Despite its robust economy, the United States is poised to feel the labor crunch as manifested by the recent job cuts imposed by big corporations just to keep their sagging operations afloat in keeping with their remaining resources.
Independent economists have predicted that the problem will be exacerbated further by the emergence of globalization which puts millions of American jobs at risk in the coming decade or so.
Expected to suffer the impacts of free trade are the estimated two million jobs in the fields of accounting, bookkeeping and auditing, which can be done using the latest communication technology, says Alan Blinder, the former vice chairman of the Federal Reserve Board in a report posted at Wikipedia.
This development is a pinch on the U.S. labor market where unemployment rate is causing unease among American workers because some big corporations opted to shift their production to China and other locations in Southeast Asia, where labor is cheap and tariffs on imported raw materials for production are low as part of the host country's tax incentive.
Free trade has enriched the U.S. and some of its trading partners, despite the harm it did to many ordinary workers and the middle class, Blinder explains. He claimed that free trade changes types of jobs, adding that tens of millions of additional American workers will start to experience job insecurity that has been reserved for manufacturing workers.
Believing in the economic theory of David Ricardo on comparative advantage, he urged concerned authorities to find a way to find a way that will improve the education system for displaced workers. Even as he had a hand in helping realize the launching of the North American Free Trade Agreement, he opposed steel, aluminum and farming export subsidies and protection.
Amid these negative economic concerns due to mounting pressures of business competition, U.S. companies find it profitable instead to outsource increasing amounts of production process that happens not only domestically but abroad as well. This represents a breakdown in the vertically integrated mode of production as exemplified by the automobile industry, on which American manufacturing was built, says Robert Feenstra, a professor of economics at University of California, Davis.
For example, total investments in China reached to US$7.8 billion in 2000, up from only US$200 million in 1989, thus attaining a dramatic growth in trade and investments. However, this made significant impacts on employment and wages or workers in the U.S. and other countries as well, says a study of Cornell University's Industrial and Labor Relations Division entitled The Impact of US-China Trade Relations on Workers, Wages and Employment.
In the same study, it says that more than 80 U.S. based corporations have shifted their production to China between Oct. 2000 and April 2001. The number of jobs lost as a result of this shift was estimated at 34,900, compared to 26,267 to Mexico and 9,060 lost to other Asian countries.
This also resulted in increased income inequality in the U.S, and abroad where similar production shifts have occurred. Among the companies that moved to China were subsidiaries of publicly-listed multinationals like Mattel, International Paper, General Electric, Motorola and Rubbermaid. These companies, according to the study, tend to serve not only China, but the U.S. and the global markets as well.
"Contrary to the high expectations that China's 1.2 billion population would provide an ever-expanding market for U.S. goods, by 2000 the value of goods imported from China exceeded the value of U.S. goods exported to China by a factor of more than six to one, resulting in a bilateral trade deficit of $84 billion", the study noted. Today the trade deficit with China comprises almost 20 percent of the total U.S. trade deficit and is the largest trade deficit the United States has with any single nation, it added.
Latin America, which is much closer to the U.S. did not perform well since the imposition of tariff cuts in 1980s and 1990s as compared to protectionist China and other Southeast Asian countries that have continued to attract relocators from the U.S. and Europe, the report noted.
Former IBM chief scientist Ralph Gomory said that the rise of China and India could make U.S. industries lose important industries. As of this writing, some established U.S. corporations have begun relocating their operations to Southeast Asia in a bid to lessen their operational expenses.
Echoing their sentiments, many domestic industries have opposed free trade because they believed that it had reduced their profits and market share due to the flooding of much cheaper imported goods into the domestic market.