The China Trade

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There seems to be almost universal agreement that trade with China over the past few decades has been disastrous for U. S. economy as this extract from an article by William A. Galston in today’s (August 17) Wall Street Journal confirms:

Between the start of 1989 and the end of 1992, manufacturing employment fell from 18.1 million to 16.8 million, according to estimates from the Bureau of Labor Statistics. But then it stabilized. During President Bill Clinton’s two terms, growth in output was more than enough to compensate for rising imports and productivity. By the time Mr. Clinton left office, manufacturing employment had increased to 17.1 million.

Then the roof fell in. Between January 2001 and December 2007, the official beginning of the Great Recession, manufacturing employment fell by 3.4 million. During the next two years, it fell another 2.2 million. By January of 2010, the figure was 11.5 million, down 5.6 million—nearly 33%—in less than a decade. Since then it has inched up by 800,000 jobs to 12.3 million.

What was China’s contribution to this calamity? In 2013 the economists David Autor, David Dorn, and Gordon Hanson published their pathbreaking study “The China Syndrome.” Competition from imports, they concluded, explains about one quarter of the aggregate decline in U.S. manufacturing employment between 1990 and 2007. In the most affected regions, public expenditures ballooned for unemployment, disability, retirement and health-care benefits, compounding the economic damage.

“Theory suggests that trade with China yields aggregate gains for the US economy,” the authors wrote, but in practice the effects were more mixed. Workers and communities struggled to adjust to the trade shock. Their difficulties doing so worsened inequality. The labor market is anything but the frictionless process that theory typically posits.
The three economists returned to the fray this year, joined by Daron Acemoglu and Brendan Price. In “Import Competition and the Great US Employment Sag of the 2000s,” they conclude that the flood of imports was a major force behind not only declining manufacturing employment but also weak overall job growth between 1999 and 2011. During this period, they estimate, competition from Chinese imports caused job losses in the range of 2 million to 2.4 million, enough to cut overall employment gains by about half.

Two more economists, Justin Pierce and Peter Schott, added an article pungently titled “The Surprisingly Swift Decline of U.S. Manufacturing Employment,” which they trace to China’s accession to the WTO. The most exposed industrial sectors experienced the largest increase in Chinese imports and the greatest losses of employment. Adding to the effect on workers, many American plants responded by investing in labor-saving production methods while increasing their reliance on offshore production.

Messrs. Autor, Dorn and Hanson speculated in their 2013 paper that the consequences of the surge in Chinese imports “may contribute to public ambivalence toward globalization and specific anxiety about increasing trade with China.” The past three years amply confirmed this prediction, as the hardest-hit communities tacked toward populism and economic nationalism.

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