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Forget Outsourcing: America Gains 7.4 Million Jobs from Insourcing

November 27, 2019 Topic: Economics Region: Americas Blog Brand: The Buzz Tags: OutsourcingInsourcingJobsTradeAmericaManufacturing

Forget Outsourcing: America Gains 7.4 Million Jobs from Insourcing

A big deal.

We’ve heard a lot of criticism over the last several years, especially from President Trump and many of his economic advisers and supporters, about US firms outsourcing factory jobs overseas, along with accusations that countries like Mexico, China, and Japan are “stealing US jobs” (see more than 35,000 Google search results for “Trump” + “stealing jobs”). Further, Trump warned after he was elected that his administration would punish US companies seeking to move operations and jobs overseas with “consequences.

What we don’t hear very much about from Team Trump are the jobs that are “insourced” into every US state by foreign companies, even though those insourced jobs totaled more than 7.4 million Americans and represented 5.9% of all private sector US jobs in 2017 based on new preliminary data released this week by the Bureau of Economic Analysis on “Activities of U.S. Affiliates of Foreign Multinational Enterprises in 2017.” The map above (thanks to AEI’s Allison Torban for assistance, click to enlarge) shows the thousands (and in half of the US states hundreds of thousands) of insourced jobs in each US state in 2017.

Here are some key statistics on business activities in the U.S. that highlight the significant economic benefits to the American economy from the 7,281 foreign-based firms that outsourced jobs and production to the U.S. (data tables here) in 2017:

  • More than 7,000 US affiliates of foreign multinational enterprises (MNEs) employed 7.4 million American workers in 2017, a 2.8% increase from 7.2 million in 2016, adding roughly 200,000 to the US economy

  • Employment by US affiliates represented 5.8% of the total U.S. private industry employment in 2017 (126.8 million workers)

  • The current-dollar value added of majority-owned US affiliates, a measure of their direct contribution to US GDP, totaled $1 trillion in 2017 and accounted for 6.9% of total US business-sector value added

  • US affiliates supported nearly 2.51 million factory jobs in 2017, accounting for slightly more than 20% of total American manufacturing employment (12.44 million factory workers)

  • US affiliates of foreign MNEs supported an annual payroll of $618.4 billion in 2017—with an average compensation per worker of more than $84,000

  • US affiliates of foreign companies paid an average annual compensation of $96,000 in the manufacturing sector

  • US affiliates employed more than 431,000 US autoworkers in 2017, with average compensation per worker exceeding $79,000

  • US affiliates exported $383 billion in goods (25% of all US exports)

  • US affiliates imported $686 billion in goods (24% of all US imports)

  • US affiliates spent more than $63 billion on R&D in 2016 (15.6% of all US R&D)

  • US affiliates spent $259 billion on new property, plant, and equipment in 2017

  • US affiliates paid $49.3 billion in US income taxes

  • As a separate state, the 7.4 million Americans employed by foreign-based companies would have been the fifth largest US “state” ranked by the number of nonfarm payroll employees in 2017 behind only California, Texas, New York and Florida

  • As a separate state, the $625 billion annual payroll of Americans working for foreign insourcing companies in the US would have ranked that group of American employees in 2017 as the seventh largest US “state” for Personal Income, behind No. 6 Pennsylvania at $682 billion and ahead of No. 8 New Jersey at $581 billion

In other words, the insourcing of production and jobs to the US has a significant and positive impact on our economy, and yet this huge economic stimulus gets almost no attention. All we ever hear about from Team Trump is the jobs that are allegedly being “stolen” from us by China, Japan, Europe, and Mexico.

Bottom Line: In today’s highly globalized economy, multinational firms operate in a world marketplace that increasingly makes national borders meaningless and irrelevant, as firms capitalize on hyper-efficient global supply chains that add enormous value, and ultimately result in lower costs and higher quality for the goods that consumers buy here and around the world. In the recent Trump-era discussions on US manufacturing, the outsourcing of production and jobs overseas, and the supposed “theft” of our jobs by Mexico, China, and Japan, we lose sight of another big part of the global economy: the insourcing of millions of jobs into America by the 7,000+ US-based affiliates of foreign multinational companies that operate here and employ millions of our workers.

Q: How could it possibly make sense for Trump to accuse Mexico, China and Japan of “stealing” our jobs, unless he also admits that the US is apparently then also “stealing” jobs from other countries, more than seven million in 2017? A more enlightened and up-to-date view of international trade would recognize the economic reality that modern businesses today operate in an increasingly globalized marketplace for their inputs, parts, materials, supplies along complex, cross-border supply and value chains that include multiple dozens of countries. In addition, those global companies serve retail markets in hundreds of countries around the globe.

Just like it makes economic and business sense for thousands of foreign companies to outsource jobs and production from their countries to every US state (perhaps because the US is one of their major retail markets), it also makes economic and business sense for thousands of US companies to outsource jobs and production from the US to foreign countries, perhaps also because overseas markets now represent more than 50% of retail sales for many US-based companies like Apple (63% of 2017 sales were in foreign markets, see data here), Procter and Gamble (58% sales were overseas), GE (62% foreign sales) and Pfizer (51% overseas sales). Hopefully, Team Trump will eventually move beyond a simplistic, nationalistic (“America First”), and outdated view of the global economy based on a fixed number of jobs where countries have to fight to “steal” jobs from each other in a zero-sum, win-lose world, to a more advanced and sensible view of a dynamic world of inter-connected, cross-border transactions where production and employment decisions are grounded in the reality of economics, and not politics.

This by Mark J. Perry first appeared in 2019 on the AEI Ideas blog here

Image: Reuters.