TON DUC THANG UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

PROGRESS ASSIGNMENT
SUBJECT: INTERNATIONAL BUSINESS

CRITICAL THINKING & DISCUSSION QUESTIONS

Chapter 6: International Trade Theory

Advisor: Truong Thi Ngoc Thuyen

Group: 02
Implementation group: GlobalBiz

HO CHI MINH, APRIL 2025

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 Table of Contents
Question 1: Mercantilism is a bankrupt theory that has no place in the modern world.
Discuss. ............................................................................................................................ 1
Question 2: Is free trade fair? Discuss. ............................................................................ 4
Question 3: Unions in developed nations often oppose imports from low-wage
countries and advocate trade barriers to protect jobs from what they often characterize
as “unfair” import competition. Is such competition “unfair”? Do you think that this
argument is in the best interests of (a) the unions, (b) the people they represent, and/or
(c) the country as a whole? .............................................................................................. 7
Question 4: What are the potential costs of adopting a free trade regime? Do you think
governments should do anything to reduce these costs? Why? ...................................... 9
Question 5: Reread the Country Focus “Is China Manipulating Its Currency in Pursuit
of a Neo-Mercantilist Policy?” ...................................................................................... 12
Question 6: Reread the Country Focus “Moving U.S. White-Collar Jobs Offshore.” a.
Who benefits from the outsourcing of skilled white-collar jobs to developing nations?
Who are the losers? b. Will developed nations like the United States suffer from the
loss of high-skilled and high-paying jobs? .................................................................... 16
6.1. Winners and Losers in the Offshoring of White-Collar Employment ................ 16
6.1.1. Beneficiaries ................................................................................................. 16
6.1.2. Losers ............................................................................................................ 18
6.2. Long-Term Implications for Developed Economies .......................................... 18
6.2.1. Erosion of the Domestic Knowledge Base ................................................... 18
6.2.2. Wage Suppression in High-Skill Sectors...................................................... 18
6.2.3. Regional Economic Decline ......................................................................... 19
6.2.4. Insufficient Reinvestment in Domestic Innovation ...................................... 19
6.3. Conclusion........................................................................................................... 19
Question 7: Is there a difference between the transference of high-paying white collar
jobs, such as computer programming and accounting, to developing nations, and low-
paying blue-collar jobs? If so, what is the difference, and should government do
anything to stop the flow of white-collar jobs out of the country to countries such as
India? ............................................................................................................................. 20
7.1. Distinguishing White-Collar and Blue-Collar Offshoring .................................. 20
7.1.1. Nature and Tradability of Tasks ................................................................... 20
7.1.2. Scale and Concentration of Labor-Market Shocks ....................................... 21
7.1.3. Differential Wage and Employment Effects ................................................ 21
 7.1.4. Consumer and Firm-Level Gains.................................................................. 22
7.2. Should Governments Intervene to Restrict White-Collar Offshoring?............... 23
7.2.1. Existing Policy Landscape ............................................................................ 23
7.2.2. Risks of Broad Restrictions .......................................................................... 23
7.2.3. Alternative Policy Approaches ..................................................................... 23
7.2.4. Strategic Trade and Industrial Policies ......................................................... 24
7.3. Conclusion........................................................... Error! Bookmark not defined.
Question 8: ..................................................................... Error! Bookmark not defined.
Question 9: The world’s poorest countries are at a competitive disadvantage in every
sector of their economies. They have little to export; they have no capital; their land is
of poor quality; they often have too many people given available work opportunities;
and they are poorly educated. Free trade cannot possibly be in the interests of such
nations. Discuss. ............................................................................................................ 26
 Question 1: Mercantilism is a bankrupt theory
that has no place in the modern world. Discuss.
Mercantilism, an economic theory prevalent from the 16th to 18th centuries,
posited that national wealth and power were best achieved through a positive trade
balance, emphasizing exports over imports and accumulating precious metals. While
classical mercantilism has been largely discredited in favor of free-market principles,
elements of its philosophy have resurfaced in modern economic policies, suggesting that
its core ideas continue to influence contemporary trade strategies (FasterCapital).

Picture 1.1. Key Principles of Mercantilism

In recent years, several nations have adopted protectionist measures reminiscent

of mercantilist policies. For instance, former U.S. President Donald Trump's
administration implemented significant tariffs on imports, aiming to protect domestic
industries and reduce trade deficits. These actions, while intended to bolster national
economic interests, led to trade tensions and retaliatory measures from other countries,
highlighting the complexities and potential drawbacks of such approaches (Rugaber,
2025).

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 Picture 1.2. An article about US tariffs

Similarly, China's economic strategies have been characterized by some as

"innovation mercantilism," focusing on state-led initiatives to promote exports and
accumulate foreign exchange reserves. This approach has raised concerns about unfair
trade practices and has been a point of contention in international trade relations
(AsianFin, 2024).

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 Picture 1.3. An article of AsianFin

While the global economy has largely embraced free trade and market
liberalization, the persistence of mercantilist-like policies indicates that the theory's
principles still hold sway in certain contexts. These modern adaptations underscore the
ongoing debate between protectionism and free trade, suggesting that mercantilism,
though outdated in its original form, continues to influence economic policymaking in
the contemporary world.

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 Question 2: Is free trade fair? Discuss.
Free trade, the unrestricted exchange of goods and services across international
borders, is often lauded for promoting economic efficiency, innovation, and consumer
benefits. However, the fairness of free trade remains a contentious issue, as its impacts
are unevenly distributed among different countries and within societies.

Proponents argue that free trade has significantly contributed to global poverty
reduction. For example, the World Bank notes that trade has been a powerful driver of
economic development and poverty alleviation, with initiatives like the African
Continental Free Trade Area (AfCFTA) having the potential to lift millions out of
extreme poverty by 2035 (World Bank Group, Trade Has Been a Powerful Driver of
Economic Development and Poverty Reduction, 2023).

Or, between 1995 and 2022, the percentage of individuals in low- and middle-
income countries living in extreme poverty decreased from 40% to under 11%, partly
due to increased trade openness (World Economic Forum, 2024).

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 Picture 2.1. A chart illustrates the relationship between Poverty headcount ratio and Exports of goods

Conversely, critics highlight that free trade can exacerbate income inequality and
lead to job losses in certain sectors. A study by the World Economic Forum indicates
that while trade liberalization increases overall incomes, it also tends to widen income
disparities within countries. In developed nations, industries unable to compete with
cheaper imports may decline, resulting in unemployment and wage stagnation for
affected workers.

Moreover, the benefits of free trade are not always equitably shared. In India, for
instance, economic liberalization has led to significant wealth accumulation among the
top 10% of the population, while the bottom 50% have seen minimal gains. Such
disparities raise questions about the inclusivity and fairness of free trade policies (Bharti,
Chancel, Piketty, & Somanchi, 2024).

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 Table 2.1. Wealth inequality in India

In conclusion, while free trade offers substantial economic advantages, its

fairness is contingent upon the implementation of complementary policies that address
its adverse effects. These may include social safety nets, workforce retraining programs,
and measures to ensure equitable distribution of trade benefits across all segments of
society.

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 Question 3: Unions in developed nations often oppose imports
from low-wage countries and advocate trade barriers
to protect jobs from what they often characterize as
“unfair” import competition. Is such competition “unfair”?
Do you think that this argument is in the best interests of
(a) the unions, (b) the people they represent, and/or
(c) the country as a whole?
In the context of international trade, “unfair” competition refers to trade practices
that, while not necessarily illegal, create significant disadvantages for domestic workers.
This often includes the importation of goods from countries with lower labor standards
and wages, which can lead to job displacement and wage suppression in developed
nations such as the United States. Although such trade may be beneficial from an
economic efficiency standpoint, it can have deep and lasting social consequences for
specific segments of the labor force.

Between 1999 and 2011, increased imports from China were responsible for the
displacement of approximately 2.4 million jobs in the United States. These job losses
were concentrated in the manufacturing sector, where many American workers were
unable to compete with the lower costs of production abroad. The effects of this
displacement were particularly severe in industrial regions, leading to economic decline,
reduced community stability, and long-term unemployment for affected workers.

Beyond job loss, trade with low-wage countries has exerted downward pressure
on wages, particularly for individuals without a college degree. Estimates suggest that
expanded trade reduced the annual earnings of a full-time American worker without a
four-year college degree by about $1,800. This wage suppression has contributed to
growing income inequality and economic insecurity among the working class. Notably,
low-wage workers have borne the brunt of these changes. For each $1,000 increase in
Chinese imports per worker, wage reductions among low-wage earners have been twice
as large as the average decline experienced by the broader labor force (Larsen,
Chetverikov, & Palmer, 2020).

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 These challenges have had profound implications for unions, workers, and the
broader national economy. Labor unions, which are dedicated to protecting the wages
and job security of their members, often respond to import competition by advocating
for trade barriers. While these measures may temporarily shield specific industries from
foreign competition, they can also reduce overall economic efficiency by distorting
market incentives and discouraging innovation.

For workers represented by unions in industries most affected by imports, trade

barriers may provide short-term job security. However, these same workers, along with
other consumers, may face higher prices due to reduced market competition. Moreover,
protectionist policies can provoke retaliation from other countries, potentially leading to
trade wars that impact a wider range of economic sectors and result in further job losses
elsewhere.

At the national level, the use of trade barriers to protect certain industries comes
with significant economic trade-offs. Tariffs and import restrictions typically lead to
higher consumer prices, as the cost of foreign goods increases. These policies can also
reduce economic efficiency by diverting resources away from globally competitive
sectors to less productive domestic industries. In addition, the risk of retaliatory
measures from trade partners can disrupt exports, strain international relations, and
create broader economic instability.

In conclusion, there is compelling evidence that imports from low-wage countries

have contributed to job losses and wage suppression for specific groups of American
workers, especially those in low-wage or manufacturing roles. While trade barriers may
provide temporary relief, they often come at the cost of higher consumer prices and
reduced national economic efficiency. A more balanced and sustainable approach would
involve a combination of targeted support for displaced workers, strategic investment in
competitive industries, and a commitment to fair and transparent trade practices that
protect both economic interests and social equity.

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 Question 4: What are the potential costs of adopting a free trade
regime? Do you think governments should do anything
to reduce these costs? Why?
Adopting a free trade regime offers numerous benefits, such as increased market
access, greater consumer choice, and enhanced economic efficiency. However, the shift
toward open markets also brings with it several potential costs that can negatively impact
specific industries, workers, and segments of society. These challenges highlight the
importance of carefully balancing trade liberalization with domestic policies that protect
vulnerable groups and promote equitable growth.

One of the most significant costs associated with free trade is job displacement
and industry disruption. Increased competition from foreign producers can lead to the
decline or collapse of certain domestic industries, particularly those unable to compete
with lower-cost imports. For example, the implementation of the North American Free
Trade Agreement (NAFTA) has been linked to job losses in the U.S. manufacturing
sector as production shifted to countries with cheaper labor. Research by economists
David Autor, David Dorn, and Gordon Hanson estimates that between 1999 and 2011,
competition from Chinese imports alone resulted in the loss of up to 2.4 million U.S.
jobs (Wikipedia contributors, Rust Belt, 2025). These losses have had long-lasting
effects on communities that were heavily reliant on manufacturing.

Picture 4.1. The change in total number of manufacturing jobs in metropolitan areas between 1954 - 2002

Another consequence of free trade is wage suppression, particularly among

workers in sectors directly exposed to international competition. As industries adjust to
increased imports, many displaced workers are forced to find employment in lower-

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paying sectors, such as services. Studies have shown that manufacturing workers who
transition to service jobs often experience wage declines ranging from 6% to 22%
(Wikipedia contributors, Trade Adjustment Assistance, 2025). This downward pressure
on wages exacerbates financial insecurity and limits upward mobility for many workers,
especially those without advanced education or specialized skills.

Free trade can also contribute to growing economic inequality. Although trade
liberalization may increase overall economic output, the resulting gains are not always
shared equally across society. Large corporations and certain high-skilled sectors often
benefit the most, while lower-income workers may struggle with job losses and stagnant
wages. According to the Economic Policy Institute, free trade has played a role in
creating a persistent trade deficit in the United States, leading to the closure of numerous
factories and the loss of millions of jobs in the manufacturing sector (Wikipedia
contributors, Rust Belt, 2025). This imbalance has widened the gap between different
income groups and regions, fueling economic discontent and political tension.

Given these significant costs, governments should take action to reduce the
negative impacts of free trade. Thoughtful policy interventions can help ensure that the
benefits of global trade are more broadly shared and that individuals affected by
economic transitions are supported through meaningful assistance.

One key strategy is the implementation of Trade Adjustment Assistance (TAA)

programs. These initiatives are designed to help workers who have lost their jobs due to
trade-related changes by providing them with retraining, income support, and job search
assistance. For example, the U.S. TAA program offers eligible workers access to job
training, extended unemployment benefits, and relocation allowances to facilitate their
return to the workforce (Wikipedia contributors, Trade Adjustment Assistance, 2025).

Another critical area of focus is investment in education and skill development.

By equipping workers with new skills and knowledge, governments can improve labor
market adaptability and reduce the long-term unemployment associated with shifting
economic conditions. Lifelong learning opportunities and workforce development
programs are essential for preparing individuals to thrive in a competitive global
economy.

In addition, environmental and labor regulations should be enforced to ensure

that trade does not come at the expense of basic standards. Without proper oversight,
countries may engage in a “race to the bottom” by weakening regulations to attract
foreign investment. By setting and upholding robust standards, governments can foster
trade that is both sustainable and fair.

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 Finally, strengthening social safety nets such as unemployment insurance,
healthcare access, and food assistance programs can provide critical support for
individuals and families facing trade-related disruptions. These protections help cushion
the impact of economic shocks and provide time and resources for workers to pursue
new opportunities.

While free trade has the potential to drive growth, innovation, and consumer
benefits, it also presents significant challenges that must be addressed through proactive
public policy. Job displacement, wage suppression, and economic inequality are real and
measurable consequences of trade liberalization. By implementing targeted support
programs, investing in education, enforcing standards, and maintaining strong social
safety nets, governments can build a more inclusive and resilient economy—one that
fully leverages the advantages of free trade while minimizing its social and economic
costs.

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Question 5: Reread the Country Focus “Is China Manipulating Its
Currency in Pursuit of a Neo-Mercantilist Policy?”
a. Do you think China is pursuing a currency policy that can be
characterized as neo-mercantilist?
b. What should the United States, and other countries, do about
this?
a. Yes, China has at times pursued policies that can be characterized as neo-
mercantilist, especially in the past.

Neo-mercantilism refers to economic strategies where a country aims to achieve

a trade surplus by promoting exports and limiting imports, often through state
intervention such as currency manipulation. This approach emphasizes national
economic advantage, particularly through policies that support domestic industries and
manage external trade dynamics.

In 2024, China recorded a merchandise trade surplus of approximately $992.2

billion, the highest in its history (Statista, 2025). A notable portion of this surplus—
around $361.03 billion—was derived from trade with the United States alone, reflecting
the continued trade imbalance between the two countries (Leahy & Alim, 2025). These
figures suggest that China’s trade practices may align with certain neo-mercantilist
principles, particularly in terms of export promotion and import control.

Chart 5.1. Trade balance of China

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 Chart 5.2. China’s trade surplus hit a record high in 2024

China’s approach to currency management further adds to the debate. As of

December 2024, the country’s foreign exchange reserves stood at $3.2 trillion,
indicating significant state involvement in managing the yuan’s value (Trading
Economics). Despite this, the U.S. Treasury’s November 2024 report did not formally
label China as a currency manipulator. However, it did express concerns regarding the
lack of transparency in China’s foreign exchange policies, which complicates efforts to
determine the true extent of currency intervention (Lawder, 2024).

Chart 5.3. China Foreign Exchange Reverses

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 Overall, while China’s large trade surplus and tightly managed currency regime
reflect characteristics commonly associated with neo-mercantilism, the absence of
recent, consistent evidence of one-sided currency intervention points to a more nuanced
and complex economic strategy. Rather than outright currency manipulation, China’s
policy mix appears to balance export-oriented goals with broader macroeconomic
considerations.

b. What Should the United States and Other Countries Do?

To respond effectively to the challenges posed by China’s trade and currency

policies, the United States and its global partners must adopt a comprehensive and
balanced approach that includes monitoring, strategic engagement, and domestic
economic initiatives.

First, the U.S. Treasury should continue to conduct enhanced monitoring of

China’s foreign exchange practices. Persistent advocacy for greater transparency in
China’s currency policy is essential to ensure that international trade operates on fair
and predictable terms. Regular reporting and data collection can help policymakers
make informed decisions and maintain accountability.

Second, targeted trade policy measures may be warranted when unfair practices
are identified. For instance, the United States recently imposed tariffs of up to 145% on
certain Chinese imports, signaling a willingness to act decisively in defense of domestic
industries (Galani, 2025). Such remedies should be strategically applied to discourage
trade distortions while avoiding broader trade escalation.

Third, multilateral engagement remains critical. Working with institutions such

as the International Monetary Fund (IMF) allows countries to collectively address
concerns regarding currency practices and to promote globally accepted fair trade
standards. Multilateral forums offer a platform for transparency, cooperation, and
dispute resolution, reducing the risk of unilateral actions leading to broader conflict.

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 Fourth, nations must strengthen their own domestic economic resilience. This
includes investing in key industries, workforce development, and innovation, all of
which can enhance national competitiveness and reduce reliance on foreign imports. A
more robust and diversified domestic economy is better positioned to withstand external
trade pressures.

Finally, the United States and its partners should pursue diversified trade
partnerships. Expanding trade with a broader array of countries can help mitigate the
risks associated with overdependence on a single trading partner, such as China.
Diversification also promotes economic stability and opens new opportunities for
growth in emerging markets.

In conclusion, by combining vigilant monitoring, strategic trade policies,

multilateral cooperation, and domestic economic investment, the United States and other
nations can effectively manage the challenges posed by China’s trade and currency
behavior. This multi-pronged strategy supports a more fair, transparent, and balanced
global trading system, ultimately contributing to long-term economic stability and
shared prosperity.

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Question 6: Reread the Country Focus “Moving U.S. White-
Collar Jobs Offshore.”
a. Who benefits from the outsourcing of skilled white-collar
jobs to developing nations? Who are the losers?
b. Will developed nations like the United States suffer from the
loss of high-skilled and high-paying jobs?
In recent decades, the promise that free trade uniformly benefits all participating
nations has been called into question by the globalization of both low‑ and high‑skill
employment. During the 1980s and 1990s, manufacturing of textiles, footwear, steel,
and electronics migrated from advanced economies such as the United States to
lower‑wage countries, yet it was widely assumed that high‑wage, knowledge‑intensive
jobs—such as computer design and software development—would remain domestically
anchored. However, major U.S. firms have increasingly outsourced white‑collar
functions to emerging markets, where labor costs are a fraction of domestic rates. For
instance, Bank of America relocated thousands of IT positions to India—where tasks
billed at $100 per hour in the U.S. now command approximately $20 per hour—and
retains Infosys Technologies Ltd. to develop IT applications and process mortgage
applications. Similarly, Wipro Ltd. provides remote radiological interpretation for
Massachusetts General Hospital, and Bangalore‑based engineers earning roughly
$10,000 annually contribute to semiconductor design for Texas Instruments.
Architectural engineering has followed suit: Flour Corp. engages drafters in the
Philippines, Poland, and India to produce detailed facility specifications in collaboration
with high‑earners in the U.S. and U.K., reducing project costs by 15%. Even nascent
technology firms, such as California’s Zoho Corporation, adopt this distributed model
at inception, employing a domestic staff of 20 alongside over 1,000 employees in India.
These trends undermine the assumption that free trade’s gains accrue evenly and pose
significant challenges for the preservation and creation of high‑skill employment in
advanced economies.

6.1. Winners and Losers in the Offshoring of White-Collar Employment

6.1.1. Beneficiaries

Multinational Corporations and Shareholders

The most apparent beneficiaries of white-collar outsourcing are multinational

enterprises (MNEs) and their shareholders. By relocating high-skill functions to
developing countries, firms can dramatically reduce labor costs while maintaining or
even improving service quality. For instance, Bank of America successfully transferred
approximately 5,000 IT jobs from the United States to India, reducing costs from $100

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per hour to approximately $20 per hour. Similarly, the firm contracted Infosys
Technologies Ltd. to develop IT applications and handle mortgage processing tasks, and
Wipro Ltd. to conduct remote radiological diagnostics for Massachusetts General
Hospital. These outsourcing arrangements allow firms to expand their operational
capabilities without proportionally increasing expenditure, thereby enhancing
profitability and shareholder value.

Skilled Workers in Developing Nations

Outsourcing also generates significant employment opportunities for skilled

labor in developing countries. Individuals employed in outsourced positions often earn
salaries well above local averages, enabling upward socioeconomic mobility and the
accumulation of technical expertise. For example:

Table 6.1. Examples of Offshore White-Collar Work and Associated Costs

Company / Task Offshore Estimated Notes

Location Annual
Income

Infosys (IT applications India ~$10,000 Substantially higher

for Bank of America) than median Indian
wages

Wipro (CT scan India N/A Processes ~30 scans

interpretation) per day for a U.S.
hospital

Semiconductor design Bangalore, ~$10,000 Engaged in high-skill,

engineers (Texas India high-value tasks
Instruments)

Architectural drafting Philippines, <$3,000 Enables a 15%

(Fluor Corporation) Poland, India reduction in total
project cost

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 These cases illustrate how the globalization of high-skill work can serve as a
catalyst for economic development in emerging markets while simultaneously
diversifying the global distribution of knowledge-based labor.

6.1.2. Losers

Displaced White-Collar Professionals in Developed Countries

Despite its advantages, white-collar outsourcing imposes considerable costs on

professionals in developed economies. The most direct impact is job displacement, as
evidenced by the elimination of thousands of IT positions in the U.S. due to offshoring.
Furthermore, the globalization of skilled labor markets intensifies wage competition and
diminishes the availability of high-paying, high-status roles. This trend undermines
employment security for professionals in sectors once considered immune to
outsourcing.

Local Economies and Communities

The regional consequences of white-collar job losses are profound. Communities

that host knowledge-based industries—such as finance, information technology, and
engineering—often depend on these sectors for employment, economic activity, and
public revenue. The relocation of such jobs to offshore destinations leads to economic
stagnation, reduced tax bases, and declining public services, thereby affecting the
broader social fabric of affected areas.

6.2. Long-Term Implications for Developed Economies

6.2.1. Erosion of the Domestic Knowledge Base

As outsourcing becomes more prevalent, developed countries risk a gradual

erosion of their domestic capabilities in strategic and knowledge-intensive industries.
Continuous offshoring of software development, financial analysis, and engineering
functions may reduce the incentives for individuals in advanced economies to pursue
these careers. This could have long-term consequences for national innovation systems,
technological leadership, and economic resilience.

6.2.2. Wage Suppression in High-Skill Sectors

The growing substitution of domestic professionals with lower-cost international

labor exerts downward pressure on wages in high-skill occupations. Even for those who
retain their positions, wage growth is increasingly constrained as employers can
leverage offshore alternatives during salary negotiations. This contributes to broader

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income stagnation among the middle and upper-middle classes, exacerbating inequality
and reducing consumer purchasing power.

6.2.3. Regional Economic Decline

The clustering of white-collar industries in specific regions means that the effects
of offshoring are often concentrated and highly disruptive. As core industries contract
or relocate, local businesses that support these sectors—such as education, housing, and
retail—also suffer. This economic hollowing-out weakens the vitality of metropolitan
and suburban centers alike, leading to social and infrastructural decay.

6.2.4. Insufficient Reinvestment in Domestic Innovation

While some firms claim to reinvest outsourcing savings into domestic research
and development, such reinvestment rarely offsets the loss of high-quality employment.
These investments often target short-term innovation cycles rather than long-term
human capital development. Moreover, the benefits of R&D investments are frequently
captured by a small number of stakeholders, while the costs of job displacement are
borne by entire communities.

6.3. Conclusion

The offshoring of white-collar jobs presents a nuanced and multidimensional

challenge. On the one hand, it promotes cost efficiency, enhances corporate profitability,
and facilitates development in emerging economies. On the other hand, it threatens
employment security, wage growth, and long-term economic competitiveness in
developed nations. The assumption that the gains from free trade are uniformly
distributed no longer holds in the context of high-skill job migration.

To address these challenges, policymakers in advanced economies must adopt

proactive strategies. These may include robust investment in education and reskilling
programs, incentives for firms to retain domestic talent, and frameworks that balance
global competitiveness with social equity. Without deliberate intervention, the
continued offshoring of white-collar employment could undermine not only national
labor markets but also the broader foundations of innovation and prosperity in the
developed world.

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 Question 7: Is there a difference between the transference of
high-paying white collar jobs, such as computer programming
and accounting, to developing nations, and low-paying
blue-collar jobs? If so, what is the difference, and should
government do anything to stop the flow of white-collar jobs
out of the country to countries such as India?
Globalization has reshaped labor markets across both developed and developing
nations, facilitating the relocation of various types of employment in pursuit of cost
efficiencies and competitive advantage. While blue-collar offshoring—defined by the
relocation of low-skilled, labor-intensive manufacturing work—has long been a
hallmark of international trade dynamics, the increasing offshoring of white-collar,
high-skilled roles such as computer programming, accounting, radiology, and
engineering services introduces new complexities. These changes raise pressing
questions about economic resilience, labor market transitions, and the appropriate scope
of government intervention.
This chapter critically examines the distinctions between the offshoring of blue-
collar and white-collar jobs, evaluates their respective economic impacts, and assesses
whether governments should take active measures to prevent the outflow of high-paying
white-collar employment to countries such as India.
7.1. Distinguishing White-Collar and Blue-Collar Offshoring
7.1.1. Nature and Tradability of Tasks

A key distinction between blue-collar and white-collar offshoring lies in the

nature of the tasks involved and their susceptibility to digital trade. Blue-collar
offshoring typically involves the relocation of manual, factory-based labor such as
textile production or automotive assembly. These tasks are capital-intensive, location-
bound, and require physical infrastructure.

In contrast, white-collar roles are increasingly defined by their codifiability and

ability to be digitized. With the expansion of broadband infrastructure and cloud
computing, tasks such as software development, financial analysis, medical diagnostics,
and architectural design can now be transmitted electronically, allowing firms to
seamlessly integrate foreign labor into domestic operations without geographic
constraints. This shift has redefined what types of labor are considered "tradable" in the
global economy (BRAINARD & LITAN, 2005).

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 7.1.2. Scale and Concentration of Labor-Market Shocks

Historically, the offshoring of blue-collar work led to acute and concentrated

economic disruptions. A prime example is the “China Shock,” during which the rapid
growth of Chinese exports in the early 2000s resulted in mass layoffs and wage
suppression in U.S. manufacturing regions. These shocks were geographically focused
and deeply disruptive to local labor markets (Feenstra, California, Davis, & NBER,
2016)

In contrast, white-collar offshoring tends to cause more diffuse, less visible

impacts. According to OECD studies, service sector offshoring leads to "little ripples or
jolts" rather than systemic dislocations. This is due to the divisible and modular nature
of service tasks, which can be distributed across various global teams and absorbed
gradually into business workflows. While the cumulative impact may still be significant,
the initial disruptions are less concentrated and therefore more politically and socially
muted (Broecke, 2024).

7.1.3. Differential Wage and Employment Effects

21
 Blue-collar job losses have historically resulted in substantial wage declines and
long-term unemployment for displaced workers. Replacement opportunities often do not
match previous wage levels, especially for those without access to retraining programs.

White-collar offshoring, while less visible in its immediate impacts, also

contributes to downward pressure on salaries—particularly at entry and mid-career
levels. However, the effect is more nuanced. As routine service work is outsourced, new
roles often emerge in domestic management, coordination, and oversight of offshore
teams. This dynamic can partially offset the net employment losses but often results in
greater polarization between high-skill and low-skill service roles (Bivens).

7.1.4. Consumer and Firm-Level Gains

Both forms of offshoring provide clear economic benefits at the consumer and
firm levels. Manufacturing offshoring reduces the cost of consumer goods, thus
increasing purchasing power and consumption. Similarly, service offshoring lowers the
cost of software development, IT support, legal processing, and medical diagnostics,
enhancing firm efficiency and broadening consumer choice.

For instance, U.S. hospitals that outsource radiological analysis to firms in India
can provide faster diagnostics at a lower cost. Tech companies that hire software
engineers in Bangalore or Eastern Europe benefit from high-quality labor at a fraction
of U.S. wage levels, contributing to faster product development and competitive pricing
(Atkins, Gilroy, & Seiler, 2019).

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 7.2. Should Governments Intervene to Restrict White-Collar Offshoring?
7.2.1. Existing Policy Landscape

Unlike goods trade, which can be regulated through well-established mechanisms

such as tariffs, quotas, and export controls, the regulation of service offshoring remains
complex and underdeveloped. Most OECD countries have refrained from implementing
explicit restrictions on the outsourcing of white-collar work due to the challenges in
monitoring digital flows and the risk of stifling innovation.

The decentralized and virtual nature of service work makes enforcement difficult
and raises concerns about damaging the global competitiveness of domestic firms. In an
era where firms rely on flexible international labor models, blunt restrictions could
backfire, reducing productivity and deterring investment.

7.2.2. Risks of Broad Restrictions

Implementing broad restrictions on the offshoring of white-collar services could

have several unintended negative consequences:

• Increased Operating Costs: Firms would face higher labor expenses, reducing
their capacity to innovate and scale.
• Diminished Efficiency Gains: Restricting access to global talent may undercut
potential efficiency improvements and productivity growth.
• Deterioration of Trade Terms: A widespread shift toward service offshoring
could alter the U.S.'s terms of trade. If productivity gains in export sectors are
eroded by overseas competition, national income may decline even if firm-level
performance improves.
• Retaliatory Risks: Other countries may respond with countermeasures,
hampering the flow of U.S. services and goods abroad (Feenstra, California,
Davis, & NBER, 2016).

While offshoring of white-collar work may provide benefits to individual firms,

if it becomes widespread enough to lead to rapid productivity gains in sectors in which
the United States is a prime exporter, the U.S. terms of trade could deteriorate enough
to cause actual income losses for the country. Even if this does not occur, the terms of
trade effect could still lean against any efficiency gain from offshoring, leading to a
smaller economy-wide effect than suggested by the firm-level analysis of MGI (Bivens).

7.2.3. Alternative Policy Approaches

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 Rather than imposing restrictive barriers, governments can adopt proactive,
adaptive policies that help workers transition and maintain national competitiveness.
Key strategies include:

• Strengthening Social Safety Nets: Unemployment insurance and income

support during job transitions can cushion the impact of offshoring.
• Investment in Lifelong Learning: Accessible, subsidized education in digital
literacy, data analytics, and project management can equip workers with in-
demand skills.
• Targeted Retraining Programs: Public-private partnerships can support
upskilling initiatives in high-growth sectors, especially STEM fields.
• Encouraging Formal Employment Transitions: Drawing from international
best practices, policies that simplify business registration (Cambodia), extend
social protections (Sri Lanka), and promote informal education (evening schools,
apprenticeships) may improve labor market resilience.

Concerning the strategy for addressing the transition to formality in policy

frameworks, Leung (2020) finds two countries in the region that establish it either as a
policy objective (Cambodia) or a policy pillar (Sri Lanka) in their NEPs. These two
NEPs focus on enterprise formalization through the promotion of entrepreneurship,
including interventions to support subsidized credit facilities and business development
services. Cambodia takes this one step further by simplifying the registration process
and Sri Lanka by eliminating legal impediments to enterprise expansion. Sri Lanka also
emphasizes employment formalization by extending existing social protection schemes
to informal workers and improving the employability of informal workers by supporting
informal educational schemes such as evening schools, distance learning and
apprenticeships and subsidized vocational training. Another important policy measure
suggested in Sri Lanka is the development of a wage policy with a national minimum
wage for the private sector to provide a wage benchmark for the informal sector
(International Labour Organization 2020, 2020).

7.2.4. Strategic Trade and Industrial Policies

While controversial, some economists advocate for selective "strategic trade"

policies that provide subsidies or incentives to key service sectors, helping domestic
firms secure early mover advantages. Though rarely implemented due to concerns over
market distortion and international pushback, such measures could play a role in
protecting nascent high-tech industries (Herrnstadt, 2020).

24
 The offshoring of white-collar jobs differs fundamentally from blue-collar
offshoring in terms of task tradability, labor market impact, and potential policy
responses. While blue-collar job losses tend to produce acute, regionally concentrated
disruptions, white-collar offshoring brings more subtle, dispersed effects across the
labor force.

Governmental efforts to halt white-collar offshoring outright are likely to be

counterproductive, harming national productivity and deterring innovation. Instead, a
balanced policy framework—centered on education, retraining, and strategic industry
support—offers a more effective approach. Such a strategy can help nations preserve
high-value employment while continuing to reap the benefits of an integrated global
economy.

25
 Question 8: Drawing upon the new trade theory and Porter’s
theory of national competitive advantage, outline the case for
government policies that would build national competitive
advantage in biotechnology. What kinds of policies would you
recommend that the government adopt? Are these policies at
variance with the basic free trade philosophy?
The biotechnology sector, as a knowledge-intensive and innovation-driven
industry, has become a focal point for national economic strategies seeking to enhance
competitiveness in the global economy. Drawing upon New Trade Theory and Porter’s
Theory of National Competitive Advantage, this report outlines the rationale for
government interventions that promote a national edge in biotechnology. It further
evaluates whether such policies align with or contradict the principles of free trade.

8.1. Theoretical Framework

8.1.1. New Trade Theory and Its Relevance to Biotechnology

New Trade Theory (NTT) emphasizes the significance of economies of scale,

first-mover advantages, and network externalities in industries where market entry is
costly and knowledge spillovers are critical. Biotechnology exemplifies these
characteristics:

Economies of Scale: The sector incurs exceptionally high fixed costs related to
research and development (R&D), clinical trials, and regulatory compliance.
Concentrating production and innovation domestically allows firms to reduce average
costs and compete globally.

26
 First-Mover Advantage: Early investment in emerging subfields—such as
mRNA vaccines or CRISPR-based gene editing—can yield durable intellectual property
rights and establish industry standards, creating significant barriers for latecomers.

Network Externalities: The utility of shared biotech resources (e.g., genomic

databases, common clinical data platforms) increases with broader usage, generating
positive externalities that support collective growth across firms and institutions
(Oehmke, Maredia, & Weatherspoon, 2001).

8.1.2. Porter’s Diamond Model Applied to Biotechnology

Porter’s Diamond Model identifies four interrelated determinants that shape

national competitive advantage:

Factor Conditions: Biotechnology requires a robust base of specialized human capital

(e.g., bioinformaticians, molecular biologists), state-of-the-art research facilities, and
accessible venture capital (Potter & Miranda, 2009).

Demand Conditions: Sophisticated domestic demand—such as that from public

health agencies, advanced hospitals, and regulatory bodies—stimulates higher standards
of innovation and quality.

“The drop-off in firm counts as we move down the list. From Italy to Ireland and
beyond, a picture of a highly stratified global biotech sector. Smaller economies, such
as Latvia and Estonia, while making the list, demonstrate the challenges faced by
27
emerging markets in cultivating a significant biotech presence. These disparities may be
influenced by various factors, including the size of the economy, research and
development funding, government support, and the maturity of the biotech ecosystem.”
(Adam, 2024).

Related and Supporting Industries: The presence of strong adjacent sectors,

including contract research organizations (CROs), intellectual property law firms, and
specialized equipment providers, enhances sectoral productivity and speeds up
commercialization.

Firm Strategy, Structure, and Rivalry: An environment fostering entrepreneurial

start-ups, spin-offs from academic institutions, and competitive domestic markets
encourages continuous innovation and efficiency.

“Furthermore, entrepreneurship is clearly a critical, if under studied, process in

cluster development and one that is tightly linked to innovation. A large part of cluster
success is usually attributed to relatively strong innovation performance. However,
innovation requires entrepreneurs to carry new ideas into exploitation. Thus successful
innovation in clusters is likely to be accompanied by new firm formation, spin-outs and
small firm growth. To favour this, clusters need to provide appropriate conditions for
successful new business development, such as an entrepreneurial culture, access to
clients, access to capital, and access to exploitable knowledge in existing firms and
research organisations”

8.2. Policy Recommendations

To reinforce these theoretical foundations, governments can implement a

strategic suite of policies:

8.2.1. R&D and Innovation Incentives

Introduce generous R&D tax credits and translational research grants to offset
high upfront costs in clinical development. Create public–private consortia for
“moonshot” initiatives in synthetic biology and precision medicine to pool risks and
enhance collaboration (OECD Science, 2019).

28
 8.2.2. Human Capital Development

Expand graduate training programs and post-doctoral fellowships in

biotechnology, bioinformatics, and regulatory science. Facilitate international talent
acquisition through fast-track visas and retention schemes for global researchers (OECD
Science, 2019).

8.2.3. Cluster and Infrastructure Support

Establish biotechnology innovation districts that co-locate universities, start-ups,

manufacturing facilities, and CROs. Invest in national bioinformatics platforms and
clinical trial databases to create foundational digital infrastructure.

29
 8.2.4. Intellectual Property and Regulatory Reform

Streamline approval through fast-track regulatory pathways for breakthrough

therapies. Harmonize patent protections and data exclusivity rules with major trading
partners to secure long-term returns on innovation.

8.2.5. Demand-Side Stimuli

Commit to public procurement of domestically developed vaccines, diagnostics,

and therapeutics. Implement value-based reimbursement models that reward clinical
efficacy and long-term health outcomes.

8.2.6. Strategic Trade and Export Promotion

30
 Offer export facilitation services for biotech firms targeting high-growth
regions. Provide time-limited tariff relief on imported laboratory and manufacturing
equipment to help domestic firms scale.

8.3. Compatibility with Free Trade Philosophy

Critics of industrial policy often argue that such interventions distort market
efficiency and contradict the principles of free trade. However, when designed with care,
the proposed biotechnology policies are compatible with a dynamic interpretation of
free trade, for several reasons:

• Temporariness and Transparency: All measures should include sunset clauses

and periodic evaluations to prevent rent-seeking behaviour and avoid long-term
protectionism.
• Market-Conforming Design: Rather than shielding inefficient firms, these
policies seek to lower structural entry barriers and promote firm competitiveness.
• Dynamic Comparative Advantage: The aim is not static specialization, but the
strategic development of future-oriented capabilities in which the nation can
become a global leader.
• Exit Strategies: By ensuring that support is phased out once domestic firms
achieve competitiveness, the policies reaffirm commitment to liberal trade
norms.

Biotechnology presents a strategic opportunity for nations to develop a

sustainable competitive advantage in a high-value sector with broad economic and
societal benefits. Both New Trade Theory and Porter’s Diamond Model underscore the
value of targeted, well-structured government intervention in catalyzing early-stage
innovation, fostering competitive ecosystems, and scaling emerging technologies.
Crucially, such interventions need not violate free trade principles. Instead, when
implemented transparently and temporarily, they enable nations to evolve from passive
participants in the global market to proactive shapers of future industries.

31
 Question 9: The world’s poorest countries are at a competitive
disadvantage in every sector of their economies. They have little
to export; they have no capital; their land is of poor quality;
they often have too many people given available work
opportunities; and they are poorly educated. Free trade cannot
possibly be in the interests of such nations. Discuss.
The assertion that free trade cannot benefit the world's poorest countries stems
from the observation that these nations often lack the infrastructure, capital, and skilled
labor necessary to compete in global markets. However, this perspective overlooks the
potential of free trade to catalyze economic development and poverty reduction when
accompanied by supportive policies and international cooperation.

Trade liberalization can provide developing countries with access to larger

markets, attract foreign investment, and facilitate the transfer of technology and
knowledge. For instance, the African Continental Free Trade Area (AfCFTA) aims to
create a single market for goods and services across Africa, potentially boosting regional
income by up to 9% and lifting 50 million people out of extreme poverty by 2030 (World
Bank Group, Free Trade Pact Could Help Lift Up to 50 Million Africans from Extreme
Poverty, 2022).

Moreover, participation in global trade can incentivize improvements in

infrastructure, education, and governance, as countries strive to meet international
standards and attract investment. While challenges remain, such as ensuring equitable

32
distribution of trade gains and protecting vulnerable industries, the potential benefits of
free trade for developing nations are significant.

Therefore, rather than dismissing free trade as detrimental to poor countries, it is

more constructive to focus on creating an enabling environment that allows these nations
to harness the opportunities presented by global markets. This includes implementing
domestic reforms, investing in human capital, and engaging in fair trade agreements that
consider the unique needs and capacities of developing economies.

33
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 TABLE OF FIGURES
Chart 5.1. Trade balance of China ................................................................................. 12
Chart 5.2. China’s trade surplus hit a record high in 2024 ............................................ 13
Chart 5.3. China Foreign Exchange Reverses ............................................................... 13

Table 2.1. Wealth inequality in India .............................................................................. 6

Table 6.1. Examples of Offshore White-Collar Work and Associated Costs ............... 17

Picture 1.1. Key Principles of Mercantilism ................................................................... 1

Picture 1.2. An article about US tariffs ........................................................................... 2
Picture 1.3. An article of AsianFin .................................................................................. 3
Picture 2.1. A chart illustrates the relationship between Poverty headcount ratio and
Exports of goods .............................................................................................................. 5
Picture 4.1. The change in total number of manufacturing jobs in metropolitan areas
between 1954 - 2002 ....................................................................................................... 9