Good article at VoxEU on the effect of offshoring on US wages, reporting on a study by Berkeley’s Ann Harison, et al. Here is a summary:

This column revisits the heated debate over international trade, offshoring, and US wages using new data. It says that increased international exchange with low-income countries has depressed US wages. That effect only arose during the 1990s, suggesting a different conclusion about trade, offshoring, and income inequality than the previous round of debate.

Longstanding debate in the trade area, and of course the issue is of great importance when discussing US-China politics and trade policy.

Everyone admits that there are winners and losers from trade, while most serious economists admit that in the aggregate, trade is a good thing.

I think many protectionists refuse to look at the aggregate numbers, focusing instead on the specific losers, people who have lost jobs or have their wages depressed. Their answer: put up more barriers to protect the “losers.”

Sounds nice, but then of course you get none of the gains from trade either.

The rational position (I believe) is to support free trade as well as social programs designed to help those who are displaced from trade effects. This position seems to be reflected in the (quite reasonable) policy positions suggested by Harrison:

• Policies designed to help displaced workers should be targeted at occupations, not industries. Since the research shows that some types of workers, such as those who work in shoe manufacturing, have been disproportionately hurt while other types of workers (such as teachers) have been unaffected, trade adjustment assistance needs to be appropriately targeted.

• Policies (such as those proposed by the Obama administration) designed to curb the negative effects of offshoring on US jobs need to distinguish between offshoring to rich and poor countries. Since the negative effects are restricted to low income destinations, any policies which discourage offshoring in high-income regions (such as Ireland or France) will have the unintended effect of hurting the very workers they are designed to protect.
  

The one issue that comes to mind from this is that China is moving (slowly) away from being simply a supplier of low-cost imports to the U.S. Moreover, increasing numbers of U.S. firms that set up in China are doing so because of the China market, not because they wish to set up as a low-cost supplier to the home market.

As China becomes more of a high-income region, its effects on low-skill U.S. wages should decrease, according to Harrison’s conclusions.

Makes sense, yes?

By the way, Harrison’s conclusions that wages have, in fact, been depressed by trade, run counter to other contemporary studies. Harrison cites to Paul Krugman (2008) as one example – he says that the data do not present a clear conclusion. I don’t have much formal training in this area, so I can’t really comment on the differing results.