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Outsource This: The Dems Smell Blood

N. Gregory Mankiw, the besieged chairman of President Bush's Council of Economic Advisers, has learned the hard way that there's a huge difference between ivory tower discussions at Harvard and political combat in Washington. After setting off a firestorm by remarking that sending America's high-tech service jobs abroad is "probably a plus" for the U.S. economy long-term, he has been working on his mea culpas. On Feb. 17, Mankiw said his analysis, which has been widely seen as economically sound, was "injudiciously worded."

But Mankiw's message malfunction was more than impolitic. It added fuel to the fiery debate over outsourcing, put the President on the defensive on the perilous subject of job losses, and helped boost Democratic Senator John Edwards (N.C.) to a strong second-place finish in the Wisconsin Democratic Presidential primary.

For Democratic sharks, there is blood in the water. In Mankiw's gaffe, they see an opportunity to appeal to voters beyond blue-collar manufacturing workers by tapping into white-collar anxiety over the loss of jobs to high-skill, low-wage nations like India and China. And they may have an opening: A December Zogby Poll found that 25% of Americans earning at least $75,000 worry about pink slips -- more than any other income group.

Edwards is effectively exploiting those fears. "I'll tell you what we should do," he declared in Appleton, Wis., on the day before the Feb. 17 primary. "We should outsource this Administration." That's just what Guy Prickett, a factory worker in Milwaukee, wants to hear. "About 400 jobs from my company are leaving to China," he says. "It's my No. 1 issue." No wonder John Kerry headed to Ohio on Feb. 18 to talk to workers whose jobs had been exported.

With an estimated 300,000-500,000 jobs moving offshore each year and consumer confidence plunging in February, Republicans are nervous. GOP leaders, including House Speaker J. Dennis Hastert (R-Ill.), have responded by hammering Mankiw and hiding their free-trade cloaks in the closet. "We are in very desperate times," says House Small Business Committee Chairman Donald A. Manzullo, whose hometown of Rockford, Ill., is suffering from 11% unemployment. Manzullo, who prides himself on his pro-trade votes, now wants stronger "Buy America" rules in federal contracts as well as Mankiw's dismissal.

Legislative Scramble

In cash-strapped state capitals once eager to cut costs by sending work overseas, the number of bills to limit the outsourcing of government call centers and information processing has doubled, to 20, since January. In Indiana, where Democratic Governor Joseph E. Kernan recently rescinded an India-based company's $8 million welfare-service contract, the GOP legislature is mulling a bill to ban non-U.S. citizens from state contracts.

In Congress, the first effect of the growing controversy over outsourcing could be the death of a House GOP effort to cut up to $60 billion from the taxes of U.S. multinationals, many of whom have moved operations offshore. The Senate prefers tax relief for manufacturers who keep jobs at home.

The furor seems to favor the Democrats. But Kerry and Edwards could overplay their hand and come across as economic isolationists, in the words of Mankiw. Still, with white-collar votes on the line, it's a gamble Dems are ready to take. It has been nearly three decades since the end of the Vietnam War, but the fallout continues. And it's not just the ongoing debate over President Bush's National Guard duty and Democratic front-runner John Kerry's activism in Vietnam Veterans Against the War after his decorated Navy service. Now a controversy has erupted over the U.S.-led Coalition Provisional Authority's decision to allow Vietnam to sell rice to Iraq. American rice growers, eager to recoup a lucrative lost market -- which peaked at 500,000 metric tons annually before the first Gulf war -- have asked President Bush to limit rice contracts to nations that are American coalition partners. That would exclude the Vietnamese. Seven rice-state senators and 13 House members have joined the USA Rice Federation in lobbying the White House. Since allies such as Britain and Poland are not known as rice producers, that would leave the market almost exclusively to Americans. Kentucky's 6th Congressional District has long been considered a swing seat. So Democrats have good reason to cheer the Feb. 17 victory of former state Attorney General A.B. "Ben" Chandler III in a special election to replace Republican Ernie Fletcher, who resigned to become governor. Democrats are hoping that the triumph of Chandler, grandson of legendary baseball Commissioner A.B. "Happy" Chandler, is as much a bellwether as Fletcher's first win in '98. That hotly contested race heralded a narrow national Republican victory.

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