Donald Trump’s anti-outsourcing threat won’t not work economically
There is a yawn factor in hearing United States president-elect Donald Trump warn American companies that they would face “consequences” if they outsourced jobs overseas. There was every expectation Mr Trump would make this a policy issue. After all, the loss of manufacturing and low-end service jobs to places like Mexico, China and India was a cornerstone of his campaign and helped generate the working class support that put him in the White House. The attack on outsourcing is something the world has heard before. The outgoing US president, Barack Obama, repeatedly said jobs needed to stop moving from “Buffalo to Bangalore”. Traditionally, it was Democratic candidates who always incorporated attacks on outsourcing in their electoral speeches and Republicans who kept mum about it.
Mr Trump’s recent comment referred to the outsourcing of manufacturing jobs. But he has attacked the outsourcing of service jobs to India during the campaign, so one should assume these will eventually receive some presidential ire. The question is whether Trump actually has any options when he warns of “consequences”. Are there actually penalties or incentives that could make a US firm think twice before outsourcing? The president-elect has ballyhooed a recent deal where he persuaded an air-conditioning maker from sending 1,000 jobs to Mexico in return for $7 million in tax incentives. However, this is hardly fiscally sustainable on a national scale and in the long term. But the most important reason is that manufacturing jobs are disappearing to automation. Even if factories could be persuaded to come back to the US, they would increasingly consist of machines making machines.
The Trump administration is likely to experiment with other means to stop service jobs from being outsourced. He will be taking a well-worn road to nowhere. In the past, US state and municipal governments have sought tied contracts to the promise of not outsourcing jobs only to watch their budgets sink in red ink. Penalties like massive fines and so on have been shot down in courts or led to entire companies leaving the country.
The US, like much of the world, has a jobs crisis at the lower levels of society and the solutions lie in high-end service jobs and bespoke manufacturing. These require changes in education and skilling merged with the opportunities offered by technology. It is yet to be seen whether a Trump administration will take the path less travelled or continue to seek eco-television-friendly victories of the air-conditioning factory variety.