Question

1. What are the business reasons behind the offshoring of shoe production from the U.S. to other countries?

2. Who wins when there is free trade? Who loses? What is government's role in the trade arena?

Answer 1

1) One of the major business reasons for offshoring the manufacturing of goods like shoes to other (under-developed and developing) countries is to take advantage of the cheap labor available in such countries. The wages in these countries are much lower and allows firms to reduce their cost of production. Since the advent of globalization, it is very easy for firms to set factories abroad and minimize their cost of production.

Firms also venture abroad, sometimes, just to take advantage of the tax benefits that are on offer. Many countries offer tax advantages to international firms to set up factories there so that their economy can get a boost. Sometimes firms can play around with tax regulations, to minimize their tax burden (shifting some profits to the country with lower taxes not always ethically)

2) In theory, everybody wons from globalization and free trade and that is why it has been adopted worldwide with such zeal in the past few decades. But the reality is often different. Free trade allows some powerful countries to exploit countries rich in natural resources by importing from them at a very cheap price (usually these resource-rich countries are under debt obligations and have to submit to the trade deals of the more powerful countries). This never allows the underdeveloped country to realize its full potential. Further, the poor workers in the developed countries involved in activities like manufacturing often lose out as their production is substituted by cheap imports.The governments' role is often minimized and markets are allowed to function with a free hand. Efficiency calls for more action by the government in terms of understanding which items are essential for doemtic consumptiona nd fuel domestic growth rather than just exporting them.