China Trade: Another Chapter in the 2000s Weak Jobs Story

November 2nd, 2011 at 9:47 pm

A friend was commenting on this post from the other day wherein I hypothesized as to why employment growth was so much slower in the 2000s than in earlier decades.  He suggested the sharp acceleration in Chinese imports after their entry into the WTO in 2001.

Well, just by chance I was referring someone to this important paper by Autor et al and I stumbled on this figure of Chinese import penetration into the US, with an awfully clear acceleration, as my friend described.

Autor et al, link above.  Their measure here is US imports from China divided by gross domestic purchases.

The paper measures the impact of import penetration from low-wage exporters on US wages, employment, and the extent to which the safety net is invoked to offset these impacts.   Trade economists used to argue that trade with low-wage countries was unlikely to be doing much damage to our job market because the magnitudes were too small.  But, as authors write, China’s aggressive export-led growth changed that equation:

In 1991, low-income countries accounted for just 2.9% of US manufacturing imports…However, owing largely to China’s spectacular growth, the situation has changed markedly. In 2000, the low-income-country share of U.S. imports reached 5.9% and climbed to 11.7% by 2007, with China accounting for 91.5% of this import growth over the period. The share of total U.S. spending on Chinese goods rose from 0.6% in 1991 to 4.6% in 2007, with an inflection in 2001 when China joined the World Trade Organization.

They also find large negative effects relative to other research on this issue:

Rising exposure increases unemployment, lowers labor force participation, and reduces wages in local labor markets. Conservatively, it explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment. Transfer benefits payments for unemployment, disability, retirement, and healthcare also rise sharply in exposed labor markets. The deadweight loss of financing these transfers is one to two-thirds as large as U.S. gains from trade with China.

US manufacturing employment lost 3.4 million jobs between 2000-07 (which, as shown in the link above, was the slowest business cycle for job growth on record).  Autor et al find that more than half of those losses were the result of rising exposure to Chinese import competition.  So I think my friend has a point.

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3 comments in reply to "China Trade: Another Chapter in the 2000s Weak Jobs Story"

  1. Kenyon Wells says:

    The above link offers some insight into the China-US trade deficit that I haven’t seen mentioned before

  2. rootless_e says:

    Even the liberal economists keep ignoring the network effects of manufacturing job loss. When a company that makes cheap metal fixtures goes out of business, there are fewer machinist jobs, local companies that sell/repair machine tools lose business, the opportunity for domestic machine tool makers to sell a new design is reduced, the supply chain weakens, the transportation network changes, and so on. People like Robert Reich persistently refuse to understand the difference between a one-off financial transaction and the operation of a factory.

  3. NoPolitician says:

    Could this be why “stimulus”, either via tax cuts or spending, isn’t as potent? Particularly if directed toward the lower class, who spend their paychecks at Wal-Mart, buying Chinese imports that have little stimulative power in the US?