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Donald Trump has positioned himself to be a populist leader. Although in reality, he is an opportunist leader. He has promised his voters that he will stop outsourcing and protect their jobs from cheap foreign labor. Most political pundits did not believe Trump will be able to achieve anything of that sort.
After all, even Barack Obama had raised cries of “Say No to Bangalore, say Yes to Buffalo”. However, an increasing number of Americans found themselves bangalored despite Obama’s promises.
Donald Trump is proclaiming that he is different. He says that he intends to keep his promises. Guess what, it is likely that Donald Trump will keep his promises and outsourcing numbers will tumble down drastically and even vanish altogether. However, this will not be due to the ingenuity of Donald Trump but rather an inevitable result of the market forces.
In other words, Trump will just be there at the right time to take the credit.
In this article, we will list down some of the main issues that make it inevitable that the concept of outsourcing as we know it today is about to die!
Not all jobs can be offshored. All companies need some of their workers in the front end to interact with consumers or to provide after sales service. These are the jobs that are still present in America and are likely to remain here.
The easily outsourceable jobs i.e. back office, accounting, payroll, etc. have already been offshored during the Bush and Obama administration. The numbers are automatically going to decline even if Trump doesn’t apply any pressure since there aren’t any jobs left to outsource! Trump is going to use these contrasting statistics to prove that he is performing much better than Obama when in reality that is not the case at all.
The developing countries are no longer as attractive as they used to be as far as labor costs are concerned. During the early 2000’s when outsourcing began, white collar jobs could be offshored for as less as 10% of the expenses! This is no longer the case, and the gap has been consistently narrowing.
Rampant unemployment in the developed countries has been exerting a downward pressure on the wages. On the other hand, an abundance of jobs in the developing world has been exerting upward pressure on the prices. The net effect has been that the wage gap between the different countries in narrowing down making outsourcing an unviable option.
The advances in information technology are making it easier to work from a remote location. This will help Donald Trump make it appear like he has solved the H1B visa problem. Instead of staying in the United States at client locations, foreign workers might stay in a neighboring country like Canada and then visit over to the United States as and when required.
Apart from that, remote workplaces may allow companies to simply offshore jobs to other countries like India and China. However, the number of jobs being outsourced will be minuscule as compared to the number of jobs that will not be outsourced. Overall there will be a reduction in the number of jobs sent abroad, and therefore this will be another positive achievement as far as the President of The United States is concerned.
Robotics process automation is all set to take the world by storm. Advances in artificial intelligence technology will enable robots to do more tasks that humans do and do it better! Hence, the battle isn’t American workers versus foreign workers.
Instead, American workers will face a new battle with robots. Robotics will eliminate the need for having a worker regardless of their nationality. Robots cost the same whether they work in India or the United States.
Also, robotics will make the share of labor costs so small in the overall cost structure that it will not matter whether these jobs are outsourced or not! Today, labor costs account for 30% of the total costs (assumption).
If robotics drive the overall share down to 5%, it wouldn’t matter if the costs were cut by offshoring or not.
Hence, the next wave of technology is bound to destroy outsourcing anyway. However, Donald Trump has created the necessary propaganda to make the people believe that it is his policies that have quashed outsourcing.
The final nail in the coffin will be put by Donald Trump’s policies. As we seen above, outsourcing is already facing an onslaught on several fronts.
Donald Trump is going to add more trouble. For instance, he has announced that any company that outsources jobs will not be the recipient of any government contracts. This would pressurize companies to fall in line. Companies like Boeing and Caterpillar are major recipients of defense contracts.
Outsourcing and saving costs will not make any sense if outsourcing itself will lead to loss of substantial revenue. The Government will also stop outsourcing its own tasks. For instance, the backend processes for Obamacare are currently outsourced. Donald Trump will stop such outsourcing and bring back jobs that have already been outsourced.
Donald Trump has famously been claiming that he has inherited a mess. In reality, he has inherited a fortune! Outsourcing is dying anyway. However, he gets to shape the public perception that he killed the untamable beast that his predecessors were unable to slay!
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
