Between 2003 and 2010, for example, Indian labor-outsourcing companies saw wages rise more than 50 percent. Over a longer span, real wages in southern China (which has been open to trade far longer than India) are now six times higher than they were just twenty years ago. These higher wages obviously reduce the competitiveness of the firms that must pay them. Moreover, it is not just wages that adjust: The relative values of national currencies move, too.

Much of the outsourcing discussion has ignored two simple facts that turn out to be important if we really want to understand what the future will bring. 1. Outsourcing is the result of trade liberalization in foreign nations.