For the US to remain competitive, it needs to outsource *more* jobs to China & India

Globalization has made the world a smaller place. A consequence has been the shift of jobs, especially in manufacturing, to China and India. Contrary to popular belief, the fall of US manufacturing is to the benefit of the US by making the industry more competitive than before.

Lets take a bottoms-up approach. With respect to American manufacturing, the way it works is:

I am a US corporation. My costs are ridiculously high and profits are very low.
I discover I can reduce my costs by 40-70% if I move manufacturing to China. So, I do that (lets hold the fact that I need to layoff a bunch of people in US for now and come back to that).
As a company, that increases my profits which enables me to re-invest it and grow. Being a US corporation, US government sees more cash by taxing my higher profits, which it can use to build society, healthcare, infrastructure etc. and do other public good.

If all American companies do this, then US industry in general grows, becoming more competitive – creating more jobs everywhere – both in the US and China. To support growth, I will need more skilled employees in the US and more unskilled employees in China because that’s what their strengths are at. It is basically trading on comparative advantage making everyone better off. This helps everyone by creating more jobs overall. I would argue this means that more jobs get created by more financially stable companies than before, compensating for the original layoffs multi-fold.

So, as the US Govt., I would not focus on manufacturing, since that needs more unskilled labor and China can do it much cheaper comparatively. So, I may as well send all my manufacturing there and focus my resources on maintaining and building the skilled labor advantage – whether that means increasing access to education, lowering costs to education, attracting the world’s smartest people to work in America or encouraging entrepreneurship in general. This way, I can export my services and innovation that comes out of that. So, I can import my kid’s toy train from China, but export new drugs or even, say Microsoft Office out (stuff that can only be built using US’s core advantage of skilled labor). On the other hand, since US is and will continue to be a hub for skilled labor, most of the world’s innovative and profitable companies (like Apple) will be of US origin.

However,a caveat is in the manufacturing of complex machines. Complex machines require more skilled labor for quality and if people are willing to pay more for a better quality product, then that is a clear market opportunity. So, that is a case for the resurgence of US manufacturing, where skilled labor is needed for quality goods. But, unskilled labor nonetheless should be exported out.

It is really hard to be great at everything. The human race was able to reach today by specialization in fields and then trading. The same argument here. US specializes in skilled labor and leave the unskilled part to someone else.