The Beef over US Competitiveness
The notion of a US manufacturing renaissance that has led to a return of factory jobs to the United States is largely a myth, according to new research from the Peterson Institute for International Economics (PIIE).
The agreement ended there at a PIIE event on competitiveness on Wednesday, where presenters offered opposing views on the benefits and costs of trade agreements and economic opening that have led to job losses for US manufacturing workers.
America's industrial base as share of the overall economy has been shrinking for decades, but factory employment took an especially hard hit during the Great Recession of 2007–09.
As the economy rebounded and overseas labor costs, particularly in China, have gradually picked up, many firms publicly touted their "reshoring" efforts as a patriotic branding device.
However, the hype is not corroborated by the statistics, argues PIIE Senior Fellow Lindsay Oldenski in a new policy brief. "The data show no evidence of a widespread reshoring trend by US firms," she said at the PIIE event. "It is far overshadowed by new offshoring."
Still, Oldenski believes free trade agreements that result in the loss of American jobs to overseas workers, while painful for those who must find new work, has been broadly beneficial to US companies and the economy. "Offshoring makes US firms more competitive, lets them gain a greater share of the total market—this isn't a zero sum game," she said.
For that reason, said PIIE Senior Fellow Gary Hufbauer, taxation plans such as one just unveiled by the Organization for Economic Development and Cooperation, aimed at making sure the US Treasury can get companies to pay more taxes on their overseas profits, are misguided.
Event Highlights: Reassessing US Competitiveness (October 7, 2015)
The OECD report estimates taxpayer revenue losses from such corporate asset shuffling "conservatively" at between $100 billion and $240 billion per year for OECD countries as a group. That amounts to between 4 and 10 percent of corporate income tax revenues worldwide, the OECD says.
Hufbauer, a former US Treasury official, was unequivocal in his opposition to the OECD's plan. "It's clearly bad for US competitiveness and US multinational companies," he said, adding it would stifle investment and hurt a fragile global economy.
That's where Jared Bernstein, senior fellow at the Center for Budget and Policy Priorities and former chief economic adviser to Vice President Joe Biden, begged to differ. Bernstein, also presenting at the event, said US firms are wasting time, talent, and resources looking for tax loopholes rather than focusing on the products and services they make and provide.
"It's not obvious that paying taxes kills innovation," Bernstein said. "One could make an argument, and I'd be tempted to do so, that tax avoidance kills innovation and the fact that General Electric has about 1,000 tax lawyers on staff strikes me as a not very optimal idea. And the fact that Apple has to go through all kinds of machinations to create double-dutch Irish sandwiches strikes me as not what Apple ought to be good at," he added, referring to one infamous corporate tax avoidance strategy.
Hufbauer stressed the distinction between tax avoidance, which is legal and makes sense from a profit-making standpoint, and tax evasion, which involves breaking the law.
But Thea Lee, deputy chief of staff at the AFL-CIO and the session's final speaker, said the ethical lines are not always as clear cut. "Just because it's legal it doesn't mean it's good," she said.
Lee was also skeptical of any broad-based economic benefits from shipping jobs abroad. "If you take yourself on a field trip to the Midwest or Southeast of the United States and you see a lot of devastated communities and all the ramifications that have come, it's hard to be so sanguine."