No, more outsourced jobs will be sent to India

There is little doubt that certain “Buy American” provisions in the $787 billion stimulus bill signed into law on February 17 are protectionist. They want only American steel and cement to be bought for public works, and prohibit the hiring of H-1B visa holders by companies getting bailouts. The idea has some apparent merit—perhaps American bailout funds should create American jobs. British workers have similarly demonstrated against the use of European skilled labor in power-plant construction, and Spain has been offering immigrants money to leave.

But there are dangers. The London Times called the “Buy American” ideas “ugly,” while China’s Xinhua called them “poison.” Many countries will retaliate with tariff and non-tariff barriers. For the worst case scenario, consider the Smoot-Hawley Tariff Act of 1930, which raised duties on 20,000 imported items, and directly led to the Great Depression, because global trade came to a grinding halt. This is about the last thing anybody wants—the credit freeze has been brutal, and a trade freeze on top of that would be a calamity. “Beggar-thy-neighbor” is a bad idea, and trade, at least in theory, helps everyone.

Paradoxically, it is not entirely clear that all this will hurt India too much, although it will hurt some exporters. India is not much of a trading nation—unlike, say, China, whose economy is largely based on exports. India is somewhat insulated from globalization, and India is more concerned about diminishing foreign direct investment flows.

The rationale behind the use of H-1Bs will remain even after the hoopla dies down over the stimulus bill. This has to do with the undoubted labor-cost differential, the worrisome and persistent decline of science and engineering in the United States, and the death of distance thanks to fiber-optic cable and the internet. India is producing many people—and this will not be engineers alone, but even high-school graduates in future— who can take on the moderately good jobs that a lot of moderately smart, moderately well-paid Americans now hold.

Thus more jobs will invariably be outsourced to India one way or the other. The only thing that the anti-H-1B campaign will do is to change the way the work is outsourced. Instead of requiring people to move to America to do particular jobs, the work can generally be re-architected so that most of it can be done offshore. That would be just fine for the outsourcing firms and for India. The only people who suffer are the would-be immigrants among the H-1B holders. There will be fewer green-card-track jobs around.

Not to worry, though. The U.S. government has just come up with an irresistible offer: join the army and you get your citizenship right away!

Rajeev Srinivasan wrote this opinion from Ahmedabad, India.

Yes, India’s manufacturing and exports will suffer

Manpower happens to be India’s greatest export, and with India’s biggest trading partner, the United States, pulling in the reins on H-1B visas and urging Americans to “Buy American,” not only are the IT and ITES industries going to feel the bite, but other export and manufacturing industries are bound to feel it, too.

At a time when the world is reeling under the economic downturn, it is critically important for countries to ensure the free flow of trade to prop up the toppling global economy. Yet the “leader” of the free world seems determined to put an end to free trade. Unsurprisingly, the backlash triggered by these protectionist measures is beginning to resonate globally. For India, the implications of this curb in trade are enormous.

The clause itself is suspect, since what exactly constitutes “American”? Does that include American companies reaping profits while maintaining manufacturing units in some country with cheap labor? What about non-American companies with manufacturing units in America, employing local labor?

The biggest victims of the “Buy American” provision happen to be the Indian iron and steel industries dominated by giants like Tata Steel, since the clause stipulates that raw materials such as iron and steel for infrastructure projects in the U.S. need to be sourced from within the U.S. This is worrisome because steel and related products accounted for nearly $2 billion of the $20.72 billion Indian exports to the U.S. With the economic slump, the rate of growth of Indian exports is spiraling down from a buoyant 21.76 percent to 17.1 percent.

Although it is too early to measure the impact of these provisions, tremors are being felt in other industries, too. The list of products listed under the “Buy American” provisions includes textile goods such as uniforms for the Homeland Security Department. The textile and apparel industry will be hit. Other sectors are hurting anyway. Since September 2008, nearly a million people have lost jobs in the employment-intensive gem, jewelry, and textile industries, and the Indian export sector is expecting job cuts to soar to a dismal 1.5 million by next month.

With the U.S. walling off foreign companies, India could resort to retaliatory measures. However, this can only lead to a nasty domino effect of intense trade protectionism. Therefore India needs to set her sights elsewhere to protect her interests. Doing more business with Europe and other strong Asian economies—which are equally opposed to such protectionist measures—would be a step in the right direction. The Indian IT sector should also look at the home market and start bidding for Indian business, thus making the cream of the fabled Indian intellectual prowess finally available to India.

Remitha Satheesh wrote this opinion from Cary, North Carolina.