Policy Debate: Does offshore outsourcing help or harm U.S. citizens?

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Virtually all economists argue that free international trade increases the total consumption possibilities for all trading partners. A simple analogy is often suggested between international trade and trade among individuals in an economy. Suppose that each individual in an economy tries to produce all of the goods that he or she consumes. Since each individual is not likely to be very adept at all of the tasks that must be performed to achieve even a subsistence level of income, an economy in which no specialization and trade occurs would be an extremely poor economy. As Adam Smith noted in The Wealth of Nations, total output increases in an economy as a result of specialization and division of labor. It is argued that countries gain in a similar manner as a result of international specialization and division of labor.

David Ricardo elaborated on this argument by noting that gains from international trade will always occur when each country specializes in the production of those goods and services in which it possesses a comparative advantage. A comparative advantage exists when the opportunity cost of producing a good is lower in the domestic economy than in foreign economies. The gains from trade occur because each country is able to import goods at a lower opportunity cost than it would face if it produced these goods domestically. If each good is produced in the country in which the opportunity cost is lowest, the total output of the world economy is greater.

Furthermore, advocates of free international trade argue that trade barriers reduce the incentive for firms to engage in innovation. When faced with more extensive foreign competition, domestic firms may be forced to produce output more efficiently (i.e., at a lower opportunity cost).

While these are the most common reasons that economists may support some form of trade restriction, there are several other political reasons for trade barriers:

• While consumers always gain from the reduction of trade barriers, firms and workers in specific industries are better off when substantial trade barriers exist. The owners of firms and workers in these industries receive very large losses if trade barriers are eliminated; each individual consumer tends to receive relatively small gains from the elimination of these barriers. If trade barriers are eliminated, the dollar value of the gains to consumers will always outweigh the dollar value of the losses to producers and workers. Each individual consumer, though, has little incentive to lobby for a reduction in specific trade barriers (nor is even aware of most such trade barriers). Each individual worker and owner, however, has a substantial incentive to lobby for such trade restrictions. This "special-interest" effect often results in the passage of laws resulting in trade barriers.
• There is also a concern that free trade with low-wage economies will reduce the wage of high-wage U.S. workers. In specific industries, such an effect is likely. This argument was at the heart of much of the opposition to NAFTA (since wage rates are generally lower in Mexico).

Primary Resources and Data

• United States Trade Representative
  http://www.ustr.gov/
  The Office of the United States Trade Representative is a Cabinet level agency that is charged with establishing and administering U.S. trade policy and negotiating trade agreements. Relevant background material contained on this web site includes a document library containing speeches, press releases, congressional testimony, and reports. (To view these documents, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• United States International Trade Commission
  http://www.usitc.gov/
  The United States International Trade Commission is charged with providing information to Congress and the executive branch on international trade issues. It also investigates foreign firm's violations of patent, trademark, and copyright agreements and conducts research on the effect of global trends on specific U.S. industries.

• Biz/ed, "David Ricardo"
  http://www.bized.ac.uk/virtual/economy/library/economists/ricardo.htm
  This page, provided by Biz/ed, contains a biographical sketch and discussion of the theoretical contributions of David Ricardo, the primary developer of the theory of comparative advantage.

• World Trade Organization
  http://www.wto.org
  The World Trade Organization was created in 1995 as a result of the 1986-94 Uruguay Round negotiations on the General Agreement on Tariffs and Trade (GATT). This organization is charged with monitoring and enforcing the provisions of existing international trade agreements, resolving trade disputes, and negotiating new trade agreements that will further encourage free international trade. This web site contains information on the functioning of the WTO, research conducted at the WTO, and the status of current trade disputes.

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• 2006 Trade Policy Agenda & 2005 Annual Report of the President of the United States on the Trade Agreements Program
  http://www.ustr.gov/Document_Library/.../Section_Index.html
  This document provides a description of trends in U.S. trade, international trade agreements, and trade policy issues. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• United Nations Conference on Trade and Development
  http://www.unctad.org
  The United Nations Conference on Trade and Development is a United Nations organization charged with assisting developing nations achieve success in international markets. This web site describes their functions, details the problems faced by developing countries in international markets, and presents summaries of research conducted by this organization.

• U.S. Foreign Trade Statistics
  http://www.census.gov/ftp/pub/foreign-trade/www/
  This Census Bureau web site contains recent and historical data on U.S. imports, exports, trade balances, and other relevant measures of trade. U.S. trade statistics with major trading partners are provided for broad product categories.

• Tradeport
  http://www.tradeport.org/
  This site contains a collection of links to international trade resources.

• Lex Mercatoria
  http://www.lexmercatoria.org/
  The Lex Mercatoria web site contains an extensive collection of links to web pages that provide information related to international trade law.

• Trade and Commercial Relations
  http://www.fletcher.tufts.edu/multi/trade.html
  This site, provided by Tufts University, contains links to the full text of the major international trade treaties and agreements.

• Heritage Foundation, "Research: Trade and Foreign Aid"
  http://www.heritage.org/Research/TradeandForeignAid/index.cfm
  This web site contains links to a large collection of Heritage Foundation articles and studies that suggest that trade barriers should be reduced. These articles provide recommendations for U.S. policy on many contemporary trade issues.

• World Trade Organization, "The Case for Open Trade"
  http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact3_e.htm
  This document, provided by the World Trade Organization, provides a clear and succinct summary of the economic arguments for free international trade.