The Effect of Outsourcing on the U.S. Economy: Are China and India Threats or Opportunities

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The Effect of Outsourcing on the U.S. Economy: Are China and India Threats or Opportunities

The U.S. economy has been negatively affected by Globalization and Outsourcing. The more U.S. based companies continue to outsource jobs, the more risk America takes in allowing other countries to pose a threat to our economy as a whole. Could other countries such as China or India be a threat to the U.S. Economy? With the overwhelming increase of outsourcing jobs, this question has become a valid concern. There are many reasons American companies use to justify outsourcing jobs to other countries instead of keeping them here in America, but the question remains In the long run, will outsourcing cause the U.S. to lose it place as an economic superpower?

Globalization and Continued Outsourcing

The literal definition of globalization is “growth to a global or worldwide scale.” ( 2006). Often used as a term associated with the economy, Globalization refers to the integration of national economies into international economies through trade, foreign direct investment, capital, migration and the spread of technology. Globalization which was expected to benefit the U.S. economy is now posing a threat. Such issues as the increase of the trade deficit as well as the increase of job losses have affected the U.S. economy as a whole. U.S. companies such as IBM, Ford Motor, GE Capital, Gateway and United Airlines have sent jobs overseas and have chosen to employ cheap labor instead of keeping the jobs in America for American workers. What are the opportunities and threats that are of relative importance to the U.S. economy? According to Tokic (2005), an opportunity is defined as an intermediate to long-term development or trend that potentially increases corporate profitability, and consequently boosts the stock market. When we think about where the growth opportunities present themselves, two countries come to mind; China and India. Specific opportunities include the following:

1. Continued Outsourcing

2. Increase in U.S. exports to China and India

3. Money inflow to U.S. equities from emerging middle class India and China

U.S. manufacturing companies have been outsourcing production to China for many years, saving money on the wage differential between U.S. and China for similar manufacturing jobs. The outsourcing of manufacturing jobs and the low level of job creation in recent years has made it more difficult for workers who lose their jobs to outsourcing to find new ones. Some 3 million jobs and counting have been lost since the U.S. economy peaked in 2000, most of them in manufacturing. As the unemployment rate continues to increase, U.S. companies continue to cut 663,000 jobs increasing the unemployment rate. In a 2009 New York Times article written by Peter Goodman and Jack Healey, data released on April 3, 2009 by the Bureau of Labor Statistics shows the unemployment rate increased to 8.5% making it the highest in more than quarter century. Three decades ago, during the initial stages of globalization, many economists termed it 'a boom' to the US economy. Instead it turned into a “boom” on the U.S. economy. As the U.S. economy continues to shrink, more people in the U.S. will continue to lose their jobs, incur losses to their pension funds and reduce consumer spending. While there are jobs that were outsourced to India, specifically IT and Call Center oriented positions, China is close to taking a lead in having the most jobs outsourced to them by the United States and becoming a lead contender in the world of exporting U.S. goods. In 2004, China surpassed Japan as the world’s third largest trading economy (after the European Union and the United States). From 2003 to 2006 the size of China’s trade doubled. According to IMF, Direction of Trade Statistics, China’s trade surplus has risen sharply from $24 billion in 2004 to $102 billion in 2006....
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