Insourced investments lead to imbalanced trade

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Snapshot for April 7, 2004.

This Snapshot is the second of a two-part series; part one appeared on  April 6, 2004.

Insourced investments lead to imbalanced trade
The issue of outsourcing has become one of the most fiercely debated topics in the current political climate.  Rather than address in any substantive way the anxiety of American workers over this issue, a growing group of politicians and pundits have begun using the term "insourcing" to refer to foreign companies' investments in the United States, suggesting that insourcing has the opposite effect on U.S. jobs and trade as offshore outsourcing.  The April 6 snapshot showed that this so-called insourcing has not boosted U.S. jobs.  In addition to its failure to promote job growth, insourcing has also worsened the U.S. trade balance.

The figure below shows imports, exports, and trade balances across 1991 to 2001 for U.S. firms owned by foreign companies. Total U.S. exports from these foreign-owned firms, gradually rose from $97 billion in 1991 to $164 billion in 2001, an increase of 69%.  Since all other U.S. exports rose by an even faster rate of 74.2%, insourcing does appear to be a boon to U.S. exports.  At the same time, total imports of foreign-owned companies in the United States more than doubled, climbing from $179 billion in 1991 to $369 billion in 2001. As a result, the U.S. trade deficits of foreign-owned firms rose from $82 billion to $206 billion in this period, an increase of 152%.

Often these foreign companies are investing in the United States in order to obtain access to U.S. marketing and distribution systems (including U.S. brand names) for their imported products—a process that does not create production jobs in the United States or lead to more balanced trade. The surging trade deficits of foreign-owned companies in the United States are evidence that insourcing is actually worsening the U.S. trade deficit. Thus, both the job and trade statistics refute the argument that insourcing represents a counterweight to the negative effect of offshoring on U.S. jobs and trade.

Source: Zeile, William J.  2003. "U.S. affiliates of foreign companies: Operations in 2001."  Survey of Current Business. August, pp. 38-56. Table 8.

Today's snapshot was written by EPI senior economist Robert Scott with research assistance by Adam Hersh.