Editorial Board

Obama-Romney Debate Over Offshoring Is Phony and Harmful

The U.S. presidential campaign seems to have time-traveled back to 1992, when independent candidate Ross Perot thought he heard the “giant sucking sound” of American jobs moving to Mexico.

Perot lost his presidential bid, along with the argument against globalization. The winner, Bill Clinton, went on to sign the North American Free Trade Agreement. The resulting U.S. job losses, primarily in manufacturing, were offset by gains elsewhere, according to numerous studies.

Two decades of bipartisan support for globalization should have settled the matter as a political issue. Instead, President Barack Obama reopened the debate with television ads attacking Mitt Romney’s tenure at Bain Capital, saying Bain invested in companies that shipped work to overseas call centers and factories. The president hopes voters will conclude Romney isn’t the job creator he claims to be -- even though FactCheck.org, a nonprofit group, found no evidence to support the charge that Romney, while still running Bain Capital, sent jobs overseas.

Romney responded with equally specious claims alleging that millions of stimulus dollars were diverted offshore, making Obama the real “outsourcer-in-chief.” Most of the claims, however, are a mishmash of exaggeration and falsehood, including that one company, Fisker Automotive, a maker of hybrid vehicles, took stimulus money to make cars in Finland. On closer inspection, the company received loans through a program begun under President George W. Bush and nearly all of the money was spent in the U.S.

Stable Employment

The reasons for the charges and countercharges are obvious. Victory in November will require winning some combination of swing states such as Michigan, North Carolina, Ohio and Pennsylvania, where the outsourcing allegations hit home with millions of workers who can no longer rely on comfortable paychecks or even stable employment.

Yet despite the cheap shot from Obama, and a foolish retort from the Romney camp, perhaps this is a debate worth having. Is it possible for the U.S. to engage in globalization without offshoring jobs? Are the benefits of globalization still worth the costs?

Virtually all U.S. companies and consumers have benefited from the lower cost of clothing, cars and computers made overseas. At the same time, hundreds of millions of people in emerging markets -- more than the entire population of the U.S. -- have climbed out of poverty because of the free flow of goods and services across borders. Globalization is transforming people in Asia and elsewhere into consumers of U.S. products. Eventually, some jobs will flow back to the U.S. because of rising wages abroad, a stronger Chinese currency and inexpensive natural gas. Such “inshoring” is already happening.

For U.S. corporations, globalization isn’t just about cheaper wages. Companies create jobs outside the U.S. to pursue sales opportunities in new markets, get closer to suppliers in fast-growing regions and employ people who understand local tastes. Even if labor costs were equal, companies would still hire abroad because that’s where the talent pool is. India, for example, has an abundance of young, college-educated IT workers. Companies that don’t do any of this for patriotic reasons will be at a disadvantage to European and Asian competitors, probably resulting in lost market share and more U.S. layoffs.

As millions of Americans who have seen their living standards diminished can attest, there are brutal downsides to globalization. U.S. institutions have done a poor job of cushioning the blows to workers compared with some other advanced economies such as Germany. But it’s a little late now for Obama, or any other politician, to pretend that offshoring is somehow unethical or un-American.

Eliminate Incentives

Is there a way to accentuate the positives of globalization while mitigating the negatives? Obama has sought to eliminate incentives for moving jobs offshore, including ending tax deductions for the cost of overseas labor. In addition, the president would require companies to pay a 28 percent income tax on overseas profits. (Companies can now avoid paying taxes as long as earnings aren’t repatriated.) Obama hasn’t been able to persuade Congress to accept these proposals, and for good reasons: They wouldn’t stop jobs from leaving, and they might even harm job growth at home.

Think about it. When work is transferred abroad, it isn’t because of lower taxes. It’s largely because of the cost differential between U.S. workers and those in China and India. Information technology jobs in those countries pay about one-fifth of what they command in the U.S. The president is on surer footing when he calls for investment in education and training. But the evidence of success there is mixed.

An honest discussion would require both sides to face such unpleasant facts. Many jobs have been lost to automation, not necessarily just to offshoring. That explains why employment in middle-wage occupations is declining rapidly. High-skill and high-wage jobs, or low-skill and low-wage ones, are more plentiful -- though certainly not immune to the forces of technology.

If the presidential candidates want to be constructive, they will tell voters the hard truth: Well-paying midlevel jobs may have to wait for new industries to be born, and the wait could be a long one. Barring such displays of courage, both Obama and Romney should quit pretending they oppose outsourcing. They don’t.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

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