On the persistence of the Chinese shock


An increase in imports from China as it modernized its economy in the 1990s and early 2000s caused job and income losses in America’s manufacturing communities that persisted for years after the shock in imports plateaued around 2010, according to an article that will be discussed at the Brookings Papers on Economic Activity Conference (BPEA) on September 9.

China’s manufactured exports increased from 1992 as it began to shift from a centrally planned to a relatively market-oriented economy and exploded after joining the World Trade Organization in 2001, write the authors — David Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich, and Gordon Hanson of the Harvard Kennedy School.

The overall benefits to the US economy (such as cheap consumer goods) have been positive but small, they write in On the persistence of the Chinese shock. However, American communities producing goods competing with Chinese exports, such as furniture and textiles, suffered painful and lasting economic scars and social problems.

“Labor markets more exposed to competition from imports from China have seen more plant closures; larger declines in manufacturing employment, employment-to-population ratios, incomes of low-wage workers, house prices and tax revenues; and larger increases in child and adult poverty, single parenthood, and drug and alcohol-related mortality, ”they write.

Until recently, the dominant view among many economists was that workers who lost their jobs due to trade competition would move to labor markets with industries less exposed to trade. This could lower wages in these areas, but the effect of the trade shock would be diffuse. However, the authors found that the Chinese trade shock generated only modest migration from the affected areas, mostly from foreign-born workers and domestically-born young adults (aged 25 to 39). ).

They looked at manufacturing employment in regions exposed to import competition from 2001 to 2019. They found that the effect of the trade shock was concentrated in labor markets with below-average levels of college-educated workers. and above-average shares of industries specializing in the production of goods. compete with imports from China. The effects became increasingly negative until 2013, and then persisted at least until 2018, when their data ended.

Some displaced workers benefited from the Ministry of Labor’s Trade Adjustment Assistance (TAA) program, but overall its effect on per capita income in trade-prone areas was “infinitely small,” the authors write. authors. The Trump administration’s trade war with China appears to have succeeded in raising the prices of products made in the United States, but not in increasing employment in industries with import protection, they write.

“Presumably, the loss of jobs is just as significant, whether the underlying cause of the displacement is import competition or technological change,” note the authors. Instead of protectionist measures such as tariffs or uniform national assistance like the TAA, they observe that “fostering job growth in regions plagued by chronic unemployment” – whether through competition from imports or other causes – “may be the most comprehensive way to help workers facing persistent negative shocks in local labor demand.”

Hanson, in an interview with the Brookings Institution, said local policies could take the form of increased unemployment insurance payments or an increased earned income tax credit in affected labor markets. shocks, as well as regionally-tailored training programs for displaced and assistance workers. and consultation for the remaining employers.

“Nothing in our article calls into question the idea that free trade increases gross domestic product,” he said. “The question is what public policies do we want to put in place to ensure that freer trade does not generate concentrated pockets of hardship. “


Quote

Author, David, David Dorn and Gordon Hanson. 2021. “On the persistence of the Chinese shock. BPEA conference project, fall.

Disclosure of conflicts of interest

The authors have not received financial support from any company or person for this article or from any company or person with a financial or political interest in this article. David Autor is a member of the Council of Economic Advisors of the Congressional Budget Office and of the Advisory Council of the Opportunity & Inclusive Growth Institute of the Federal Reserve Bank of Minneapolis. Other than the above, they are not currently an officer, director or board member of any organization interested in this article.


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