"Why US Multinationals Expand Abroad"

Kash follows up on a post from yesterday:

Why US Multinationals Expand Abroad, The Street Light: Mark Thoma points us to an article by David Wessel, who points out that new data from the BEA indicates that US-based multinational corporations (MNCs) decreased employment in the US while increasing employment outside the US:

Big U.S. Firms Shift Hiring Abroad
U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization's effect on the U.S. economy.

I would like to sound a note of extreme caution when interpreting such data. It's easy to jump to the conclusion that this data indicates that MNCs are shifting jobs overseas, and that foreign employment growth is coming at the expense of jobs in the US. However, that is probably not what's going on here.

The vast majority of employment and sales by the foreign affiliates of US-based MNCs are serving the local market. When GE, or Microsoft, or Coca-Cola, or American Express expand their operations overseas, it is almost always with the primary goal of satisfying local demand, rather than replacing workers in the US. Yes, of course some offshore outsourcing does happen (though much less over the past few years than happened in the early 2000s), but really that's not what's driving the dramatic difference in employment patterns of US MNCs within the US compared to outside the US. ...

The point is not to argue that offshoring never happens. It does. But the pattern of international trade, particularly when it comes to the activity of MNCs, is much more complex and nuanced than that. And the clearest implication of this data is that the primary motivation for MNCs to expand their operations outside the US is not to produce stuff more cheaply there to be sold to the US. Rather, MNCs expand overseas mainly to service overseas markets.