Obama’s record on outsourcing draws criticism from the left

Barack Obama promised voters four years ago that he would work to slow the outflow of American jobs to other countries, proposing to revamp a federal tax code that encourages companies to maintain overseas operations.

Obama as president has continued to call for rewriting the rules that allow U.S. corporations to avoid paying taxes for a time on income generated overseas.

But the broad tax changes have not happened.

While White House officials say they have been waiting on Congress to act, Obama’s critics, primarily on the political left, say he has repeatedly failed in other ways to protect American jobs from being moved overseas. They point to a range of actions they say he should have taken: confronting China, reining in unfettered trade and reworking a U.S. visa program that critics say ends up sending high-tech jobs abroad.

The issue of overseas outsourcing has returned to the center of the presidential campaign, with Obama hammering the record of Mitt Romney’s financial company. The debate intensified in recent weeks with Obama’s campaign attacking his Republican rival after a Washington Post article reported that Romney’s private-equity firm, Bain Capital, had invested in companies that specialized in helping other firms relocate work overseas.

American jobs have been shifting to low-wage countries for years, and the trend has continued during Obama’s presidency. From 2008 to 2010, U.S. trade with China alone cost about 450,000 American jobs because of the growth of Chinese exports, said Robert E. Scott, a pro-labor advocate at the liberal Economic Policy Institute. That figure was less than in previous years, but the decrease was probably tied to the U.S. economic slowdown, which crimped demand for imports.

“I think he has walked away from the campaign commitments,” said Scott, the institute’s director of trade and manufacturing policy research. “He has done far too little to improve U.S. trade.”

According to a study by the U.S. Bureau of Economic Analysis, large American companies in 2010 barely added any workers in the United States, increasing their numbers by 0.1 percent, while they expanded their foreign workforce by 1.5 percent. That was business as usual — between 2004 and 2010, the bureau reported, foreign affiliates hired 2 million workers while 600,000 were added by the companies at home.

White House defense

White House officials say Obama has fought to slow the movement of jobs overseas, even when that meant confronting difficult political opponents and powerful global economic forces.

“The president could not have been more emphatic about his vision for trying to eliminate the incentives for offshoring and increase incentives to create jobs here,” said Brian Deese, deputy director of Obama’s National Economic Council. “We have tried to use all the tools available to us to make creative administrative changes where we can to discourage offshoring.”

During his run for president in 2008, Obama promised to “end those tax breaks to companies that ship jobs overseas.” It was a pledge he made repeatedly on the campaign trail.

Obama has continued to propose the tax rewrite during his presidency, but only this year did he put it in the spotlight. In his State of the Union address in January, he unveiled his most ambitious plan yet to overhaul the tax code and discourage the offshoring of U.S. jobs. The proposal’s centerpiece was a minimum tax on global corporate profits that Obama has continued to tout.

But neither Democrats in the Senate nor Republicans in the House have taken up the measure.

White House officials say they are pushing Congress to bring the issue up for a vote before the August recess. It remains unclear whether lawmakers will do so. The tax rules could be addressed during negotiations over a broader overhaul of the tax code, which is unlikely to occur until after the November election.

“We laid them out in a very high-profile way,” said senior White House economic adviser Jason Furman. “Now for broad reform, you need Congress. Everybody acknowledges that substantive tax reform takes time to accomplish.”

American jobs have been flowing overseas for years. While the dynamic hurts groups of workers, it can lead to less-expensive goods and services for American consumers and can produce more-advanced American industries to replace old ones.

His aides say Obama has enforced U.S. trade laws far more aggressively than his predecessor, President George W. Bush, and sought to erect tariffs to protect American workers in the tire industry and force China to stop hoarding raw material used in high-tech manufacturing. Administration officials also say Obama has used his bully pulpit, pressuring U.S. employers to keep jobs in the country.

But Obama’s critics say the most important step the president could take — but hasn’t — is to declare China a “currency manipulator,” which could ultimately allow the U.S. government to erect tariffs to protect American industries.

“I’m perplexed by this decision because it runs counter to the goal of re-shoring jobs from China,” Scott Paul, head of the labor-backed Alliance for American Manufacturing, said in a May statement.

Many economists say that China manipulates foreign exchange markets to keep the value of its currency, the renminbi, lower than it would be if freely traded — a practice that makes it more attractive for companies to hire workers there rather than employ them in the United States. Romney says he would declare a China a currency manipulator on his first day in office.

Administration officials say Obama has avoided labeling China a currency manipulator because that would prompt a trade conflict with the country. Such a clash could lead to retaliation by China that would hurt American companies and workers. Officials say quiet and persistent pressure on China is more effective — and over the past few years, the value of the renminbi has noticeably gained against the dollar, though the increase has slowed lately.

Free trade

For critics of Obama’s strategy, his decision not to brand China a currency manipulator fits into a broader pattern of embracing unfettered trade despite its costs to American workers; free trade can encourage the movement of some work done by Americans to countries with lower labor costs.

Obama has signed trade deals with South Korea, Panama and Colombia into law and is negotiating an agreement, covering at least eight other countries, known as the Transpacific Partnership. Obama says these agreements will create jobs in the United States, while federal programs will help workers displaced by foreign competition.

Obama’s critics say his approach has been shaped by economic policy advisers who share the prevailing view among American economists that the benefits of unrestrained trade outweigh the costs.

Diana Farrell, who was Obama’s deputy economic policy adviser for two years, promoted the benefits of offshoring while she worked at the McKinsey Global Research Institute. Farrell was the primary author of a 2003 report called “Offshoring: Is it a Win-Win Game?,” which concluded that the benefits to the United States of offshoring exceed the costs.

Farrell did not respond to multiple requests for comment.

Critics also point to the president’s Jobs and Competitiveness Council, which was assembled in 2011 to advise the White House on how to boost employment. The council is composed mostly of top executives at companies that have large foreign operations and is led by Jeff Immelt, chief executive of General Electric, which was at the forefront of offshoring in the 1980s.

A GE spokesman said that the company’s hiring reflects its global presence and that it has continued to hire thousands of workers in the United States.

Among engineers and others in the high-tech labor force, the migration of work to places such as India has become a primary concern. They say U.S. visa rules foster the outsourcing of technology jobs to other countries. Many engineers criticize Obama, in particular, for not overhauling the H-1B program that allows foreigners with technical skills to come to the United States for work. The concern is that these foreigners get trained in the United States and then set up competing enterprises once they go home.

“The H-1B program is obviously speeding up the offshoring of jobs,” said Ron Hira, a professor who studies outsourcing at the Rochester Institute of Technology. “Yet the Obama administration has failed to ask for legislative reforms or even make administrative changes clearly within its purview.”

White House officials officials say they have taken a tougher stance toward H-1B visas than the Bush administration did. For instance, Obama officials say they have denied more applications and have demanded more evidence from employers about their need to hire foreign workers.

According to some critics, a galling example of the Obama administration fostering overseas work came as part the 2009 stimulus program. They point to millions of dollars meant to develop a domestic clean-energy industry that instead landed in the hands of foreign businesses. An April 2010 study by the Energy Department found that 60 percent of the 40 largest wind farms then financed by the stimulus relied on foreign manufacturers for their central components, including turbines.

White House officials say foreign components were necessary in 2009 to support the program because there were not enough U.S. manufacturers of the parts. But now U.S. production has expanded as a result of the stimulus and is supplying the components, officials say.

Alice Crites contributed to this report.

Zachary A. Goldfarb is policy editor at The Washington Post.
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