For over 25 years, a debate has raged in the United States over offshoring services such as contact centers, legal and medical work, finance back-offices, software development, and marketing.
And not without good reason. The U.S. has not only hemorrhaged jobs but also lost trained talent. Companies use a discrepancy between currency rates & purchasing power parity in countries like India, Philippines, Poland, Ukraine, Brazil, and Mexico. This allows them to pay less in dollars per hour, even though studies have shown that the overall costs are much higher due to lower quality & productivity (due to culture and time differences).
Can tariffs on offshored services help level the playing field? For example, the 2025 Executive Order (EO) by the US President seeks to puts tariffs on movies where offshoring has resulted in significant job losses for American crews, animators, and editors.
Currency Arbitrage: A Persistent Disadvantage for U.S. Workers
The offshoring debate began gaining traction in the late 1990s, as globalization enabled companies to shift services jobs overseas.
Since then, the U.S. has lost millions of jobs in sectors like IT, finance, and creative industries, with talent pools eroded as workers face unsustainable competition.
Currency arbitrage – exchange rate differences to hire offshore workers at lower nominal costs – lies at the heart of this issue.
Let’s explore this dynamic in key offshoring hubs:
- India: The exchange rate is approximately 1 USD to 85 INR (Indian Rupees), but purchasing power parity (PPP) estimates suggest 1 USD equals 5–10 INR. An Indian worker earning $1,000 (85,000 INR) per month enjoys a standard of living comparable to $4000 – $6000 USD per month in the U.S. Companies pay the lower rate and undercut American professionals.
- Poland: With an exchange rate of 1 USD to 4 PLN (Polish złoty) and Purchasing Power Parity of PP of 1 USD to 1.5–2 PLN, a Polish worker earning 4,000 PLN ($1,000 USD) has purchasing power akin to $2,000–$2,700 USD in the U.S. Poland’s skilled workforce makes it a hub for software and finance, drawing jobs away from the U.S.
- Ukraine: Ukraine’s currency trades at 1 USD to 41 UAH, with PPP indicating 1 USD equals 10–15 UAH. A Ukrainian worker earning 41,000 UAH ($1,000 USD) enjoys a lifestyle equivalent to $2,700–$4,100 USD in the U.S., making it a growing IT offshoring destination.
- Brazil: The Brazilian currency exchanges at 1 USD to 5.6 BRL, with PPP suggesting 1 USD equals 2–2.5 BRL. A Brazilian worker earning 5,600 BRL ($1,000 USD) has purchasing power comparable to $2,240–$2,800 USD in the U.S., fueling offshoring in marketing and customer service.
- Mexico: Mexico’s peso trades at 1 USD to 20 MXN, with PPP indicating 1 USD equals 8–10 MXN. A Mexican worker earning 20,000 MXN ($1,000 USD) has a standard of living equivalent to $2,000–$2,500 USD in the U.S., attracting banking and IT offshoring.
The base standard of living refers to having to live comfortably in a decent home and having basic security of food, security and clothing with some money left over to save. It doesn’t mean being rich. Americans start to have basic standard of living around a monthly income of $3,500 to $5,000
As is apparent, these disparities create an unfair labor market.
U.S. workers, burdened by higher living costs, cannot compete with offshore professionals whose nominal wages are low but provide comfortable lifestyles locally.
For example,
- A U.S. software developer earning $80,000–$120,000 annually faces competition from an Indian or Ukrainian developer earning $20,000–$30,000 USD with very comparable purchasing power.
- A U.S. based admin assistant earning $48,000–$60,000 annually faces competition from offshore admin assistant earning $8,000–$12,000 USD with very comparable purchasing power.
- A U.S. graphics artist earning $60,000–$80,000 annually faces competition from offshore artists earning $12,000–$20,000 USD with very comparable purchasing power.
The Movie Tariff Model: A Blueprint for Action
President Trump’s 2025 EO on tariffs for movies offers a compelling precedent for addressing offshoring in other service industries.
The film industry has increasingly offshored production tasks—such as visual effects, animation, and editing—to countries like Canada, India, and Mexico, where lower wages and tax incentives reduce costs. This has led to significant job losses for American workers, from Hollywood crews to post-production specialists.
The EO imposes tariffs on movies that rely heavily on offshore labor, increasing the cost of outsourcing and incentivizing studios to hire domestically.
This model can be applied to services like software development or legal work.
For instance, a 100% tariff on would narrow the cost gap with U.S. workers. And the benefits of US workers such higher quality, productivity, and better communication would then start to matter meaningfully.
Tariffs would thus encourage companies to retain or create jobs in the U.S., while generating revenue to fund workforce retraining or tax credits for domestic hiring.
Counterarguments and Mitigation Strategies
Critics argue tariffs could raise business and consumer costs, potentially increasing prices for services.
However, the long-term benefits of retaining high-skill employment outweigh short-term costs. To address trade tensions with countries like Mexico or India, the U.S. could pursue agreements on labor standards, building on USMCA provisions, while using tariffs as a complementary tool.
Conclusion
After 25 years of losing jobs and talent to offshoring, U.S. tariffs on services are urgently needed to ensure fair competition.
By drawing on EU labor protections and implementing targeted tariffs, the U.S. can restore opportunities, preserve high-skill jobs, and build a fairer, more resilient economy.
