NCPA - National Center for Policy Analysis

Shipping Out Jobs

October 29, 2010

Politicians of both parties have seized on U.S. multinational companies as a convenient scapegoat for the economy, says Daniel Griswold, director of the Cato Institute's Center for Trade Policy Studies.

The charge sounds logical:

  • Under the U.S. corporate tax code, U.S.-based companies aren't taxed on profits that their affiliates abroad earn until those profits are returned here.
  • Supposedly, this "tax break" gives firms an incentive to create jobs overseas rather than at home, so any candidate who doesn't want to impose higher taxes on those foreign operations is guilty of "shipping jobs overseas."

In fact, American companies have quite valid reasons beyond any tax advantage to establish overseas affiliates:  That's how they reach foreign customers with U.S.-branded goods and services, says Griswold.

It's not about access to "cheap labor," either:

  • More than three-quarters of outward U.S. manufacturing investment goes to other rich, developed economies like Canada and the European Union.
  • That's where they find the wealthy customers, skilled workers, open markets, efficient infrastructure and political stability to operate profitably.

Nor do jobs created by those investments come at the expense of American workers.  In fact, the more workers U.S. multinationals hire abroad, the more they tend to hire at their parent operations in America, says Grisold.

But it's the big picture that really shows how absurd these claims are. Year after year, the rest of the world invests more in their affiliates here in the United States than American companies invest in operations outside our country.

  • From 2005 to 2009, foreign manufacturers invested an average of $87 billion a year in U.S. factories.
  • U.S. manufacturing companies, by contrast, were investing an average of $45 billion a year abroad.

Source: Daniel Griswold, "Shipping Out Jobs," New York Post, October 27, 2010.

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