Page 782 - Economics

CONFIRMING PAGES

CHAPTER 35
691
International Trade
land and the quantity of natural resources may be altered. outsourcing of work abroad increasingly profitable. Econ-
As these changes take place, the relative efficiency with omists call this business activity offshoring: shifting work
which a nation can produce specific goods will also change. previously done by American workers to workers located
Also, new trade agreements can suddenly leave formerly in other nations. Offshoring is not a new practice but
protected industries highly vulnerable to major disruption traditionally has involved components for U.S. manufac-
or even collapse. turing goods. For example, Boeing has long offshored the
Shifts in patterns of comparative advantage and removal production of major airplane parts for its “American”
of trade protection can hurt specific groups of workers. For aircraft.
example, the erosion of the United States’ once strong com- Recent advances in computer and communications
parative advantage in steel has caused production plant technology have enabled U.S. firms to offshore service
shutdowns and layoffs in the U.S. steel industry. The textile jobs such as data entry, book composition, software cod-
and apparel industries in the United States face similar ing, call-center operations, medical transcription, and
difficulties. Clearly, not everyone wins from free trade (or claims processing to countries such as India. Where off-
freer trade). Some workers lose. shoring occurs, some of the value added in the production
The Trade Adjustment Assistance Act of 2002 in- process accrues to foreign countries rather than the
troduced some new, novel elements to help those hurt by United States. So part of the income generated from the
shifts in international trade patterns. The law provides production of U.S. goods is paid to foreigners, not to
cash assistance (beyond unemployment insurance) for up American workers.
to 78 weeks for workers displaced by imports or plant re- Offshoring is a major burden on Americans who lose
locations abroad. To obtain the assistance, workers must their jobs, but it is not necessarily bad for the overall
participate in job searches, training programs, or remedial economy. Offshoring simply reflects a growing specializa-
education. Also provided are relocation allowances to help tion and international trade in services. That trade has
displaced workers move geographically to new jobs within been made possible by recent trade agreements and new
the United States. Refundable tax credits for health insur- information and communication technologies. Like trade
ance serve as payments to help workers maintain their in- in goods, trade in services reflects comparative advantage
surance coverage during the retraining and job search and is beneficial to both trading parties. Moreover, the
period. Workers who are 50 years of age or older are eli- United States has a sizable trade surplus with other
gible for “wage insurance,” which replaces some of the nations in services. The U.S. gains by specializing in
difference in pay (if any) between their old and new jobs. high-valued services such as transportation services, ac-
Trade adjustment assistance not only helps workers hurt counting services, legal services, and advertising services,
by international trade but also helps create the political where it still has a comparative advantage. It then “trades”
support necessary to reduce trade barriers and export sub- to obtain lower-valued services such as call-center and
sidies. For both reasons, many economists support it. data entry work, for which comparative advantage has
But not all observers are fans of trade adjustment as- gone abroad.
sistance. Loss of jobs from imports or plant relocations Offshoring also increases the demand for complemen-
abroad is only a small fraction (about 3 percent in recent tary jobs in the United States. Jobs that are close substi-
years) of total job loss in the economy each year. Many tutes for existing U.S. jobs are lost, but complementary
workers also lose their jobs because of changing patterns jobs in the United States are expanded. For example, the
of demand, changing technology, bad management, and lower price of writing software code in India may mean a
other dynamic aspects of a market economy. Some critics lower cost of software sold in the United States and
ask, “What makes losing one’s job to international trade abroad. That, in turn, may create more jobs for U.S.-based
worthy of such special treatment, compared to losing one’s workers such as software designers, marketers, and dis-
job to, say, technological change?” Economists can find no tributors. Moreover, the offshoring may encourage do-
totally satisfying answer. mestic investment and expansion of firms in the United
States by reducing their production costs and keeping
them competitive worldwide. In some instances, “offshor-
Offshoring ing jobs” may equate to “importing competitiveness.” En-
Not only are some U.S. jobs lost because of international tire firms that might otherwise disappear abroad may
trade, but some are lost because of globalization of re- remain profitable in the United States only because they
source markets. In recent years U.S. firms have found the can offshore some of their work.

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