March 31, 2004

Treasury Chief Backs Outsourcing

In Ohio to promote the White House?s economic policies, John W. Snow, the Treasury secretary, has told The Cincinnati Enquirer that the practice of outsourcing to low-cost countries ''is part of trade'' and that ''there can't be any doubt about the fact that trade makes the economy stronger.''

Mr. Snow's comments stem from a general inclination of the Bush administration to defend global free trade, even in industrial states like Ohio that have lost tens of thousands of factory jobs and where many voters blame outsourcing to countries like China and India for the loss.

Mr. Kerry, the presumptive Democratic nominee, called for eliminating the ability of corporations to defer the taxes on foreign profits as long as companies keep those profits outside the United States. In exchange, he proposed that Congress would use the additional tax revenue to reduce the corporate tax rate for all companies by about 5 percent.

Mr. Snow said foreign trade played ''a modest role at best'' in the nation's anemic rate of job creation over the last year.

But Mr. Bush and other top officials have become less apologetic about their support for free trade and their reluctance to attack companies that obtain their products or their components from Asia or Latin America.

Mr. Bush, speaking to business executives in Appleton, Wis., said that Mr. Kerry ''would build walls around America'' by re-examining the North American Free Trade Agreement and other trade treaties.

Top officials at the Federal Reserve, though independent of the Bush administration, have sided with the White House in defending free trade.

Ben S. Bernanke, one of the central bank's most visible and outspoken board members, said that foreign trade accounted for only a tiny fraction of the 2.2 million jobs that have been lost over the last three years.

Citing estimates by outside economists that foreign trade may have led to the loss of as many as 167,000 jobs a year since 2001, he said the numbers were small in comparison with the nation's overall pace of both job creation and job destruction. During the 1990's, he said, the United States lost about 15 million jobs a year but gained about 17 million jobs.

''Quantitatively, outsourcing abroad simply cannot account for much of the recent weakness in the U.S. labor market,'' he told an audience at Duke University's Fuqua School of Business.

Mr. Bernanke argued that the biggest reason for the weak job market was the rapid rise in domestic productivity, which has allowed companies to make more goods without hiring additional workers. American productivity has grown by about 5 percent a year for the last two years, twice its normal pace.

William Poole, president of the Federal Reserve Bank of St. Louis, told a college audience in Indiana that foreign trade and outsourcing would ultimately benefit the United States by reducing prices at home and expanding export markets.

''This process has been going on in the course of economic development for hundreds of years,'' Mr. Poole said. ''So this is a fact of life. It's not something that we're going to reverse.''

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