The impacts of expanded U.S. trade with China have long been debated among economists and policy makers. A sobering new paper documents how trade resulted in long-term damage for some regions and groups of workers, with many net losses of jobs and income and still not recovering decades later.
The National Bureau of Economic Research (NBER) paper, “On The Persistence Of The China Shock,”comes from economists David Autor, David Dorn, and Gordon H. Hanson. It builds on their earlier work showing how the “China shock”—the rapid growth of Chinese manufacturing and its displacement of U.S. jobs and industries—hit some regions of the U.S. very hard, with little effective adjustment policy for regions or workers.
We now are accustomed to seeing Chinese manufactured goods everywhere, from cheap clothing and Christmas lights to high-end electronics. But it wasn’t always like that, and Autor and his colleagues remind us how dramatic China’s manufacturing expansion was. China’s “explosive” export growth saw its global share of manufacturing exports rocket up “from 3.1% in 1991 to 17.6% in 2015.”
A lot of those exports came to the United States, and the authors map where they hit hardest, displacing domestic manufacturing—in the East (especially the Southeast) and Midwest. Overall, “exposure to import competition from China” is tied to “a large share of net manufacturing job loss” in the US after 2000.
Some economists documented the negative job impacts while they were happening. In 2005, Rob Scott of the Economic Policy Institute concluded that the “rise in the United States trade deficit with China” displaced overall production “that supported 1.5 million U.S. jobs.” Scott also found that “most of those lost opportunities were in the high-wage and job-hemorrhaging manufacturing sector.”
The impacts were deepened by President Clinton’s successful advocacy for Chinese entry into the World Trade Organization (WTO), normalizing trade relations and reducing some trade barriers. While Scott warned that WTO entry would expand the trade deficit and displace more manufacturing jobs, Clinton focused on security issues in Asia and democratizing Chinese internal politics as much as on economic benefits for Americans.
Standard economic theory tells us freer trade benefits both parties in the long run. Even though jobs initially may be lost, capital will be freed up and new jobs created, although some industries and regions suffer during the adjustment process. And consumers will benefit from cheaper goods, an impact that dominates much of economic trade analysis.
Indeed, Autor and his colleagues agree the evidence shows overall “U.S. aggregate gains from trade with China are positive. But we didn’t get the positive adjustments for workers and troubled regions. The negative regional impacts remain widespread, and not fully offset by consumer or other gains from trade.
The authors find that geographic areas containing between 15.9% and 32.8% of the U.S. population in 2000 likely saw “net absolute welfare loss”—economist talk for ending up in a worse position. So in this case, more open trade hurt a large part of the country.
What happened to those workers and regions? Standard economics says they would seek other jobs, perhaps obtain other skills, or migrate to regions with more job opportunities. And reduced costs in the harder-hit regions should have attracted capital to create new jobs for the remaining workforce.
The NBER paper doesn’t find that. Rather than migrating or finding other jobs, “the primary mechanism of adjustment to trade exposure was exit from work.” People dropped out of the labor force. Safety net expenditures did rise, principally Medicare and Social Security, but the “durable increase in joblessness and decreases in personal income per capita…are not close to being offset by government transfers.”
Some workers reported they had retired. But many of these were likely forced exits from the labor force, similar to what the Schwartz Center for Economic Policy Analysis (SCEPA) has recently found for the Covid-19 pandemic’s impact on retirement inequality. In the pandemic, “vulnerable older workers retired sooner, while more privileged workers delayed retirement.”
The negative effects were worse for lower-educated workers. This is consistent with the sobering findings of economists Anne Case and Nobel laureate Angus Deaton, in their work on “deaths of despair.” They found workers without college degrees suffered long-term declines in wages and in attachment to the job market, and those declines were associated with higher levels of suicide, overdoses, and alcoholism.
The persistence of these negative effects is sobering. But neither our existing worker-oriented programs, either in training or income support, nor our place-based job economic development policies have had major positive impacts. We need new policy thinking and greater empowerment for workers for prosperity—but also assure that when trade and other major policies are designed, they put workers first.
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October 27, 2021 at 05:30PM
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Lasting Damage To Workers And Regions From Expanded China Trade - Forbes
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