• Mar 06, 2017

Will Donald Trump’s Presidency End Outsourcing?

With Donald Trump finally winning the US Presidency, there has been a lot of hustle. One of the biggest concerns has been Trump’s threat to US companies for outsourcing jobs abroad. During the election campaign, he frequently warned 35 percent import tariff would be levied on goods made by American manufacturers moving jobs offshore. The President further supports the coercion with a promise to reduce taxes and regulations to make the United States a powerful place for business. Business leaders across the globe are concerned about how their tough trade opinions and prejudices might adversely impact their countries. Mr. Trump has also been accusing India and China of taking unfair “advantage of the United States”.

“My concern is that Trump in his last debate, said – ‘…I want to scrap all H-1B visas.’ That’s very worrying for India’s export-led growth going forward.” – stated Mr. Arvind Subramanian, India’s Chief Economic Adviser in Advancing Asia Conference hosted by the IMF.

Leading Indian outsourcing giants like TCS, Wipro and Infosys are heavy users of the H-1B visas. Donald Trump’s changing trade beliefs are genuine concerns for the IT industry in India. He heavily criticized it for making the US lose skilled workers and fly to countries like India for coveted entry-level IT jobs.

On the other hand, some companies don’t find Trump's threat compelling enough to change their plans. Matt Lavoie, Caterpillar spokesman confirmed, "We are continuing to execute on the previously announced plan on the stated timeline.” Leading food giant, Mondelez International also proposed to continue with its job relocation plans from an Oreo cookie plant in Chicago to Mexico. Laurie Guzzinati, Representative at Mondelez, further added that Chicago continues to be an ‘important part of our manufacturing network’.

So the Bigger Alarming Question remains – Can Outsourcing be really stopped?

Even before Trump, US President Barack Obama too had been unrelenting against outsourcing in his campaigns. Once he was elected though, the natural order of outsourcing continued in its place.

If you understand outsourcing correctly, it is hiring another firm to take over a specific function of your company. It is just like if a college hires a Service person to clean its buildings.

So by moving Carrier operations to Mexico, what Trump is typically describing is offshoring. But when Walmart employs a US firm, it would require moving its production to China or Vietnam for cost reduction. It can be possible to impose heavy tariffs on imported goods in spite of the virtual impossibility to stop outsourcing. But saying it and actually enacting trade legislation that might negatively impact the US in terms of economic development are two different things. It would invite more chaos by resulting in a reduction in consumer buying power significantly.

So the truth is leading companies like Carrier or Apple require offshoring to sustain in the globally competitive economy. Actually, they make most of their profits through marketing and R & D more than manufacturing operations. If that would be the case then Foxconn would have been the most successful firm in the world. If Trump was to really put an end to outsourcing, it would be dreadful for most American companies.

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