Eakinomics: Revisiting China Trade

Eakinomics: Revisiting China Trade Back before the coronavirus and the widespread adoption of the Boo Radley lifestyle, international trade was a central policy topic. The entry of China to the World Trade Organization (WTO) in 2001 (and to a lesser degree, India as well) dramatically increased the global supply of low-skilled labor. The ramifications were profound as well, with upward shifts in the return to skills in the labor market globally and relative downward moves in the earnings of low-skilled individuals in the United States and elsewhere. This so-called “China shock” incited a backlash against global trade and contributed to rising populism around the globe. As AAF’s Jacqueline Varas points out, however, the China shock was over by 2010: “Real U.S. import growth from China slowed from an average annual rate of 15 percent from 2002 to 2010 to 5 percent after 2010. Furthermore, rising wages in China, due to both demographic challenges and institutional reforms, have weakened it as a source of underpriced labor.” What has happened since? Varas provides original research on the link between imports and manufacturing employment over the period 2010 to 2016. During that time, real imports rose on average 22 percent across all states; the low was a 47 percent decrease in Wyoming and the high was an 85 percent increase in Nevada. Her statistical analysis indicates that “a 1 percent increase in imports leads to a 0.07 percent increase in jobs.” That’s right. Imports are not job-killers. Indeed, she goes on to note that “Based on these results, over one quarter of total manufacturing jobs created between 2010 and 2016 – roughly 220,000 jobs – can be directly attributed to increases in imports.” During the post-2016 era, President Trump engaged in a dramatic and damaging trade war with China. This might make sense from the perspective of China’s military aggression or its flouting of international norms in mistreating foreign firms operating in its domestic market. But this evidence suggests that it should not be based strictly on the fact that China is exporting to the United States.