V.

Responses to Outsourcing

For years, Americans hurt by outsourcing have looked for ways to slow or stop the trend and alleviate the pain it has caused workers and communities. Many Americans support protectionist measures, such as quotas or higher tariffs that would limit imports. Some Americans favor laws that would bar companies from moving software or call-center jobs to other countries. But such measures—quotas and a prohibition on moving operations abroad—are generally barred by international trade agreements in which the United States and other countries have pledged not to erect barriers to the free movement of goods and services.

Some labor unions assert, however, that it would be legal under international trade agreements to penalize goods that American companies have outsourced to China because in their view Chinese companies violate international rules by suppressing trade unions and by keeping many workers in conditions akin to indentured servitude. The U.S. government, however, has generally rejected organized labor’s petition to penalize trade with China, asserting that such a move would be improperly protectionist.

In 1962 Congress first passed legislation that sought to cushion the pain felt by workers whose jobs were lost to imports. Under the Trade Adjustment Assistance Act, last amended in 2002, factory workers who lose their jobs to trade can receive two years of retraining money, two years of tax credits toward health insurance, and two years of unemployment insurance (a year-and-a-half longer than most other unemployed workers receive). The trade adjustment act also provides wage insurance to laid-off factory workers over age 50. If these workers find a new job that pays less than their old job, they are to receive half of their lost wages for two years, up to a maximum of $5,000 per year. The 2002 law allocated $1.2 billion each year, triple the previous level, to help laid-off workers, including money to train about 100,000 laid-off workers annually.

Many of these workers seek retraining in community colleges or vocational institutes, perhaps to learn health-care jobs that cannot be sent abroad. In some states there is a waiting list for the retraining money, causing some laid-off workers to complain that the act provides too little money. Many service-sector workers who have lost jobs to offshoring criticize the Trade Adjustment Assistance Act because its retraining and other funds go to laid-off factory workers only and not to laid-off service-sector workers, such as software or call-center workers. Also, some studies have found that the training that laid-off workers receive often fails to prepare them for job openings in their communities.

Outsourcing and offshoring became major topics in the 2004 U.S. presidential campaign. Criticizing companies that sent jobs overseas as “Benedict Arnold’’ corporations, Democratic presidential candidate John Kerry proposed a tax-reform plan that he said would discourage outsourcing. He called for changing the law so that U.S. companies could no longer defer payment of taxes on the profits of operations that were set up overseas to provide goods or services to the American market. (Under Kerry’s plan, American companies could continue to defer taxes on profits when those companies set up overseas operations to serve foreign markets.) Kerry also proposed giving tax breaks to American companies that hire more workers at home. But Kerry’s critics argued that his proposals would do little to discourage outsourcing. Asserting that lower wages overseas are by far the main reason for outsourcing, the critics argued that the tax deferral law was only a minor factor in corporate decisions to send operations offshore.

The administration of Republican incumbent president George W. Bush countered Kerry’s plan by saying that free trade in the long run creates more jobs than are lost due to outsourcing. The Bush campaign did not focus on outsourcing as a problem.