If you were Donald Trump, you would probably summarize the academic paper’s finding as follows: China is beating us.
A new working paper from economists David Autor, David Dorn and Gordon Hanson states that trade with China is having persistent, negative effects on parts of the US labor market. Research from the same authors, published in 2013, found that the US workers most exposed to Chinese trade have experienced material declines in wages, higher unemployment and an increased likelihood of receiving government benefits like disability payments.
“The idea that trade competition with China has hurt various workers and communities is nothing new and extremely well known to people and voters in those communities,” said Jared Bernstein, an economist at the liberal Center on Budget and Policy Priorities. “Just because Donald Trump says it doesn’t mean it isn’t true.”
However, Bernstein has historically been in the minority within the economics profession on this issue. Because trade increases overall global economic output, economists have generally thought workers who lost their jobs because of imports would move fairly rapidly into other, expanding economic sectors. Any dislocation would be minor relative to the benefits, they said.
Now, some minds are changing.
The process of labor market adjustment is “gummier than anybody realized,” said Hanson, a professor at the University of California, San Diego.
The persistent negative effects of Chinese trade on much of the US labor market have “toppled much of the received wisdom about the impact of trade on labor markets,” Hanson wrote with his co-authors, especially the “consensus that trade could be strongly redistributive in theory, but was relatively benign in practice.”
In fairness to the economics profession, that consensus emerged mostly because workers actually did adjust more easily to trade in the past. Global trade soared in the four decades after World War II without apparent negative effects on labor markets in rich countries. However, most of this trade was between rich countries, and exposing Ohio workers to competition with workers in Ontario, Canada, was not that much different from the competition they always had with Michigan workers.
As Hanson and his co-authors describe, the rise of trade with China since 1991 increasingly exposed US workers to competition from those who would work for much less, causing particular problems for lower-skilled workers.
There is also a damaging trade imbalance. The rise of Chinese exports would not have had such negative effects on the US labor market if it had been offset by a commensurate rise of Chinese imports. More exports to China would have created US jobs, both in exporting industries and in the sectors that support those industries, making it easier for displaced workers to find new jobs.
Instead, China has run a persistent trade surplus. What that really means is that Chinese consumers save much of their income from export industries instead of using it to consume imports. This is one of the major “global imbalances” identified by former US Federal Reserve chairman Ben Bernanke as a driver of both high unemployment and asset price bubbles in the US.
The big question is what to do about any of this, and it is a lot easier to find common ground about the problem than the solution.