More Americans See Threat, Not Opportunity, in Foreign Trade

by Dennis Jacobe, PhD
Chief Economist, The Gallup Organization

Most investors see outsourcing as harmful

During recent weeks, we've seen signs of growing opposition among legislators to the current U.S.-led liberal approach to free trade. For example, in the takeover battle for California-based oil and gas producer Unocal Corp., Congress approved a delay of up to 141 days for review of the Chinese company CNOOC's offer to acquire Unocal, citing national security concerns. This congressional action could eventually create further difficulties for Chinese-U.S. trade relations.

On another front, Congress just barely passed the new Central American Free Trade Agreement, in the most intense battle over trade issues since the passage of the North American Free Trade Agreement in 1993. While the legislation's passage is a win for the Bush administration, the small margin of victory does not bode well for additional free-trade efforts.

Why is the battle over the future of free trade intensifying? The answer lies in the shift taking place in the way Americans view foreign trade. A June 24-26 CNN/USA Today/Gallup poll* shows more Americans see foreign trade as a threat to the economy than as an opportunity for economic growth. In addition, the July UBS/Gallup Index of Investor Optimism poll** shows most investors see the outsourcing of jobs to foreign countries as a threat to the investment climate.

What Does Foreign Trade Mean for America?

Forty-eight percent of Americans say foreign trade is a "threat to the economy," compared with 44% who believe foreign trade is an "opportunity for economic growth." This is a reversal from nearly two years ago (November 2003), when 41% of Americans saw foreign trade as a threat and 49% felt it was an economic opportunity. The June 2005 poll also marks the first time since 1992 that Americans who feel foreign trade is a threat outnumber those who view it as an opportunity to increase U.S. exports.

Is Job Outsourcing Hurting the Investment Climate?

Eighty-three percent of U.S. investors say job outsourcing to foreign countries is currently hurting the investment climate "a lot" (61%) or "a little" (22%). Investors' concern about this issue has remained high throughout the past year. The number of investors worried about outsourcing is second only to the percentage worried about the price of energy on the list of 12 investor concerns that Gallup tested in the July poll.

Is the U.S. Leadership in Free Trade at Risk?

While there is no good data on the growth of job outsourcing to foreign countries, the U.S. Department of Labor does provide a hint about what is happening. For example, between 2001 and 2003, 5.3 million Americans were displaced from jobs they held for three years or more. By January 2004, just 65% of people in that group had gotten new jobs and 57% of those were positions in which the employee was earning less than he or she had been previously.

This process is likely to not only continue, but to accelerate as more CEOs try to find ways to reduce costs and compete with companies that are already outsourcing jobs aggressively. Combined with the flood of imports into the United States, it is easy to see why a growing percentage of Americans think foreign trade is more of a threat than a benefit to America.

Technological change, a reduced fear of the political risks associated with moving facilities overseas, and Wall Street pressure to reduce costs through outsourcing have combined to create a rapidly expanding global job market. While economic theory suggests this is the optimal course for the world economy, it does not provide much reassurance for countries like the United States that are trying to make the transition from a domestic job market to a global one.

The danger is that America's inability or unwillingness to manage this transition in a reasonable way will create a popular backlash against both foreign trade and job outsourcing to foreign countries. If such a popular uprising takes hold politically, the results are not likely to be optimal for anyone.

*Results are based on telephone interviews with 1,009 national adults, aged 18 and older, conducted June 24-26, 2005. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3 percentage points.

**Results for the UBS/Gallup Index of Investor Optimism poll are based on telephone interviews with 801 investors, aged 18 and older, conducted July 1-17, 2005. For results based on the total sample of investors, one can say with 95% confidence that the margin of sampling error is ±4 percentage points.

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