Economists Look into Evidence of U.S. Losing Jobs to China

Estimated reading time: 6 minutes

The idea that global trade benefits all countries has been inscribed into economic literature for decades — or centuries, even, dating back to David Ricardo in the early 1800s and Adam Smith in the 1770s. It was also reinforced by the relatively minor effects international trade appeared to have in the first decades after World War II, under terms settled at the Bretton Woods agreement of 1944.

“I think that a lot of people’s priors, or expectations, had come from the Bretton Woods era of trade,” Autor says. “A lot of that was rich country-to-rich country trade: We buy cheese from France and we sell them aircraft engines.” But more recently, Autor points out, China has functioned as “a new low-cost producer of labor-intensive goods, and everything that’s labor-intensive we’re no longer competitive in. It’s just going to shut down. That’s probably why [global trade] was so much more disruptive than people had anticipated.”

After all, mainstream economics has held that the benefits of trade — mostly lower prices on imported goods — should compensate for disappearing jobs, on aggregate. But the current data shows how unevenly distributed those benefits and costs are.

“It certainly is the case that trade contributes to certain lower-priced goods and services, and on the average, that lowers the cost of living,” Autor notes. “But for displaced workers, the fact that things are 10 percent cheaper at Walmart is just not making up for the fact that they’re not employed.”

Autor adds: “Trade should increase GDP on aggregate, but it’s going to produce winners and losers.”

For instance: Alabama, which neighbors Tennessee to the south, also has considerable manufacturing. But little of it involves industries in which China has invested. So while at least half of Tennessee is in the highest quartile of areas exposed to Chinese competition, only a couple of patches of Alabama are in the same category.

“Tennessee, owing largely to its concentration of furniture producers, is far more exposed to trade with China than is Alabama, which has agglomerations of relatively heavy industry,” the paper states.

Robert Feenstra, an economist at the University of California at Davis, says the research has advanced the state of knowledge among trade and labor economists.

‘They have very good data,” Feenstra says. “They just got bigger numbers than anybody thought,” in terms of the impact of trade with China on the U.S. job market.

Feenstra suggests that continuing research will be needed to assess the complete impact of trade policy agreements on the U.S., including additional study “on the export side,” that is, the extent to which trade deals have opened up new manufacturing opportunities for U.S. firms that are exporting goods.

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