Discouraging U.S. companies from moving operations overseas has been a key point for President Donald Trump since his campaign. Manufacturers have been the primary target of his attacks, but could the president next cast his eye toward technology outsourcing?
Trump floated the idea of a border tax on companies that move overseas on Monday. He has said the tax would be designed to discourage companies from firing people in the U.S., making products overseas, and then moving them back into the country to sell.
Like many industries, banking relies on IT outsourcing to fulfill at least some of its technology needs. And while it is less likely the new administration will go after activities like outsourcing, the possibility can’t be completely ruled out, given the president’s personality and history, observers say.
“This administration has so far been focused on manufacturing and zeroing in on high-visibility manufacturing assets abroad,” said Daniel Griswold, a senior research fellow with the Mercatus Center at George Mason University. “However, this president is unpredictable, so who knows what issue might get his attention and who could be the target of an upcoming tweet.”
Though it’s not something he has specifically mentioned yet, eyeing outsourced services such as IT or call centers “could be consistent with his stance on overall trade policy,” Griswold said.
On the other hand, pursuing outsourced services such as IT may not have the political “sex appeal” of vowing to keep American factories open, which was a big aspect of Trump’s campaign rhetoric, said Ross Delston, an attorney who specializes in anti-money-laundering laws and other aspects of financial services.
“Much of his core constituency he is trying to appease works in manufacturing,” he said. “I wouldn’t expect a focus on services outsourcing, at least initially.”
Griswold agreed, saying that the IT sector is not as politically sensitive as, say, auto manufacturing and also “doesn’t have the unionization that some of these other industries have.”
Another aspect to consider is the so-far warm relationship between banks and the Trump administration. Bankers by and large are very optimistic for the prospects of their industry under Trump on issues such as regulatory relief and the overall state of the economy. Trump himself has reached out to several current and former bankers to either be part of his administration or serve as consultants. For instance, Gary Cohn, the former president of Goldman Sachs, has been selected to be the director of the National Economic Council. Under his watch, Goldman was prolific in outsourcing IT jobs.
“The president does seem to be listening to the financial industry,” Griswold said. “Banks could make the case to him that targeting outsourcing would make it more difficult for them to buy services from around the world and thus may make the final financial product they offer more expensive and less competitive globally.”
Also, the rise of the so-called gig economy makes it more tenable for U.S. companies to bring on additional domestic workers instead of outsourcing, Delston said. This is because hiring these employees is less expensive since they don’t typically received employer-sponsored health care or other benefits associated with full-time employment, he said.
“It’s not just things like Uber, but you are starting to see people highly qualified in areas like compliance moving to a gig-type employment rather than full time,” he said.
And the fact that IT outsourcing has not been on the president's radar can be viewed as a good sign, Griswold said.
“The very fact it hasn’t been brought up yet is encouraging,” he said.
Still, others expect companies to change their behavior even if their outsourcing efforts are not currently on Trump’s radar. In a Nov. 9 blog post, the research firm Horses For Sources noted that given Trump’s core campaign promises — curbing immigration and protecting American jobs — IT outsourcing deals could eventually come under scrutiny. Companies could react by investing more in cloud-based enterprise solutions that require fewer offshore labor components.
Also, Horses For Sources noted that many functions currently outsourced will likely be replaced with automation. It estimates that 9% of outsourcing jobs are likely to be displaced by automation over the next five years, but that number “could be reached in two or three in this new climate.”