Arbitrage is when you find something cheaper in one place than another, so you buy the cheaper (and maybe sell where it's more expensive.)
The magic of trade is where different parts of the world have natural, relative advantages to produce certain things more efficiently or cheaply, so countries can specialize in the things that they can do better / cheaper.
According to this article, OffShoring is labour arbitrage rather than trade because there are now, no natural differences in capacity to make highly artificial, knowledge rich products. Hence, the current OffShoring wave is about labour-arbitrage, not trade.
What he doesn't say, is that the only differences in labour price are due to :
a) legacy issues in the relative value of currencies, and
b) different degrees of labour protection / civilized treatment of labour, in the different countries.
Hence, once the currencies are sorted out. There's nothing left to labour-arbitrage than the RaceToTheBottom.
This has probably been brought up elsewhere before, but in terms of thinking about the situation, it makes sense (at least to me ;) to no longer draw a division between "labour" and "goods". When we work, all that's happening is we're selling ourselves for a price, and the employee is buying us, and so labour is subject to market forces in the same way as oil, houses, and tea pots. There are "product-specific" constraints on labour, as there are with anything else, of course, but there's no reason why I shouldn't think of myself (as a worker) as just another commodity to be bought and sold.
In the light of this, this sentence...
"The magic of trade is where different parts of the world have natural, relative advantages to produce certain things more efficiently or cheaply, so countries can specialize in the things that they can do better / cheaper."
...becomes quite amusing/interesting - could countries increase their labour attraction to other, outsourcing countries, by actually encouraging birth rate? If population increases, and labour location is non-restricted, then will a country with more people will demand lower prices for labour? Does labour then act along the same rules as, say, currencies/exchange rates?
See also :
U.S freelancers are pretending to be from philippines on RentACoder to get jobs : http://maxkle.in/us-freelancers-are-pretending-to-be-from-phil/