If there’s one thing on which almost all Republicans and Democrats have long agreed, it’s that “offshoring”—U.S. manufacturers’ investment in overseas production facilities—is Bad. It harms our manufacturing base and reduces industrial capacity; it kills jobs; and it undermines innovation—a particularly big problem given the ongoing Tech War (er, Competition) with China. Google around for a quick sec, and you’ll find no shortage of op-eds, press releases, and campaign speeches decrying the scourge of offshoring—usually by targeting a specific and recently newsworthy instance (e.g., Carrier in 2016)—and promising a range of policy proposals to discourage or reverse it. Our most recent presidents have, of course, made offshoring and reshoring centerpieces of their campaigns and policy agendas, but plenty of other White House inhabitants and aspirants have done the same.
The trouble with their narrative, however, is that, as shown in a great new paper, it’s almost entirely wrong. Instead, efforts to “bring back” overseas manufacturing might actually end up hurting some of the country’s biggest and most innovative manufacturing companies—and the American workers who fuel them.
A new paper, by Dartmouth economist Teresa Fort, uses a novel dataset of U.S. multinational companies to bust a lot of myths about the relationship between trade, investment, production, and, most importantly of all, innovation. She starts by correcting a common misperception about what “manufacturing” even is—not merely production/transformation, but also pre-production design and innovation and post-production sales, marketing, and distribution….
First, U.S. multinational manufacturers haven’t relocated all their manufacturing plants offshore. Fort instead finds that, of the 1,700 U.S. manufacturing firms with overseas affiliates, 1,200 owned both U.S. and foreign manufacturing plants, 350 had just domestic factories, and only 150 firms had exclusively foreign manufacturing. Thus, the most prevalent type of U.S. multinational manufacturer—by far—were “transnational” producers that own both domestic and foreign plants.
Second, these transnational manufacturers are big and important for the U.S. economy and workforce. In particular, Fort finds that U.S. firms with domestic and foreign manufacturing plants are a small share of all U.S. manufacturers (just 1,200 of 243,700 total) yet dominate the other manufacturers in terms of sales—domestic establishments’ sales ($3.85 trillion), foreign establishments’ sales ($2.86 trillion) and global sales ($6.7 trillion), which are $2 trillion more than the global sales of the other manufacturers combined. More than half of these global sales, moreover, came from the firms’ American factories.
Transnational firms also employ a lot of workers—more than half of which (6.56 million) were in the United States, and about 3.6 million of those U.S. workers worked in manufacturing plants. That’s a lot of blue-collar jobs. Overall, the 1,800 U.S. firms with some sort of overseas activity employed about 200,000 more American workers (11.27 million) than the 242,000 manufacturers that just operated domestically (11.06 million).
This trend gets to the third myth that Fort’s data bust: that globalization, especially imports, undermines American manufacturing output and employment. Instead, she finds that transnational manufacturers—i.e., the ones that dominate the industry—are heavily involved in international trade, importing almost as much they export (and about four times as much as all the other types of manufacturing firms combined) and doing so intensely (meaning more imports/exports as a share of total sales). These goods are often exported to and imported from affiliates abroad, but plenty go to/from unaffiliated parties as well.
The connection between global production and innovation is again reinforced by past research and plenty of anecdotal evidence. The aforementioned 2021 paper, for example, found that, in 2016, manufacturing sectors with higher global participation also had more R&D; thus, unsurprisingly, U.S. high-tech manufacturing was the most globalized. Fort herself notes related data on computer and electronic manufacturing, which was one of the first industries to utilize a factoryless model where U.S.-based affiliates focused on innovation while foreign suppliers handled physical production. That same industry, she notes, has accounted for “the greatest growth in breakthrough patents over the last two decades” and the majority of U.S. manufacturing output (value-added) growth between 1992 and 2011—“even as imports of computers and electronics surged.” Driving a lot of this growth is semiconductors, via both the transnational (Texas Instruments, Intel, etc.) and factoryless models (Qualcomm, Nvidia, etc.)—reflecting, as Fort puts it, the “important role for firm-level core competence and strategic focus in determining how firms organize their production across firms and countries.” It’s not one-size-fits-all.
But as Dartmouth’s Matthew Slaughter noted a few years ago, these successful multinational models aren’t limited to tech companies: Caterpillar, for example, makes its heavy machinery both here and abroad, and does some research overseas too—but to support its main research facility in Peoria, Illinois. Dow Chemical’s massive petrochemical complex in Saudi Arabia, meanwhile, has supported tons of American jobs at Dow and at the 18 U.S. engineering, design and other high-value service companies that have won more than $1 billion in contracts since 2007. And as we’ve discussed, U.S. vaccine-makers Pfizer and Moderna are similarly productive, innovative, and global.
Separate from the coverage of Justice Thomas, New York Times columnist Nicholas Kristof recently mused, “I wonder if Horatio Alger stories didn’t leave an imprint on the American soul. An unhelpful one.” Mr. Kristof contended that “an Alger-style obsession with personal responsibility” explained why the U.S. lacks “mandatory paid family leave, universal healthcare, child allowances and national pre-K and child care.” His article was headlined “America Is the Lie of Individual Responsibility.”
When you’re toiling away for a fifth-generation Ochs-Sulzberger heir, perhaps Horatio Alger-style upward mobility can seem distant.
Fundamentally, Americans must have the right to form the families they desire and raise children according to their values and preferences. Government should refrain from putting its thumb on the scale of intimate family decisions. Unfortunately, current public policy is far from this ideal and in some cases makes life harder for American families. Our proposed reforms should appeal to policymakers of all stripes because they respect the diverse preferences and types of families, they are liberty enhancing, and they are worthwhile on their own merits.
It’s not”hard to say,” and it’s not “20/20 hindsight”. Except for DC, California’s school closures were the most draconian in the US, and our kids will pay the harms for a generation. And hurting our kids kept no one safe. We should have copied Sweden, not China.