NCPA - National Center for Policy Analysis

The Myths of Outsourcing and Trade Deficits

April 23, 2004

China and India are unlikely to be prime destinations for jobs allegedly outsourced from the United States. Such chronic trade anxieties are without economic foundation, just like the oft-heralded argument s that the United States would be overtaken by the economic juggernauts of Germany and Japan more than a decade ago, says Alan Reynolds of the Cato Institute.

These fears are unfounded, explains Reynolds:

  • From 1990 to 2000 industrial production increased by 49.5 percent in the United States, 13.4 percent in Germany, and 1.5 percent in Japan.
  • Manufacturing jobs declined in all three countries during that period, though Germany and Japan lost far more jobs (as a percentage of totals) than the United States.
  • Over the last decade, employment rose 1.2 percent a year in the United States compared to 0.3 percent in Japan and 0.1 percent in Germany.

Today, Germany still has a huge trade surplus of a $153 billion -- as well as an unemployment rate of 10.3 percent. Yet, by crowning China and India as America's new trade enemies, Reynolds says trade protectionists have conveniently rewritten the old "Japan will overtake" us melodrama, says Reynolds.

Unlike Japan, India has a chronic trade deficit in merchandise, averaging about 3 percent of GDP. India has to export services to pay for rapidly increasing imports of food and machinery. Similarly, though China has a small trade surplus, it is an unlikely destination for manufacturing jobs. Industrial employment in China fell from 109.9 million jobs in 1995 to 83.1 million in 2002 -- a drop of 24 percent.

Source: Alan Reynolds "China and India Star in a Silly Old Rerun: 'Overtaking America," Investor's Business Daily, March 19, 2004 and


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