Why outsourcing to China is acutally beneficial for U.S.?


A Wall Street Journal article talks about multinational corporations outsourcing jobs on a rise, while cutting jobs in the U.S. Well, this is what one should expect in a time of free-trade and free-investment ( of course, not that free all the time, but…). I don’t quite understand why this has been under attack so many times. Yeah, politicians need to find someone to blame in order to make themselves sound smart and popular. But anyone who has taken basic economics classes should know that this is beneficial for all.

Any firm that is seeking to maximize its profit looks for every possibility to lower the costs. International trade is based on comparative advantages. China doesn’t have as high productivity as many of the developed countries, such as U.S. (yet). But China compensates this disadvantage by the low wage, low enough to give China a comparative advantage in the international trade. Firms choose to allocate their resources the best and the cheapest. So many multinational firms move their manufacturing lines and customer services to developing countries such as China, where the labor costs much less and more and more customers are located.

Scott Linciome, who is an international trade attorney and political adviser, seems to have a clearer mind on the benefits of trade and outsourcing than, say, some of the journalists and radio hosts.

The concept of smiling curve by Stan Shih

I also want to give a reminder of the so-called Smiling Curve, which shows most profits (most value added to products) of businesses go to who have patents&technology and brand&service. Developing countries, however struggling to try to higher on the smiling curve, still remain, for the most part, at the bottom of the curve, earning minimum profits and sucking in whatever pollution there is during the process. The major chunk of the profits goes back to the multinational corporations, well, their share holders, and who are those share holders?  Americans!

The ongoing trend of outsourcing low-level jobs actually is helping U.S. to upgrade its job market composition, to one that consisting of mostly jobs of high quality and benefits.


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