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Software Tariffs and US IT Outsourcing?
HeelToe asks: "A while back I worked with someone who thought the US should simply impose tariffs on imported products to adjust their price to equalize foreign labor rates to the US minimum wage. I was laid off and my position moved to Canada last year. Since then, I've thought a lot about his ideas, as well as one of our topics of conversation a while back: Why doesn't the US tax the import of software? It seems to me like they should. It's not a "tangible" product (same reason used to deny my co-workers and me NAFTA and Trade Act benefits), but when someone outsources to another country with cheap labor for any other industry, there are usually import tariffs. Why is software different, and how would this change the climate of US IT jobs leaving for other parts of the world if we did tax software imports? I've done some looking on the web, but can find nothing in the Harmonized Tariff Schedule of the United States. I did find this thread from a few months back on informationweek.com's Career Development Forum, but not much else. What does Slashdot think?"
But it seems it would be largely futile to impose such tariffs, as usually international software developement is done by satellite offices of US-based companies, thus making them immune.
Otherwise, it could be similar to the issue of the "Made in America" labels that can be put on any product partially constucted within the United States. So if a widget is manufactured in Mexico, but put together in the US it can still bare the label, exempting it from some tariffs. So for coding and other computer style products, this can be worked around by doing the majority of the work outside the country with the cheaper labor, then wrapping it all up within the borders.
Have you been stalked by Seth today?
Yet, when other countries get their labor costs to be lower than those of the US, then Americans start complaining and want to impose taxes. Well, which is it? If the US can impose tariffs on Indian computer products, is the US willing to have tariffs imposed on US computer products by Europeans, whose labor costs are higher because of better social services?
I think this Onion article points out what really is going on: many Americans just can't deal with the fact that the rest of the world is different and actually likes is that way.
There are several fundemental assumptions this post makes that have to be corrected.
First, as someone who works a lot in both the USA and Canada, I can guarantee you that living costs in Canada are, on average, HIGHER than the USA. If your job was moved to Montana (which has lower living costs than where you are now) would you be asking Montana for import tariffs? Of course not; so please, drop this argument.
Second, I see a lot of Slashdot posts discussing the movement of I.T. jobs to "cheaper" locales. A lot of the arguments made against this move are the same arguments that were lodged against Japanese auto companies in the 1970's. North American IT workers may be in denial now, but the offshore trend will continue to deteriorate the IT job markets of both the USA and Canada.
So what is the solution? Just as the auto-workers realized in the 1970's, the successful worker will be one who not only performs menial tasks (i.e. programming) well, but also adds significant value to their position. For example, if you are a good communicator AND understand technology you will have no problem finding a job. If you prefer to lock yourself in the back room and code (and complain to Slashdot) then you are going to be in for some tough times. Keep in mind that times now, on average, are good. Use this time to retrain and expand your skillset, not reading up on arcane NAFTA regulations.
Absolutely a bad idea, i agree. Just because your job moved up to canada does not mean the grass is greener over here (yes I am in Canada). And trust me, it is as bad up here. My friend just got laid off because the company is moving the whole operation to China...
Tariffs could have negative effects not directly but indirectly. Take sugar for instance. Odd example, but hear me out. Sugar has an import tariff to protect the US sugar manufacturers. It protected the manufacturers but it had a huge indirect effect. Since the sugar prices were cheaper (especially in Canada), all the candy manufacturers moved up to Canada.
Now think software. If software tariffs indeed is feasible and succeed, sure it might protect software manufacturers, but what about those who depend on them? If a software for factories (robots, assembly line etc) is imposed tariffs, where would the factories stand? What about consulting? Tax software? Could see CPA's opening up offices in canada just to avoid the massive software prices...
Rather than protectionism, I think more effort should be put towards innovation. Anyway, that is my 2 cents.
The UK tried this when other countries semiconductor capabilities exceeded their own - tariffs were impose on imported components. It was meant to protect the UK computer industry - but it backfired badly. Unable to compete in the manufacture of ICs, UK companies couldn't even import components and produce full systems competitively. The policy led to the death of systems manufacturing without benefitting the component producers.
The same thing happened to the UK film industry. In order to fight against films produced in Hollywood, a law was passed requiring a certain percentage of all films to be produced in the UK. Since the general public wanted Hollywood films, the only way to comply was to show supporting features produced in the UK. Since this was more profitable than producing feature films, the UK film industry ended up producing supporting features about candlemaking in Birmingham. So it died. We are now seeing some recovery, but only after at least two decades of decline.
As has been seen in the automotive industry, protection of national producers in this manner only leeds to apathy within the domestic industry. Protected from outside innovation and competition there is no reason to improve, instead the industry will settle into a cosy cabal with domestic producers. When, eventually, the import duty is removed the existing industries are far behind their foreign competitors. This is detrimental not only to the industry long-term but also to the domestic consumer.
Eventually, for the reasons outlined above, domestic producers will not be able to export - for two reasons. Lack of competition will lead to an atrophying of the state-of-the-art within the country and hence be behind other counties producers that are open to a free market. Also profit from export will be much lower than domestically. These factors will produce an inward facing industry which does nothing to help the balance of trade.
Lastly, those countries who have tariffs levied against them, may retaliate with equivalent tariffs or legislation against the import of other goods and services from the tariff imposing country which will hurt the countries export marketing and thier domestic industry as a whole.
For better or worse (and I believe better) we all operate in a global market. This drives competition and innovation and in the longer term will bring benefit to all. Protectionism only serves to kill those it seeks to protect.
1. Trade war. The US exports for more IP than it imports. Just to give you an idea of how big the difference is, US spending on R&D is roughly equal to spending by the rest of the OECD combined. When it comes to software production the disparity is even larger. If the US starts a trade war in this area then they have almost nothing to gain, and they have a very large and lucrative export sector to lose.
2. Racism. Why is it that people have so much trouble with the idea of competing with poor people for work? Do you think they aren't hungry enough already? Does the idea of them actually developing some sort of economy disturb you? After all they have to compete with cheap mass produced products from industrialized nations, and massively subsidised food. Why shouldn't we have to compete with them for work?
3. Self-interest. Why the hell would any country want to encourage their best and brightest to waste their talent doing work that could be done for a fraction of the price by cheap labor in other countries? For that matter why would you want to waste your life doing something that is not economically productive? Find something worthwhile to do with you life, instead of trying to strong-arm your customers into paying artificially inflated prices for skills that are not needed.
4. Freedom. It isn't just good for software. When ever you see someone who is trying to shut out the competition you can be pretty sure he is trying to get a free ride by screwing everyone else.
So, basically, the problem is that overseas workers can in many cases produce more good code per $ than US workers? Adding a tariff will protect some jobs here, but at the greater cost of increased administrative costs of handing (and working around) the tariff, and higher software costs in general. Basically what the tariff does is make outsourcing more expensive than using local talent. Sounds nice in general, but unless the USA spends more money on software, the net effect of this is that our software dollars will buy less productivity, and hence we'll have less software. So, instead of saving an American job, it might just mean that the software project doesn't happen wholesale.
A much better approach is to find a way to justify the higher wages of American works. In order to not get outsourced, find a way to prove you're worth the money. Is that sheer code productivity, product insights, or what? There needs to be an angle. If you look at laptop manufacture, while most of the work is done around the South China Sea, product management, marketing, sales, etcetera all happens in the US. And while it sucks to be a laid off engineer, it certainly rocks to be able to buy an excellent laptop for half would an equivalent product would have cost a few years ago.
The thing about free trade is that its benefits are diffusely spread, but those it hurts are highly concentrated. So, even though steel tariffs cost more American jobs than they save, the steel industries and unions are more concentrated and vocal than the broader steel consumer industries, which is everyone from car manufacturers to can makers to appliance builders, or whatever. Higher steel costs might have saved a job in Pennsylvania, but they probably cost twice that many jobs in lots of other places. People were laid off from car dealerships because of them, even if the person laid off didn't know that was the root cause.
I've worked with several engineering projects where components were outsourced to India. The Indian engineers were are talented and motivated, and wrote good code. And, honestly, I can't say they need the money any less than "native" programmers. Our long term national interest is certainly aligned with India developming a modern, integrated economy! And I'm happy to be able to pay less for software, or buy packages that otherwise wouldn't have been written, than if all software had to be authored in the USA.
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Let's say the U.S can produce a widget for $2 and Third-World country X can produce it for $1. Any reasonable business person (and many consumers) would save 50% and buy the $1 widget. Of course, the American Widget Workers will scream bloody murder, and ask for some government protection.
So the U.S. puts a 100% tariff on widgets, so that the U.S. companies can compete. Great for the widget makers, but everyone that uses widgets is paying a dollar more than they would have to. Any product that uses widgets is that much more expensive. Companies that use widget-based products need more money for inventory and can spend less on salaries, so there are less total jobs in the economy. The only people that benefit are the American Widget Workers. And even they don't benefit as much as they think they do - the tariff works it's way invisibly through the economy, making the goods they buy more expensive than they would normally be. Plus, the third-world manufacturer can still sell widgets to other countries, whose products will have an advantage over the U.S., since they'll be using half-price widgets! There goes the exchange rate on a dollar...
Now replace widgets with software, and it gets a whole lot worse. What business doesn't use software? What sector of the economy wouldn't be helped by having to pay much less for software?
If job security really bothers you, there are some software jobs that can't be outsourced. Most U.S. military projects go to American companies, for reasons of security. It's even better if you can get security clearance.
It's not easy to be a worker in a fast-paced economy, where the skill sets are changing and job security is non-existant. But it's a lot better than the alternative, a broken economy where the government protects the jobs of a few privilidged workers at the expense of everyone else.
Heeltoe, the reason that you will not see any government action is quite simple, it has been decided by investors (rich people, rarely do work themselves, all about greed) have decided that as a highly educated, intelligent developer you are making too much money. The problem being that software developers make about 40% more than your average factory worker, and that's 40% that could be going into someone elses pocket.
The first solution is the beloved H1 (amongst others) Visa. This was designed to reduce teh so called "tech labor shortage" (read: high salary) of the high-tech sector. When this failed to increase corporate margins, companies were forced to make prfound sectors about the bold new global economy (read: outsource work to places labor is cheap). I have watched a number of projects get outsourced to the 3rd world for exactly this reason.
So when I think back to those years when mom was telling me that all I needed was a good education, work hard in school, etc. I get sad. I should have tried to be a football player like those "losers" I figured would work a check out counter. I was right of course, they are working the check out counter, but the business world won't stop until my salary is reduced to the level of a check out clerk, but those football players sure got laid more.
hmph.