The ‘Exporting Jobs’ Canard
President Trump has voiced a widely shared—but incorrect—belief that the global economy is a zero-sum game. “One by one,” Mr. Trump said in his inaugural address, “the factories shuttered and left our shores, with not even a thought about the millions and millions of American workers that were left behind.” In his first White House meeting only a few days later, Mr. Trump warned a roomful of CEOs that companies sending factories overseas would face a new border tax.
Mr. Trump assumes that when U.S. multinationals expand abroad, it necessarily reduces the number of people they employ in the U.S. But this assumption is wrong, and tariffs would hurt American workers, not help them.
Academic research has repeatedly found that when U.S. multinationals hire more people at their overseas affiliates, it does not come at the expense of American jobs. How can this be? Large firms need workers of many different skills and occupations, and the jobs done by employees abroad are often complements to, not substitutes for, those done by workers at home. Manufacturing abroad, for example, can allow workers in the U.S. to focus on higher value-added tasks such as research and development, marketing, and general management. Additionally, expanding overseas to serve foreign customers or save costs often helps the overall company grow, resulting in more U.S. hiring.
The ultimate proof is in the numbers. Between 2004 and 2014, the most recent year for which U.S. government data are available, total employment at foreign affiliates of U.S. multinationals rose from nine million to 13.8 million. Yet the number of jobs at U.S. parent companies rose nearly as much, from 22.4 million to 26.6 million.
Over the same period, the value-added and capital investment grew faster among U.S. parent companies than in their foreign affiliates. In fact, on these two measures the American parent companies outperformed the overall U.S. private sector. This suggests that having overseas affiliates gives companies a competitive advantage that allows them to invest more at home. More than ever, jobs in America are connected to the world.
One can always find anecdotes of a company closing an American facility and moving the work it does overseas. But these anecdotes are not representative of the overall synergies between parent companies and their affiliates. Consider Caterpillar Inc., the American manufacturer of heavy machinery whose main facility for research and development is in Peoria, Ill. In recent years the company has established several research-and-development facilities outside the country. Yet Caterpillar’s engines lab in Peoria still runs two shifts a day. Before closing up for the night, the Illinois engineers send data to their colleagues in Chennai, India, who process it overnight. When the Peoria workers come back the next morning, the refined data is waiting for them.
Dow Chemical ’s largest global investment is Sadara, a $20 billion joint venture with Saudi Aramco to construct a fully integrated petrochemical complex in Saudi Arabia. This facility, which will be one of the world’s largest, has created American jobs not only at Dow but at its supply-chain partners as well. Since 2007, Sadara has generated more than $1 billion in contracts for 18 U.S. companies that have provided engineering, design and other high-value services. In recent years approximately 700 Americans at leading engineering companies have supported Sadara’s work.
In 2011, IBM became the first company to earn more than 6,000 U.S. patents in a year. These inventions were generated by more than 8,000 employees in 46 American states and 36 countries. IBM inventors abroad collaborated on more than 26% of that year’s patents. The same is true across IBM. For example, its WebSphere business software is based near Raleigh, N.C., but relies on client-facing consultants and software labs around the world.
President Trump is right that America needs millions more good-paying jobs. But he does not seem to realize they can be created by U.S.-based multinationals that know how to invest capital, operate globally and create knowledge. In 2014, U.S. multinationals undertook 45.4% of all private-sector capital investment, were responsible for 49.5% of all U.S. goods exports, and conducted a remarkable 78.9% of total U.S. private-sector research and development.
The 26.6 million domestic employees of U.S.-based multinational companies earned an average compensation that was 34.2% higher than the private-sector average. These parent companies also create millions of good jobs for their suppliers. Contrary to conventional wisdom, fully 89.2% of all inputs of goods and services purchased by U.S. parents—$8.8 trillion—were from other U.S. companies, not imports.
Limit the ability of U.S. multinational companies to flourish abroad and you limit their ability to create high-paying jobs in America. Washington should base its policies on data and research, not anecdotes and assertions.
Mr. Slaughter is dean at the Tuck School of Business at Dartmouth College. From 2005 to 2007 he served as a member of the Council of Economic Advisers.
Appeared in the June 15, 2017, print edition.