What are the biggest reasons companies send jobs overseas? It has always been my impression that companies do this because regulations in the US are too strict, and minimum wage is too high to support certain work.
It seems to me that it is part of the governments job to say "yes this is economically feasible, but not socially acceptable." Outsourcing breaks this dynamic by introducing moral hazard--we can have our cake and eat it too. I think if there were a minimum global standard of living, most cheap plastic shit just wouldn't get made.
What does that make the person who demands a better working condition for themselves, but is fine that a percentage of work is outsourced to a sweatshop?
With this model, even if some jobs shift to China or are automated, that just means the central bank can step on the gas a little bit more, and employment and standard of living is unaffected.
One problem with this model is structural problems where say jobs are being created but are in a different place than the ones being destroyed. People may be unwilling to move or it may be too expensive. They also could require different skills.
Another issue is that the central banks are limited in their ability to lower interest rates (their traditional way of stimulating the economy and getting out of recessions). Fiscal policy (Gov. borrowing and spending) is not expensive at all now (the Gov. currently pays hardly any inflation-adjusted interest on the debt), but if interest rates were ever to rise substantially having a large debt could be a problem. Spending the money efficiently also could be a challenge and it's politically controversial to do it at all.
Personally I think something like a UBI is probably a good idea to insure against things just imploding. In the event of a recession they could just increase it to stimulate the economy, which probably can happen a lot faster than infrastructure projects etc. And if automation accelerates, it may be tough for large numbers of people to adapt quickly (even if they eventually do).
Even the most mundane industries were operating in the US just fine up until the mid 1900s.
You can rightfully critique and regulate the golden goose, but there is a point at which it becomes incapable of producing as many golden eggs as other countries.
What other reasons can we find?
* Product X is made by 3 companies in the US. It costs them $20 to make the product and it is sold for $30-33.
* Government increases minimum wage, which leads the cost to go up to $23 (e.g. cost of raw material is impacted, labor, etc), the producers increase the price to $33-35 while still taking a personal hit in their returns.
* Unexpected economic disruption or shortage in a certain raw material leads to increased costs to $25 and increased consumer price to $36-38
* Government implements a new legislation that impacts customer demand negatively and increases cost of production to $28. This leads to increased consumer price to $39-40
Throughout this process, supply/demand dictates that the increase in prices may impact negatively the demand for the good produced.
* One of the companies realize that it can produce the goods in a country called Melo for $5. It shifts a good portion of its production there, allowing it to sell the goods to consumers for $20.
* Customers sensitive to price will flock to the cheapest good. All the other companies decide to move their production to Melo country to remain competitive.
In part, consumers are willingly exchanging a few jobs here and there so that they can get goods & services at a cheaper price. Economics is full of trade-offs, understanding them is essential for a country's long-term success.
If American society insists that we legislate ourselves into a more comfortable environment (higher min wage, better working conditions) then I think we'll have to accept that certain production will just never happen here.
What other reasons can we identify?
It can happen here, if you break with neo-liberal economic dogma, and institute equalization tariffs on imports.
We're currently pursuing option #1, but neither one sounds fantastic to me.
The other thing with tariffs is if you put tariffs on steel that hurts automakers (since foreign ones have cheaper steel). You can then put tariffs on cars, everything, but then everybody puts tariffs on you. Also things like computers are more expensive which might hurt productivity. Most economists don't seem to think the whole thing is worth it, and there's countries like Brazil that do big tariffs and it doesn't seem to help them any.
Minimum wage doesn't come into it. No employee earning $20/hour is going to accept that tomorrow she'll get $6/hour for the same job. (One reason is pride. Another is information asymmetry. As an employee being offered a $14/hour wage cut, you can't know whether the company is telling the truth about the equivalent cost of labor in China, or is just trying to cut your wages.)
I think legislation like minimum wage is only a small part of the story too. Lots of people get paid more than minimum wage and we couldn't just put min. wage at $100/hr.
I think the fundamentals we are looking for are productivity and macroeconomic policy. Traditionally, the Gov. and central bank stimulate the economy until it reaches full employment, then slow it down when inflation is high.
Productivity will determine how much people produce/consume (in total) when everyone is working. Of course there's issues of how those goods are distributed (which is probably not quite as bad as the wealth gap, the rich put a lot of money in stocks etc instead of consuming it).
There's also structural problems where the job locations/skills don't match with the workers. While I don't see why in the long-run we can't just produce more of what people want (health care, going out to eat, housing, vacations, etc), if millions of people are displaced rapidly by online shopping, self-driving cars etc I think it will be hard for people to adjust quickly.
Also maybe most worrying is some of the macroeconomic stuff that has been relied on to keep the economy closer to full employment is in uncharted territory. The central bank has less ability to stimulate the economy to get us out of a recession than maybe it's ever had, and the alternative of fiscal policy (gov. spending) is controversial so I'm not sure how much it can be relied on in the US either.
The problem with the simple model of free trade where workers just lose (why pay $10 in the US instead of $2 in Mexico etc) is that they do not pay workers with dollars in Mexico, they pay pesos. The dollars actually stay in the US. What the total effect of free trade is depends on what happens to those dollars. Are they being used to buy US goods, investments, government debt (then what is the government doing) etc.
The fact that you pay in pesos eventually means if pesos lose value internationally you could pay them less (but dollar cost is the same). But that's not guaranteed.
A trade deficit means overall the other country is buying more investments instead of goods. But those investments are in the US. To actually spend the money somewhere else they would need to exchange it again.
And those investments in the US aren't inherently a bad thing. If it's just buying US government bonds and the government not doing anything productive with that money it might be a bad thing though.
It's cheaper, it buys you flexibility and it makes "re-tooling" for other product lines a matter of switching suppliers.
There are many excuses that allow a company to end-up in a situation where they're little more than finance, product/sales/marketing management, and scm-specialists sitting in cubes with headsets on "hitting their numbers". I find it all very sad and unsustainable in the long term. If China eventually "eats our lunch" economically, we will have richly deserved it as a nation.