Let’s explore an extreme scenario. If you could get all the labor you need to run your business for free how much of it should you buy? I would say “use all the free labor you could get” since with no labor costs your company and more importantly its owners can earn a higher return on their investment.
Also, with lower costs you can sell your product for less money, giving you a price advantage over your competitors. Cheap labor rates in China allow consumers, both rich and poor, to buy their Nike, Reebok, Adidas, or New Balance shoes for much less then they would if the shoes were produced in a US-based manufacturing facility. The lower costs allow the consumer to use the money they saved by buying the cheaper-to-produce goods to either invest the difference or to support further consumption, making the consumer better off.
Furthermore, the higher margins derived from lower labor and manufacturing costs provide needed capital for the business to make new investments, increasing earnings and increasing the asset value of the company, and thus producing wealth. In the end, offshoring manufacturing produces a win for investors/stockholders and a win for consumers. It has contributed to a higher standard of living for all Americans and allowed the savvy American to devote more of their income toward investments to help them grow rich.
What are you doing with the savings you are getting from offshoring? Are you investing it for the future or using it for increased consumption?
