Among the most careful, thorough, and insightful – and significant – economic analysts at work today is the American Enterprise Institute’s Scott Winship. In this new post, which is long but well worth a complete and careful read, Scott summarizes the “China Shock” research as well as all of the significant pieces of research inspired by it.
Especially important is this bit:
Finally, all the research estimating “effects” of the China Shock suffers from an important real-world weakness. They all envision a counterfactual world in which not only do Chinese imports stay frozen at, say, 1990 or 1999 levels, but imports from other developing countries fail to expand to meet the American demand that the China Shock filled. Imagine if China had never liberalized its economy or if it had been kept out of the World Trade Organization. Heck, imagine that we had levied insane tariffs against China in 2000. What would have happened?
If you think that the China Shock reduced employment, do you think all those jobs would have been saved if it could have been prevented? Or do you think that trade with Vietnam and other countries would have grown at a faster rate in the absence of greater trade with China? Implicitly, all this research has in mind that trade with other countries would not have ramped up in the absence of Chinese import competition. But that seems highly dubious. If at least some ramp-up would have happened, then all the research discussed above overstates any negative impact of the China Shock.
A similar argument could be made about automation. Suppress the China Shock and perhaps manufacturer reliance on automation would have accelerated to keep costs and prices down. If that would have been the counterfactual history, and automation would have reduced manufacturing employment more than it did in the presence of the China Shock, then the studies above overstate the effect of the Shock.
Indeed, when we remember that the cross-CZ [DBx: “commuting zones”] studies are estimating relative effects (how some places were affected by the China Shock relative to others), we must also take seriously a different sort of counterfactual if the China Shock had been suppressed. If places vulnerable to import competition had avoided those rising imports, they still might have lost manufacturing employment to places elsewhere in the US to which manufacturing had already been migrating for decades. Some places would have lost out relative to others even in the absence of the China Shock, and if the reallocation had accelerated in a world without the Shock, the research discussed above gives the China Shock too much blame.
And here’s part of an email that I sent to Scott this morning after I read his essay:
I’m especially glad to see that, near the end, you explicitly make a point that too many people, including economists who should know better, overlook – namely, that lower-priced imports, whether from China or some other country, are not the only feasible substitutes for goods manufactured domestically using labor-intensive methods. Labor-saving automation has been a thing for all of human history, and a thing the use of which has immensely accelerated over the past few hundred years.
Although there’s obviously some exogeneity to increased trade with China, there’s also no small amount of endogeniety: As you note, had China not opened up, rising real wages of American workers would have led to even greater reliance in the U.S. on labor-saving techniques. But because China did open up, suppliers in the U.S. imported more instead of mechanized even more to produce at home. I doubt that a team of even the world’s greatest econometricians could calculate any reliable number of manufacturing jobs (even just in the CZs) ’caused’ by China opening up.
Changing the subject a bit: If you take (as is reasonable) the first half of 1953 as the post-war point at which manufacturing employment as a share of total nonfarm employment began its steady descent, and then calculate the average monthly change in this share, here’s what you find:
– May 1953 through November 2001: -0.168%
– December 2001 through March 2025: -0.146%These rather raw data show that manufacturing jobs as a share of total nonfarm employment fell at a slightly faster average monthly rate before China joined the WTO than afterward. Now I don’t think that much can be inferred from this simple calculation, but it at least provides some additional reason to doubt that the China Shock was as big a deal as the popular narrative makes it out to be.
Don
