Blue
Collar, White Collar
China
and India are raising fears in America as job losses there mount
As the WTO talks were collapsing in Cancun on September 14th , the US
government announced the formation of a special task force to investigate
Chinese trade policies that according to the Americans are unfair and
impose a number of restrictions on foreign companies that prevent them
from increasing their market presence in China. China also stands accused
of refusing to let its pegged currency be revalued upward in relation
to the dollar, of allowing software and music piracy to continue unchecked.
The creation of an Unfair Trade Practices Team in the US Commerce Department
comes in the wake of escalating alarm on the loss of some 2.7 million
manufacturing jobs during the past three years since President George
Bush took over, a decline last seen during President Herbert Hoover’s
tenure during the Great Depression over seven decades ago. American
manufacturers have complained that low-cost imports from China are the
main reason for such an unprecedented decimation. They have drawn support
from politicians across the spectrum who are calling for higher duties
on imports from China.
Economic recovery is very much on in the US and all projections are
that real GDP growth in the third and fourth quarters of 2003 will be
somewhere around 5-6% on an annualized basis. Productivity growth is
spectacular confounding most scholars. During 1995-2000, the period
of the “great boom”, productivity increased by about 2.5%
per year. Since 2000, this has increased to 3.4% per year reflecting,
in many ways, the long-hoped for payoffs from the huge investments made
in IT in different sectors of the US economy. But by common consensus
this is a “jobless” recovery. Productivity increases are taking
place in an environment of growing job losses in industry that accounts
for 40% of US GDP. Adding edge to the debate is the fact that the US
Presidential campaign has already commenced and Democratic candidates
are aggressively targeting President Bush on the gloomy employment situation.
Actually,
India is also beginning to draw flak, perhaps not as much as China as
yet but it is under attack nevertheless. The growing American fear is
that as “blue collar” manufacturing jobs are being lost to
China, “white collar” service jobs are being lost to India.
The loss of service jobs has not been as dramatic as in manufacturing.
Some estimates, like that made by Forrester a leading US IT consultancy
firm, are that about 400,000 jobs may have been offshored already. Over
the next decade, 200,000 service jobs may be outsourced annually in
the IT and IT-enabled services area. India could account for anywhere
between a third and a half of these jobs. State governments in the US
like that of New Jersey, Maryland, Connecticut, Washington and Missouri
have sponsored or are considering legislation to prohibit or restrict
the state government concerned from contracting with companies that
outsource to countries like India. The federal government has been silent.
But while announcing the special task force in Detroit, the US Commerce
Secretary Donald Evans said : “American manufacturers can compete
against any country’s white collars and blue collars, but we will not
submit to competing against any country’s choke collars”.
So,
while the immediate focus of the task force is China, the prospects
of India also coming under the scanner for its trade, investment and
market access restrictions cannot be ruled out. In this context, a recent
research study by the Washington-based McKinsey Global Institute entitled
Offshoring: Is It a Win-Win Game is very timely and comes as a shot
in the arm for those who have to combat growing protectionism in the
USA. This estimates that offshoring creates net additional value for
the US economy that did not exist before, a full 12-14 cents on every
dollar offshored. The study shows that of the full $ 1.45-1.47 of value
created globally from offshoring $ 1 of US labour cost, the US alone
captures $ 1.12-$1.14, while receiving countries like India capture,
on an average, just 33 cents. The American media is increasingly highlighting
the shift of skilled service jobs to India. Most of these reports are
alarmist, although recently the Los Angeles Times carried an article
on how Oracle’s hiring of more engineers in Bangalore is good for Oracle
in the US. It also drew attention to the creation of new businesses
by Indian-American entrepreneurs in the USA that create new jobs both
in America and in India. But such balanced pieces are very infrequent.
At
the recent meeting of the WTO at Cancun, China was assertive but not
argumentative. It kept a relatively low-profile. It was certainly part
of the G-22, the group of 22 developing countries led by Brazil that
included India and which confronted the US and Europe on the issue of
farm subsidies and other issues. But its style was relatively less confrontationist
than that of other G-22 members. It ran with the G-22 hare and hunted
with the American hound. The terms of WTO accession agreed to by China
are sweeping. China has undertaken to fulfill a very large number of
market-opening obligations by 2006. It definitely is no mood of taking
on any additional commitments and to that extent it is with the G-22.
At the same time it is conscious of the deepening political backlash
against the enormous trade surplus that it enjoys with the US. This
surplus could well be in the region of $ 130-150 billion in 2003 and
a full one-fifth of the US trade deficit is on the China account alone.
The US market is key to China’s prosperity. For this reason, at key
moments, China went along with the US at Cancun and while most G-21
ministers decried the stance of the rich countries, the Chinese Commerce
Minister Lu Fuyuan donned a statesmanlike-mantle and declared that a
stalemate was in no one’s interest. Unlike India, China wants genuine
liberalization in global farm trade. India wants advanced countries
to cut import tariffs and subsidies while retaining the right to have
high tariffs and subsidies for itself. China wants free trade in agriculture
and is prepared to cut subsidies at home knowing that it cannot sustain
them for ever. In addition, its whole objective is to get more and more
people out of agriculture, something that government policy actively
discourages in India.
What
should India do, apart from playing it low-key on job relocation and
apart from lobbying with the US Congress? Clearly, India’s merchandise
imports from the US, that in 2002 amounted to just about $ 4 billion
(as compared to India’s merchandise exports of almost $ 12 billion)
must increase both in the civilian and defence sectors. US service exports
to India in 2002 amounted to $ 3 billion and this too could increase.
More than that, Indian companies must begin to acquire companies in
the US particularly in the manufacturing industry like auto components,
engineering and textiles. Chapter 11 companies (that is, companies that
have declared bankruptcy but still have great potential for revival)
are a pool from which such acquisitions can be made. This could help
mitigate the negative impact of growing outsourcing. Keeping aside what
happened at Cancun, India has to keep the US engaged intensively on
trade and commercial issues.
