Understanding Outsourcing: Why It’s More Complicated Than You Think

Let’s get you up to speed on understanding outsourcing because one of President Donald Trump’s major policy goals involves bringing jobs back to the United States. For many, making America great again means penalizing companies that export work overseas to the perceived detriment of American workers.

The nitty-gritty behind companies’ business abroad and just how much they outsource is much more murky and complicated than most politicians would care to admit.

Trumponomics: Make it here or else

After his stunning electoral victory, Trump wasted no time in igniting a Twitter war with some of our country’s biggest automakers. He challenged their plans to expand their manufacturing base in Mexico. The threat was plain and simple to all companies: If you shift manufacturing jobs outside of the United States, whatever you decide to make abroad will be subject to border taxes.

This is a dramatic departure from decades of liberal free-trade policy that enjoyed bipartisan support. That’s because Trump was elected on a platform that promised to end “outsourcing.”

But it appears we’ve forgotten exactly what exactly outsourcing is, so let’s clear that up first before we continue to discuss the political pandemonium that’s erupting over Making America Great Again.

Outsourcing doesn’t mean what you think it means

Outsourcing, by definition, is allowing another business to perform a task or deliver goods and services for your business. In other terms, you’re sourcing from outside of the walls of your business. Outsourcing can be done contractually with a business down the street or a company halfway around the world.

In recent years, outsourcing has become synonymous with shipping jobs overseas. One of the most obvious examples we experience in daily life is when we encounter international call centers. In many cases, Americans were replaced with much cheaper labor abroad.

Many prominent American corporations have done exactly this: they’ve canned domestic employees and replaced them with cheap foreign labor. While this practice is suspected to be widespread, there are no reliable statistics that reveal which companies engage in mass outsourcing practices.

In sum, we don’t even know who to target for their outsourcing practices because companies don’t have to disclose that information. That means it’s going to be tough to regulate the practice unless we force companies to tell the government where and how they’re outsourcing.

Where it gets complicated

Many say the age of exporting jobs abroad is actually over, and that we see a fundamentally different pattern today. While jobs are returning to the United States, American companies are hiring more people abroad due to business considerations.

They’re offshoring, or moving part of their operations and hiring foreign employees. This isn’t always meant to save money, as it can instead be a move to grow their business. Many developing countries have faster-growing economies, and American corporations want a slice of those growing pies.

In essence, while a company may be shrinking its payrolls at home while it grows its ranks abroad, it’s not that it’s shifting its operations for cheaper labor. Its leaders are making rational business decisions and attempting to go where economic growth looks promising. That means many of the foreign hires by American companies abroad amount to jobs that an American never would have never held anyway.

The truth on outsourcing is complicated and messy

Some of the political talking points regarding outsourcing are true, as millions of Americans have seen their jobs disappear. This is a well-documented occurrence that’s been going for several decades and paints a less flattering picture of globalization and free trade.

What’s harder to figure out is how to promote a culture of Made in America without damaging our economy. If the government elects to crack down on outsourcing, it will put our corporations at a disadvantage.

We already see how people get confused between real-deal foreign outsourcing and offshoring for strategic business purposes. It seems too easy for policymakers to conflate the two practices as well.

While mainstream thought on globalization continues to trend negative, it’s important to remember that any significant policy changes to our free-trade-driven economy will cause massive disruptions. We’d like to see more Americans employed by our multinationals — a perhaps straightforward well-intentioned policy effort that’s likely supported by the majority of the population.

Then again, the path to hell is paved with good intentions. Regulation isn’t easy and often produces severe unintended policy consequences.

Policymakers take note: Tread lightly. Damaging our commitment to free-trade won’t come without serious economic fallout. Tackling outsourcing for political purposes could result in profound damage to our economic prospects.

This article was originally featured on GenFKD.org 

Photo by Bapf