and safety agency for corruption.

But due to economic realities beyond that government's grasp, Chinese imports likely will continue to be a problem in the short term. That's why American importers need to step up to the plate and assume greater responsibility.

Topic: U.S.
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If a government policy creates many higher-paying jobs while putting fewer lower-paying ones at risk, would you favor it?

Virtually everyone would say yes. So why are free trade agreements — mechanisms that generate far greater benefits than disadvantages — perceived so negatively?

Topic: U.S.
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Contrary to some claims, only a very small percentage of American jobs are ever put at risk from imports. And surprising to many, U.S. employment has been strong during periods of elevated imports.

According to the Progressive Policy Institute, A Washington, D.C.-based Democratic led think tank, research indicates that at most, imports account for approximately 5 percent of layoffs, and more likely between 2 percent and 3 percent.

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Despite more than five decades of evidence demonstrating the gains from liberalizing trade, the impact of international trade and open markets on the U.S. economy remains a hotly debated issue. In 2005, Congress considered renewing the President’s trade promotion authority, withdrawing from the World Trade Organization (WTO), and approving the Dominican Republic–Central American Free Trade Agreement (DR–CAFTA).

Topic: U.S.
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The U.S. economy is undergoing one of the greatest periods of transformation in history. The convergence of powerful technological, political, economic and cultural forces is shaping the 21st century.

But as many U.S. industries seize global opportunities derived from today's economic realities, some are experiencing difficulty. This is causing fear and anxiety among workers similar to what was experienced during the industrial revolution. In turn, it is forcing a backlash against China—the latest scapegoat based mostly on misinformation.

For example, although the U.S. economy created 64 million net new jobs from 1970 through October 2005, the number of U.S. manufacturing jobs fell from a high of 21 million in 1979 to 14.2 million in October 2005. Many blame this on imports, particularly from China. The real reason: new technologies and higher productivity have empowered fewer American workers to produce more goods in far less time.

We've seen these trends before. New technologies enabled U.S. agricultural output to skyrocket. The result: the number of farm workers fell from 9.5 million in 1940 to 2.2 million in 2004. Yet, the United States did not lose 7.3 million jobs; they shifted to emerging industries resulting in higher standards of living and a more prosperous American economy.

Imports from China only are responsible for a fraction of U.S. job losses. Importantly, they offer U.S. consumers greater choices and lower costs. In turn, this affords the American family more disposable income for education, health care and rent. In addition to keeping inflation down, inexpensive imported components help keep U.S. producers competitive.

China does, however, present new challenges. And it does not always play by the rules, especially with regard to intellectual property, production subsidies, distribution rights and transparency. But, should we isolate China as many suggest? To determine how well isolationist policies work, look no further than North Korea and Cuba: two countries where the United States has virtually no trade—and no influence.

Since its accession to the World Trade Organization in December 2001, China has significantly opened its market, cut import tariffs by nearly 40 percent, virtually eliminated import licenses and quotas, and relaxed ownership restrictions.

As a result, China and Hong Kong have become the United States' fourth largest export destination. And from 1999 through 2004, U.S. exports to China increased nearly 10 times faster than U.S. exports to the rest of the world. With a growing population of 1.3 billion people—and 200 to 300 million consumers with considerable purchasing power—China offers U.S. companies tremendous opportunities.

The demands for China to float its currency, the yuan, is another issue fraught with misinformation. During the devastating Asian financial crisis of the late 1990s, China wasn't affected because the yuan was fixed to the U.S. dollar while U.S. policymakers praised China for its currency stability. Today, due to its fragile financial sector, China probably couldn't float the yuan if it wanted to. And even if the yuan's value were to rise, the impact on the U.S. trade deficit would be minimal, according to Federal Reserve Chairman Greenspan. Why? If the yuan's value were to rise, U.S. companies would continue to seek low cost imports from other developing countries.

President Bush's November visit to China is part of an ongoing effort to strengthen the U.S.-China relationship—a vital objective in today's complex world. Viewing China as a villain won't bring back U.S. manufacturing jobs. And when China doesn't implement reforms fast enough, understand its need to modernize at a pace that won't cause violent unrest among its unemployed.

Does this mean the U.S. should ignore unfair Chinese trade practices? No. But we should base our policy decisions on economic realities, not misinformation. Only through a mutually beneficial relationship will U.S.-Chinese business partners continue to create more globally attractive products—an effort that generates higher skilled, higher paid jobs in the United States.

This article was syndicated by Knight Ridder/Tribune Information Services and appeared in the Clarion-Ledger, Deluth News, Kansas City Star, Provo Daily Herald, Pueblo Chieftain, and Wisconsin State Journal in November and December 2005. This article also appeared in Impact Analysis, January-February 2006.
Topic: U.S.
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U.S. companies linked to the global marketplace perform better than those that only operate domestically. And the employees and communities of globally-engaged firms prosper more. But surprising to many, the benefits do not just apply to exporters.

Companies that import, invest abroad or are recipients of foreign direct investment (FDI) also prosper more than their domestically focused counterparts. And the reasons are not always obvious.

Growth Is Faster and Wages Are Higher

According to the report, Why Global Commitment Really Matters!, U.S. companies that export have faster growth rates and fail less often than companies that do not. They also offer better opportunities for advancement. Lewis and Richardson, authors of the report, say blue-collar earnings in exporting firms are 13 percent higher than those in non-exporting plants. White-collar employees obtain better wages too—18 percent more than their non-exporting counterparts. Benefits also include improved medical insurance and paid leave.

Productivity Is Stronger and Technology More Advanced

The report contends that U.S. plants which are recipients of FDI employ workers with 19 percent higher productivity, provide them with more machinery and equipment and use more cutting-edge technology than their counterparts that are not globally-engaged. Similarly, U.S. companies that have investments abroad use more advanced manufacturing technology than U.S. non-multinationals. The result: worker productivity is 11 percent higher in large U.S. multinationals and 33 percent higher in small ones, as compared to their U.S. counterparts not invested abroad.

Importers Prosper and Communities Are More Stable

Importers benefit from access to the best value the world has to offer. In 2004, for example, more than half the $1.5 trillion in U.S. imports were capital goods, and industrial supplies and materials—imports often used in the production of finished products. In turn, this helps U.S. producers to be more globally competitive and increase sales.

U.S. communities that host globally-engaged companies also experience positive spillovers in terms of wages, technology and skills. Furthermore, revenue generated from global integration flows throughout local communities and spreads risk should the United States enter a period of slow or negative economic growth. This often translates into a more stable workforce and tax base.

Expanding Internationally Is Key

In 1950, U.S. trade accounted for less than 5.5 percent of U.S. economic growth. Today, it has become an integral part of everyday life, accounting for 25 percent. And the benefits are far reaching. In 2005, Gary Clyde Hufbauer of the Institute for International Economics, said trade and globalization have generated an increase in U.S. income of approximately $1 trillion annually, measured in 2003 dollars. This translates into an income gain of about $10,000 for the average American household per year.

Although the pursuit of international trade and investment carries risks, the dangers of solely operating domestically could be greater for many firms. Global engagement, which generates many benefits, is an important key to success in our competitive business environment.

This article appeared in September 2005. (CM)
Topic: U.S.
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The United States always has been a leading proponent of free trade. However, many now believe this leadership position is at stake—especially since U.S. willingness to accept World Trade organization (WTO) rulings is questioned.

For example, both WTO and NAFTA committees have ruled that Canadian lumber subsidization evidence is insufficient. Nevertheless, the U.S. continues to impose tariffs on Canadian softwood lumber exports to the U.S. This dispute has been unresolved since 1982.

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International trade is a primary generator of business growth in Western New York. And a tremendous number of jobs are dependent on it.

How do we know this?

New York state is the third-largest exporter of manufactured goods compared to all other states. Based on U.S. Census Bureau calculations, more than 280,000 New York jobs are directly dependent on merchandise exports, which pay 13 percent to 18 percent more than the national average wage. And a tremendous number of jobs are dependent on New York’s service exports, as well as indirect exports.

Trade is also essential to our region.

In the Buffalo-Niagara Falls metropolitan area, the manufacturing sectors with the largest employment are also among the state’s top merchandise export industries. What does this mean?

Take the local transportation equipment industry for instance. It is Buffalo-Niagara’s largest manufacturing employer and New York’s second largest merchandise export. It stands to reason: As Ontario auto producers (one of our principal customers) buy more auto parts from local manufacturers, we benefit.

Jack Davis, the outspoken trade protectionist who attempted to unseat Rep. Tom Reynolds in the 26th Congressional district last November, has made trade the scapegoat of virtually all our economic problems. Although his intentions are good, his trade policy recommendations, if implemented, would be disastrous for Western New York. If Davis had his way, he would raise import barriers in an attempt to isolate producers from foreign competition. In response, foreign countries would retaliate by keeping U.S. products out. This would have an enormously negative impact on New York State, especially local auto parts producers who heavily rely on Ontario auto factory orders.

Overall, we would lose more jobs than gained.

According to a U.S. International Trade Commission study, if all U.S. trade barriers had been eliminated in 1999, 175,000 full-time American workers would have been displaced (representing only one one-hundredth of 1 percent of the labor force), but 192,400 full-time jobs would have been created. The result: a net gain of nearly 17,400 jobs. Plus, total output would have increased by $58.8 billion.

If trade is not causing manufacturing jobs to decline, what is? New technologies and innovation, which have significantly boosted U.S. productivity, are primarily responsible. This has enabled fewer workers to generate much more output than ever before.

Nevertheless, Mr. Davis advocates protectionism to prop up failing manufacturing industries. This would only make the situation worse. Federal Reserve Chairman Alan Greenspan has repeated that creeping protectionism must be thwarted and reversed.

Consider this: Would we have wanted to stop rising productivity in the U.S. agricultural industry that caused the number of farm jobs to fall from 9.5 million in 1940 to 2.2 million today?

Currently, U.S. agricultural output can virtually feed the world. America did not “lose” 7.3 million farm jobs: They shifted to emerging industries. As a result, we became more efficient and prosperous.

Trade is not the cause of Western New York’s economic ills. It’s one of the few bright spots on our economic horizon.

This article appeared in the Niagara Gazette, March 2, 2005.
Topic: U.S.
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Several decades ago, as Albert Einstein monitored an exam for a graduate level physics class, a student raised his hand and said there was a problem: the questions on the exam were the same as the previous year’s test. Einstein agreed. The questions were indeed the same, but in a year’s time the answers had changed completely. Given the accelerated pace of change today, the “answers” are not just different from those of last year. In many cases, they are even different from those of last month.

Many Americans, as well as Members of Congress on both sides of the aisle, do not understand why some answers that seemed appropriate only a few years ago do not apply today. On the other hand, some do indeed understand, but choose not to accept the new realities. For example, several policymakers have revealed to this author that taking a globalist view in support of international trade is dangerous to their job security. In fact, one Member of Congress said he understood the need for some companies to outsource services abroad, but could not sell that reality back home. When it comes to outsourcing abroad, also known as offshoring, many politicians are basing their policy decisions on outdated assumptions that may sell in their Congressional districts. But in the end, these anti-globalist positions actually will hurt, not help their constituents.

The fear that offshoring will result in fewer good jobs for American workers is understandable since some activities include the movement of knowledge-intensive services to India and other countries with educated, less expensive, English-speaking labor pools. But careful analysis reveals that worldwide sourcing—made possible by new technologies that digitize and cheaply transmit information around the world—provides real benefits. Unfortunately, little evidence of this has been publicized. And when companies communicate a strategy to outsource certain services via a public relations campaign, they often do so poorly. This does not help. In turn, due to misinformation about offshoring, fear of negative publicity, political pressure, investor objections or employee criticism, many companies have either cancelled or not executed offshoring contracts. Many state agencies have incurred the same problems and turned a blind eye to offshoring opportunities that could have saved their tax payers millions of dollars—funds desperately needed!

If placed in the larger context, offshoring is seen as one of several means by which jobs are lost in the short-term. History tells us that new technologies and improved business strategies displace jobs. For example, automobile workers replaced buggy makers, while ATMs, voice mail and voice recognition software eliminated bank teller, receptionist and medical transcription jobs. As pointed out earlier, the U.S. economy loses an average of 31 million jobs annually. But new jobs are created more quickly than old ones are lost. New technologies, innovation and higher productivity, the primary causes of job turnover, also known as job churn, actually increase wages and improve living standards. In turn, new industries and higher skilled jobs emerge. Thus, Forrester Research’s estimate of 3.3 million service jobs moving offshore by 2015 represents a small fraction of job churn. How many Americans are familiar with this reality?

Lower-tech jobs most likely to be outsourced, such as bookkeeping and customer service, are projected to increase in the United States. And higher-tech jobs prone to outsourcing, like computer programming and software design, also are expected to increase here, according to the Labor Department. In fact, from 2002 through 2012, all U.S. computer-related occupations are estimated to grow by 15 to 57 percent. That’s not all. Many back office jobs (some more skilled than others) are estimated to grow in the United States. For example, paralegal jobs are projected to increase by 28.7 percent, bill and account collector positions are estimated to grow by 24.5 percent, customer service representative occupations are estimated to increase by 24.3 percent, radiologist jobs (which are part of the larger medical field) are anticipated to rise by 19.5 percent, accountant and auditor positions are projected to expand by 19.5 percent, architectural occupations are projected to expand by 17.3 percent and commercial and industrial designer jobs are projected to grow by 14.7 percent.

How does offshoring lead to better jobs? The McKinsey Global Institute estimates two-thirds of economic benefits from outsourcing services to India flow back here. Firms that outsource generate higher profits, have more capital to invest in R&D, become more globally competitive and are better positioned to expand sales worldwide—creating higher-paid jobs.

In March 2004, The Information Technology Association of America (ITAA), a leading U.S. trade association for the IT industry, released The Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the IT Industry. According to ITAA, the study conclusively demonstrates that worldwide sourcing of computer software and services increases the number of U.S. jobs, improves real wages for American workers, and pushes the U.S. economy to perform at a higher level, thereby generating many other economic benefits.

Global Insight, a leading economic analysis, forecasting and financial information company, was commissioned by ITAA to conduct the study. The Global Insight research team was led by Global Insight Chief Economist Dr. Nariman Behravesh, one of the world’s most accurate economic forecasters. Nobel Prize winning economist Dr. Lawrence R. Klein, the founder of Wharton Econometric Forecasting Associates (WEFA), Inc. and a Global Insight associate, also made significant contributions to the study.

“We have long held the position that global sourcing creates more jobs and higher real wages for American workers,” said ITAA President Harris N. Miller. “Now we have the data that prove it. Far from being an economic tsunami that washes away domestic IT employment as some believe, global sourcing helps companies become more productive and competitive. The savings produced through worldwide sourcing are invested in new products and services, in new market expansion, and, most importantly, in creating new jobs and increasing real wages for American workers. This research replaces fear with sound economic analysis, allowing for an informed approach to the global marketplace.”

The ITAA/Global Insight study found:

  • Worldwide sourcing of IT services and software generated an additional 90,000 U.S. jobs in 2003; by 2008, net new jobs are estimated to total 317,000.
  • Global sourcing adds to the take-home pay of average U.S. workers. With inflation kept low and productivity high, worldwide sourcing is projected to increase real wages in the U.S. by 0.44 percent in 2008.
  • Worldwide sourcing contributes significantly to real U.S. GDP, adding $33.6 billion in 2003. By 2008, real GDP is predicted to be $124.2 billion higher than it would be in an environment in which offshore IT software and services outsourcing did not occur.
  • Global sourcing contributed $2.3 billion to U.S. exports in 2003 and is projected to contribute $9 billion by 2008.

The study also found that raising barriers to worldwide sourcing would adversely impact U.S. workers and U.S. firms. If all global sourcing of software and IT services terminated completely, the report said, the impact would slow the U.S. economy and reduce the number of new jobs available to American workers. While worldwide sourcing is expected to increase jobs and wages, Miller said much needs to be done to address the challenges of those workers displaced by this economic shift. The report offers a range of recommendations to achieve this.

Catherine Mann of the Institute for International Economics says offshoring of computer manufacturing resulted in a 10 to 30 percent drop in computer costs. In turn, sales of PCs soared. This led to a rapid rise in U.S. productivity and added $230 billion in cumulative GDP from 1995 through 2002. The result: many new jobs emerged, far exceeding those lost to outsourcing.

If applied to select medical services and other fields, offshoring could reduce costs and generate new waves of innovation, resulting in better jobs not yet imagined. As Ross Perot’s early 1990s forecast of a “giant sucking sound” proved incorrect, so is the fear of offshoring. In reality, the U.S. service sector will significantly expand. And since the industry has become more sophisticated, average hourly earnings for service production workers have already caught up to those in manufacturing. Nevertheless, service jobs that require left-brained routine quantitative functions, not intuitive or creative problem solving skills, will increasingly be automated or moved offshore. As a result, those jobs that are lost will increasingly be featured on prime-time news and create the false impression that the American service industry, as a whole, is moving to India.

In the end, these false impressions can be powerful. According to the National Foundation for American Policy, a Washington, D.C. research organization, as of March 17, 2005, there were 112 bills in 40 states designed to restrict outsourcing. On the same date in 2004, there were 107 bills in 33 states. If successful, in the long run, these bills will harm the workers they are intended to help. Stated in the 2005 McKinsey Global Institute report, How Offshoring of Services Could Benefit France, “A new dynamic is emerging in the economic sectors exposed to global competition: early movers in offshoring improve their cost position and boost their market share, creating new jobs in the process. Companies who resist the trend will see increasingly unfavorable cost positions that erode market share and eventually end in job destruction. This is why adopting protectionist policies to stop companies from offshoring would be a mistake. Offshoring is a powerful way for companies to reduce their costs and improve the quality and kinds of products they offer consumers, allowing them to invest in the next generation of technology and create the jobs of tomorrow.”

As business becomes more competitive, companies increasingly will focus on their core strengths and contract out functions that can be provided more efficiently by others. Many of these functions will be offshored. But more will be outsourced within the United States. This provides many opportunities for regions with various advantages. Take Western New York for example. The State University of New York at Buffalo, as well as many other local universities and colleges, graduate tremendous numbers of very well educated students each year. In the Western New York area, housing and corporate real estate costs are among the lowest in the country. The region also has one of the largest international trade and transportation infrastructures, and the quality of life is top notch. According to Jeff Belt, president of Acen, a Buffalo, N.Y.-based software development and web hosting company, “The cost to operate a software firm in Western New York is 48 percent less than in metropolitan Seattle, and all the necessary talent and infrastructure are here.”

Based on these realities, Western New York is naturally suited to attract culturally-sensitive, high-skilled back office operations that require elevated levels of quality control. The target: corporations that operate skilled back office service operations (knowledge-intensive jobs not requiring face-to-face contact) currently located in high-cost metropolitan areas such as New York City, Boston and Washington, D.C. Based on Western New York’s advantages that most regions cannot match, it has an opportunity to brand itself as “America’s insourcing center” and position itself as the high-end “American Bangalore,” free of cultural disconnects, long-distance management problems and political uncertainties caused by Indian-Pakistan tensions and global terrorism. Plus, Western New York offers Manhattan-based financial firms a well-suited data back-up location that exceeds the 200-300 mile distance recommended by the federal government’s interagency white paper on strengthening the resilience of the U.S. financial system. Like so many other U.S. regions, however, Western New York needs to better adapt to new global economic realities in order to seize valuable opportunities within its reach.

This section appeared in Part I: Understanding Today's Global Realities of the book Grasping Globalization: It Impact and Your Corporate Response, 2005.
Topic: U.S.
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FAQ: How important is international trade to the U.S. economy?

Talking Points:

International trade enables producers of goods and services to move beyond the U.S. market of 296 million people and sell to the world market of 6.4 billion. This is very good news, since exports support millions of higher-paying U.S. jobs, strengthen companies and farms, and improve our tax base, while sending export revenue to local communities through restaurants, retail stores, etc. In 1950, trade accounted for less than 5.5 percent of U.S. economic growth. Today, it has become an integral part of everyday life, accounting for 25 percent of economic growth in 2004.

As stated earlier, in 2005 Gary Clyde Hufbauer of the Institute for International Economics, said trade and globalization have generated an increase in U.S. income of approximately $1 trillion annually, measured in 2003 dollars. This translates into an income gain of about $10,000 for the average American household per year. Further liberalization that achieves global free trade and investment, he said, could produce another $500 billion in U.S. income annually or $5,000 per household each year. And a May 2005 OECD report estimates reforms that enhance market competition, reduce tariff barriers and ease restrictions on FDI would boost GDP per capita 1 to 3 percent in the United States, 2 to 3.5 percent in the European Union, and an average of 1.25 to 3 percent in OECD member countries.

According to Howard Lewis III and J. David Richardson’s report Why Global Commitment Really Matters!, companies that export grow faster and fail less often than companies that do not. And their workers and communities are better off. According to this report, published in October 2001 by the Institute for International Economics, U.S. exporting firms experience 2 to 4 percentage points faster annual growth in employment than their non-exporting counterparts.

But there’s more to the story. Exporting firms also offer better opportunities for advancement, expand their annual total sales about 0.6 to 1.3 percent faster, and are nearly 8.5 percent less likely to go out of business. These gains are not dependent on any specific time period or export volume. Furthermore, sales abroad spread risk should the domestic market enter a period of slow growth or recession.

FAQ: Are workers in trade-related jobs paid less than the average wage?

Talking Points:

According to Why Global Commitment Really Matters!, workers employed in exporting firms have better-paying jobs. For example, blue-collar worker earnings in exporting firms are 13 percent higher than those in non-exporting plants. Wages are 23 percent higher when comparing large plants and 9 percent higher when comparing small plants. White-collar employees also earn more—18 percent more than their non-exporting counterparts. Furthermore, the benefits for all workers at exporting plants are 37 percent higher and include improved medical insurance and paid leave.

Why Exports Matter: More!, a report by J. David Richardson and Karin Rindal published by the Institute for International Economics and The Manufacturers Institute, states that less skilled workers also earn more at exporting plants. How does globalization impact the wages of workers in non-trade related jobs? According to the International Monetary Fund, “Nearly all research finds only a modest effect of international trade on wages and income inequality.” Note: since the late 1970s, the wages of less skilled American workers have decreased relative to those of more skilled workers. Similar patterns are occurring in the United Kingdom. In contrast, countries with relatively rigid wages, such as France, Germany and Italy, have experienced higher unemployment rates.

FAQ: How do U.S. companies that invest abroad or are recipients for foreign direct investment compare with firms not internationally involved?

Talking Points:

According to Lewis and Richardson’s report, U.S. companies that have investments abroad use more advanced manufacturing technology than U.S. non-multinationals or U.S. firms without investments abroad. And this has led to greater labor productivity. In fact, worker productivity is 11 percent higher in large U.S. multinationals and 33 percent higher in small ones as compared to their U.S. counterparts not invested abroad.

In addition, average annual earnings of employees at large U.S. multinationals abroad are 18 percent higher than at their U.S. non-multinational counterparts; at small multinationals this number increases to 25 percent. Even though analysis indicates difficulty in separating out white-collar job gains at American-owned multinationals, blue-collar job gains are significant.

On the other hand, U.S companies that are recipients of foreign direct investment also perform better. According to the report, U.S. plants that are recipients of foreign direct investment employ workers with 19 percent higher productivity, provide them with more machinery and equipment, and use more cutting-edge technology than their counterparts not globally engaged. Also noteworthy, these benefits accrue at plants with an equity stake as low as 10 percent and as high as 100 percent. Overall, the report says blue- and white-collar jobs at these plants pay 7 and 2.5 percent more, respectively, when comparing plant size, industry and location.

This section appeared in Part III: Frequently Asked Questions and Talking Points of the book Grasping Globalization: Its Impact and Your Corporate Response, 2005.
Topic: U.S.
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