In recent years American economic downturn has created a big Delimma on the issue of free trade. In principle US policy makers agree that with the establishment of WTO free trade regime will benefit both world economy as well as US economy. In fact they played a key role in the establishment of WTO.Outsourcing means subletting insignificant jobs to outsiders so that a firm remains focused on the main issues and activities . Although there has been an uproar in Western World over outsourcing but it may not be so bad as it allows the companies to reduce the cost so that they remain in business at competitive terms .Outsourcing in fact helps during the time of recession when survival depends upon cost cutting. What is important here to note that outsourcing follows the basic principle of foreign trade as prescribed by the great economist David Ricardo under his COMPERATIVE COST THEORY;" that a country should specialized in the production of only those goods in which it has a cooperative cost advantage" Ricardo was a great advocate of free trade and his theory was well accepted by Capitalist world. Nobody then thought that the same theory could be the base model for business in the twenty first century. The opponents of free trade and outsourcing are unable to explain why is it bad when it is saving resources to be used for future development and why not a business firm be allowed to do the business at purely on monetary terms. US Delima is not based on real calculations as till date data are not available to either support or oppose outsourcing on the basis of cost benefits analysis and United States doesn't have comperative advantage due to high labor costs and strong dollar. Emergence of China and India as a source of cheap labor centers with expertise man power in IT sector is what troubling America as many companies prefer some non core jobs to be performed at cheaper rates for competitive gains. No doubt outsourcing reduces cost but it hsd its own cost for the economy.
Outsourcing is good at micro level but when it is applied by the whole industry or the economy then it creates problem of unemployment. It is this aspect which is hurting US economy and the government is forced to take anti outsourcing stand. In US there are both supporters and anti of outsourcing. Initially when US economy was doing well and manufacturing sector was rising then US government supported this policy. But now with the high rate of unemployment (10% ) and falling output , the government is busy in calculating the pros and cons of the steps it had taken to promote outsourcing and any reversal of the policy is bound to be damaging to the cause of economic development of the world economy. However it may be noted here that outsourcing has become a bad word in US and the policy makers say be American and buy American .
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But with arrival of President Obama , US economic policy makers are determined to break away from free trade regime. Now US administration will apply harsh policy measures against those firms which are outsourcing jobs to both India and China. The clear massage it that US administration will support those firms investing in domestic economy than the firms outsourcing jobs and creating unemployment in the economy.It Iis feared that next year the rate of unemployment will be even higher than 10% therefore drastic measures are required to bring the economy on the track. Further Obama administration is facing a tough situation in regards to fiscal deficit .Therefore it is going back to protectionism.
According to Obama it is necessary because US is facing a new type of threat where benefits of domestic economy is not being distributed among residents but going out. Continuing the same line Obama government has also decided to bring radical changes in L-1and H1B visa rules to limit outsiders entry in US. This step will directly affect Indian Economy as it will restrct entry of Indian IT professionals in US.It will further complicate this issue.
Now question arises that why is Obama administration doing this. The answer is clear. In post recession period Obama administration is left with no other choice than to protect US economy through a new type of protectionism regime at the cost of free trade theory. In recent times rising unemployment is a big issue and solutions are not easy. Progress of China in manufacturing sector has given a big jolt to US. Therefore, outsourcing related development of Indian Economy will have to suffer.
Outsourcing is good at micro level but when it is applied by the whole industry or the economy then it creates problem of unemployment. It is this aspect which is hurting US economy and the government is forced to take anti outsourcing stand. In US there are both supporters and anti of outsourcing. Initially when US economy was doing well and manufacturing sector was rising then US government supported this policy. But now with the high rate of unemployment (10% ) and falling output , the government is busy in calculating the pros and cons of the steps it had taken to promote outsourcing and any reversal of the policy is bound to be damaging to the cause of economic development of the world economy. However it may be noted here that outsourcing has become a bad word in US and the policy makers say be American and buy American .
But with arrival of President Obama , US economic policy makers are determined to break away from free trade regime. Now US administration will apply harsh policy measures against those firms which are outsourcing jobs to both India and China. The clear massage it that US administration will support those firms investing in domestic economy than the firms outsourcing jobs and creating unemployment in the economy.It Iis feared that next year the rate of unemployment will be even higher than 10% therefore drastic measures are required to bring the economy on the track. Further Obama administration is facing a tough situation in regards to fiscal deficit .Therefore it is going back to protectionism.
According to Obama it is necessary because US is facing a new type of threat where benefits of domestic economy is not being distributed among residents but going out. Continuing the same line Obama government has also decided to bring radical changes in L-1and H1B visa rules to limit outsiders entry in US. This step will directly affect Indian Economy as it will restrct entry of Indian IT professionals in US.It will further complicate this issue.
Now question arises that why is Obama administration doing this. The answer is clear. In post recession period Obama administration is left with no other choice than to protect US economy through a new type of protectionism regime at the cost of free trade theory. In recent times rising unemployment is a big issue and solutions are not easy. Progress of China in manufacturing sector has given a big jolt to US. Therefore, outsourcing related development of Indian Economy will have to suffer.
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