New Report Shows Outsourcing Fears Are Misplaced

Bryan Riley / June 27, 2012

While fears of “outsourcing” continue to make headlines, the facts show there is no “giant sucking sound” resulting from dollars fleeing the United States to be invested in other countries. Outsourcing occurs when companies close facilities in the United States and invest in new operations in other countries. Some people believe that the ability of people to invest anywhere in the world is bad for the United States, since jobs will be outsourced to low-wage countries.

In fact, the opposite is true. The United States benefits greatly from “insourcing” as global investors send their dollars to the United States, creating millions of jobs here.

The U.S. Bureau of Economic Analysis (BEA) just announced that the total value of foreign investment in the United States exceeds the value of U.S. investments in other countries by more than $4 trillion. New foreign investment in the United States in 2011 alone exceeded U.S. investment in other countries by $556.3 billion.

However, the news was not all good. The BEA data showed that excessive federal spending and the resulting budget deficit continue to be a problem. Foreign investors spent more than $400 billion on U.S. Treasury securities in 2011. This is another way to say that the government borrowed more than $400 billion from foreign investors. Those dollars could have been invested otherwise in the private sector of the U.S. economy or spent on U.S. exports.

Americans should not be concerned about outsourcing, because there are many more dollars being invested in the United States than vice versa. However, Americans should be concerned about excessive federal spending. Deficit spending encourages our trading partners to buy U.S. Treasury securities to finance our government’s budget shortfall, instead of buying U.S. exports or investing in our private sector.