“International trade tends to make low-skilled workers in the U.S. worse off — not just temporarily, but on a sustained basis.”
A new report by MIT economist David Autor has analyzed data on employment in the U.S. as it relates to the growth of China, and has found that the U.S. lost 2.4 million jobs due to business with China between 1999 and 2011.
The report is at odds with a common notion that global trade benefits all nations. Autor said that the understanding most people have about global trade may have held true for some past international trade situations, but is not true of the current relationship with China:
“I think that a lot of people’s priors, or expectations, had come from the Bretton Woods era of trade,” Autor stated. “A lot of that was rich country-to-rich country trade: We buy cheese from France and we sell them aircraft engines.”
But when a rich country which produces quality goods interacts with a poor country which produces cheap products for cheap prices, it’s another story:
“China is a new low-cost producer of labor-intensive goods, and everything that’s labor-intensive we’re no longer competitive in,” continued Autor. “It’s just going to shut down. That’s probably why [global trade] was so much more disruptive than people had anticipated.”
Autor says that’s also why most of the 2.4 million jobs lost to China have been in low-skill areas. About 1 million manufacuturing jobs were lost to China between 1999 and 2011, according to his data.
“International trade tends to make low-skilled workers in the U.S. worse off — not just temporarily, but on a sustained basis,” Autor wrote in the report.
While international trade has also created jobs for American companies, such as Apple, Autor noted, there just isn’t evidence that the benefits are anything like the losses in jobs that have affected many in the U.S.
“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. 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.”
The relationship has clearly benefited Chinese, though. Between 1991 and 2012 China’s share of world manufacturing value added went up from 4 percent to 24 percent.
By 2011, China had accumulated over $217 billion in U.S. trade deficit — 60 percent of U.S. global trade deficit is with China.
Autor has directed his research at U.S. policymakers:
“If we’re now in the era where we’re going to say we now recognize that trade has very strong disruptive effects,” Autor said, “then what do we do about it? What is the right policy?”
The report, “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” was completed by Autor, David Dorn, and Gordon Hanson. It is to be published in Annual Review of Economics, but the working draft is available at the National Bureau of Economic Research.