The People's Republic has proved to be an enormous disruptor of American jobs. But Washington state has been a winner — so far.
With all the attention focused on NAFTA — a trade agreement with many upsides for the United States, as well as some downsides — let’s not forget this is the 15th anniversary of China entering the World Trade Organization.
In a report released today, the Economic Policy Institute estimates that the so-called China Shock cost or displaced 3.4 million American jobs between 2001 and 2015. The data are based on the growing trade deficit. Nearly two-thirds of the losses were in manufacturing. Other studies point to the difficulty the U.S. labor market experienced in trying to adjust to the entry of such an enormous player in world trade (See Dorn et al here).
Brad Setser at the Council on Foreign Relations offers a wide-ranging explanation of the shock and its causes. Currency manipulation, state intervention to boost industries and unfair trading practices on the part of Beijing were certainly involved. The hoped-for surge in Chinese imports of American products didn’t happen. On the other hand, the George H.W. Bush and Obama administrations didn’t make strong and consistent use of WTO remedies.
Intelligent responses now aren’t easy. China has a very high savings rate. This is partly an attempt to compensate for lack of an advanced social safety net. As a result, while Chinese demand for imports has grown, it’s nowhere what was expected when the country entered the WTO. Beijing’s effort to shift from an export-driven economy to more of a U.S.-style consumer economy is slow. And while currency manipulation has slowed, other stealth protection distort still trade. Many revolve around Beijing’s drive to substitute homegrown advanced industries for imports (such as Boeing airplanes). Everything has outsized effects because China is so large.
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But, as with NAFTA, trade is not a simplistic zero-sum game. U.S. merchandise exports to China grew from $22 billion in 2002 to $116 billion in 2015, supporting plenty of jobs here. Washington’s example is even more striking, with China becoming the state’s largest export destination. Merchandise exports accounted for nearly $19.5 billion in 2015, about 17 percent of total exports. This is heavily dependent on Boeing, whose Chinese business would be severely set back by a trade war.
And don’t forget that automation is arguably as big a job killer as trade, especially in manufacturing.
Did the United States have a strategic alternative to preventing China from gaining Most Favored Nation status and joining the WTO — in other words, being a normal country? I’m not sure it did, although it could have made more robust use of WTO rules to ensure Beijing’s compliance. Read the links and please offer your opinion in the comments section.
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