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On August 28 the Cato Institute in Washington DC published a report, “Thriving in a Global Economy: The Truth about US Manufacturing and Trade.” The report confuses a company’s offshored products with its import competition and wrongly concludes that US companies with the most import competition are the companies that are thriving.
The Cato report never mentions the practice of US corporations of offshoring their production for US markets. Consequently, the report conflates offshored inputs and final goods of US corporations with imports from competitive foreign firms. The report thus confuses corporations or industries that offshore their manufacturing with those most exposed to import competition.
This extraordinary mistake results in an incorrect conclusion. The Cato report finds that revenues, profits, and value added rose most for industries most exposed to import competition and mistakenly attributes this result to the beneficial workings of free trade.
In US trade statistics, offshored US production is counted as imports. Offshored production comprises a substantial percentage of manufacturing imports. Let’s rewrite Cato’s conclusion to take account of these facts: “Revenues, profits, output, and value added rose the most for industries that offshored manufacturing, and they rose the least for those industries that produced their output domestically.”
Obviously, corporations that arbitrage labor and replace their US employees with less expensive foreign labor are going to enjoy greater growth in profits and value added.
The Cato report did not set out to prove the benefits to corporations of offshoring. The goal of the report is to combat protectionist sentiments in Congress that might result in trade restrictions. Thus, a report that attributes the health of US manufacturing to import competition.