Offshore Outsourcing and the Globalization of US Services: Why Now, How Important, and What Policy Implications

US services are globalizing at a rapid rate, are increasingly in trade surplus, and, through foreign investment and affiliate sales abroad, are deepening the global integration of the US economy. There is even a new term for the phenomenon—“offshoring”—that is, the offshore outsourcing of service activities. While outsourcing is not new—the breakdown of the process of goods production to local and global locations is well advanced—the rapid pace of globalization of services has given new life to the outsourcing term and to the debate about the gains and costs of global engagement of the US economy. What changed to speed up this pace and expand the set of services that can be traded across borders? To what extent is this globalization of services different from or similar to the globalization of goods? How important is globalization of services for US productivity and growth? Do workers, firms, and the US economy face new challenges from this kind of offshore outsourcing? Is there any natural stopping point for globalization of services? Does the globalization of services yield new policy recommendations? Since global integration of services is just beginning, assessment of its impact on US economic performance necessarily relies on existing research on globalization, which focuses primarily on international trade in