Overseas Operations Support U.S. Manufacturing, Job Creation

By August 13, 2010Economy, Taxation, Trade

Thank you Robert m. Kimmitt and Matthew J. Slaughter of the Deloitte Center for Cross-Border Investment for writing today’s op-ed in The Washington Post, “How to jump-start American manufacturing,” which examines the interaction of international business operations with the U.S-based manufacturing economy.

Despite the common assertion that U.S. multinationals simply “export jobs” out of the United States, these firms’ expansion abroad has tended to complement their U.S. operations. More international investment and employment in their foreign affiliates has tended to create more U.S. parent company investment and jobs as well. Our calculations from U.S. Bureau of Economic Analysis data show that from 1988 to 2007, employment in foreign affiliates rose by 5.3 million jobs — while U.S. parent companies added nearly as many positions, 4.3 million. A 2009 study published in the American Economic Journal: Economic Policy analyzed all U.S. multinationals in manufacturing from 1982 to 2004 and found that each additional dollar in an affiliate’s employee compensation generated, on average, an increase of about $1.11 in employee compensation at its parent company. Each additional dollar in an affiliate’s capital investment generated an average increase of about 67 cents in its parent’s capital investment.

In many U.S. multinationals, foreign and U.S. operations support and strengthen each other. A major reason for this is faster economic growth outside the United States. Rapidly growing countries present vast revenue opportunities for U.S. multinationals, opportunities that tend to boost affiliate and parent activity.

The piece is full of the facts and figures that effectively rebut claims about “shipping jobs overseas.” Unfortunately, in the House’s debate on Tuesday about H.R. 1586, which included $9.6 billion in higher taxes on U.S. companies with foreign operations, proponents of the tax increase barely addressed the issues raised in the op-ed. Instead we got rhetoric, slogans like “closing loopholes.

The truth is U.S.-based businesses with operations abroad and foreign-based businesses with U.S. operations create wealth, serve markets, and employ U.S. workers. The multinationals help us “Make it in America.”

The arguments in the op-ed — and thanks to the Post for publishing it — are aimed at the public and policymakers. Kimmitt and his colleagues at Deloitte have also examined related issues of international investment for their business clients, as piece published in June in Deloitte Review, “Money and Borders: Cross-Border Investments In A Changing Global Marketplace,” which reports:

There are indications that governments are becoming bigger players in economic affairs, and that we are entering an era in which nationalist ambitions will make globalization more difficult to manage. This has profound implications for cross-border investments. How far these trends will go and how they will affect particular industries and markets are open questions. What is clear is the need for companies and funds pursuing cross-border investments to adapt their investment strategies and operations to function effectively at the intersection of government, business and finance.

For more from Deloitte on the global economy, go here.

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