'China Shock' Offers Lesson Trump was Suppose to Know "Economics"
 | |
| The opening of U.S. trade with China a quarter-century ago led to a flood of imports that came to be known as the “China shock.”Credit...Coley Brown for The New York Times |
By Ben Casselman
Te New York Times
When Congress voted to normalize trade relations with China at the beginning of this century, U.S. manufacturers braced for a stream of cheap goods to begin flowing into U.S. ports.
Instead, they got a flood. Imports from China nearly tripled from 1999 to 2005, and American factories, with their higher wages and stricter safety standards, couldn’t compete. The “China shock,” as it has come to be known, wiped out millions of jobs in the years that followed, leaving lasting scars on communities from Michigan to Mississippi.
To President Trump and his supporters, those job losses are an object lesson in the damage caused by decades of U.S. trade policy — damage he promises that his tariffs will now help to reverse. On Wednesday, he further raised duties on imports from China, well beyond 100 percent, even as he suspended steep tariffs he had imposed on other trading partners.
Few economists endorse the idea that the United States should try to bring back manufacturing jobs en masse. Even fewer believe that tariffs would be an effective tool for doing so.
But economists who have studied the issue also argue that Mr. Trump misunderstands the nature of the China shock. The real lesson of the episode wasn’t about trade at all, they say — it was about the toll that rapid economic changes can take on workers and communities — and by failing to understand that, Mr. Trump risks repeating the mistakes he claims he has vowed to correct.
“For the last 20 years we’ve been hearing about the China shock and how brutal it was and how people can’t adjust,” said Scott Lincicome, a trade economist at the Cato Institute, a libertarian research organization. “And finally, after most places have moved on, now we’re shocking them again.”
A Legacy Reconsidered
 |
| Textile and apparel manufacturing were among the hardest hit by the move of manufacturing to China.Credit...FPG/Archive Photos, via Getty Images |
A vintage black-and-white photo of the interior of a textile mill, with men standing at looms.
Textile and apparel manufacturing were among the hardest hit by the move of manufacturing to China.Credit...FPG/Archive Photos, via Getty Images
The first thing to understand about the China shock is that nearly every part of the narrative at the start of this article is an oversimplification.
Factory jobs were declining as a share of employment for decades before China joined the World Trade Organization in 2001. Those losses did accelerate starting around 2000, particularly in labor-intensive industries like clothing and furniture manufacturing, but not all of that decline can be attributed to competition from China, or U.S. trade policy more generally.
Technology also played a major role by allowing factories to make more goods with fewer workers. And while economists disagree about exactly how much of the decline to attribute to various factors, hardly anyone thinks the United States would still employ half a million apparel makers, as it did in 2000, if China had been kept out of the W.T.O. Even the 2016 paper that coined the phrase “China shock” found that Chinese imports accounted for only a fraction of the five million manufacturing jobs lost in the 12-year period the researchers studied.
Reversed decision to halt deliveries from China and Hong Kong ›
Earlier entries about China and tariffs
See every major action by the Trump administration ›
What set the China shock apart wasn’t that it was uniquely costly — the idea that trade has winners and losers was recognized by the economist David Ricardo in the early 19th century. Rather, it was the speed and concentration of those losses.
Communities that relied heavily on labor-intensive manufacturing industries saw those jobs evaporate in just a few years. In 2000, the furniture industry in Hickory, N.C., employed more than 32,000 people, a fifth of the area’s private-sector workers. Within a decade, that number had been cut by nearly 60 percent — a devastating blow that was repeated in communities in many regions.
Standard economic theory held that the people and places hit by those losses should have adapted relatively quickly. Investors should have snapped up the abandoned factories and mills on the cheap and found more productive uses for them. Laid-off workers should have learned new skills and switched to faster-growing industries — and if no such jobs were available nearby, they should have found work elsewhere.
None of that happened. New, higher-paying industries did spring up, but not in the places hit hardest by the manufacturing job losses. Laid-off workers wouldn’t or couldn’t move in search of opportunities, and they struggled to compete for the few good jobs that remained in their communities, many of which required a college degree.
Instead, they found work in service jobs that paid a fraction of their former factory wages, or they left the labor force. Employment rates among men plummeted; rates of addiction and premature death soared.
This, then, is the central insight of the China shock literature: Change is hard. Rapid change is harder.
Our economics reporters — based in New York, London, Brussels, Berlin, Hong Kong and Seoul — are digging into every aspect of the tariffs causing global turmoil. They are joined by dozens of reporters writing about the effects on everyday people.
Tariffs and Economic Policy.
When economic shifts take place over decades, it gives workers and communities a chance to adjust. Local leaders can recruit businesses in new industries. Parents can push their children to pursue different lines of work. Those gradual adaptations don’t work when entire industries shut down in short time.
[It seems Trump and His gang did not know this, but why? He didn't do good in school. He had a Soprano Style dadddie who paid for ev erythingn and then it left him most of his money]
“Labor markets adjust over the course of generations,” said David Autor, an M.I.T. economist who was a co-author of the original China shock paper and has continued to study it. “It doesn’t happen within careers.”
Comments