The Report

The China Trade and Jobs

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Summary

Since China entered the World Trade Organization in 2001, the extraordinary growth of trade between China and the United States has had a dramatic effect on U.S. workers and the domestic economy, though in neither case has this effect been beneficial. The United States is piling up foreign debt and losing export capacity, and the growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9 percent) were in manufacturing. These lost manufacturing jobs account for more than half of all U.S. manufacturing jobs lost or displaced between 2001 and 2011.

The more than 2.7 million jobs lost or displaced in all sectors include 662,100 jobs from 2008 to 2011 alone—even though imports from China and the rest of the world plunged in 2009. (Imports from China have since recovered and surpassed their peak of 2008.) The growing trade deficit with China has cost jobs in all 50 states and the District of Columbia and Puerto Rico, as well as in each congressional district.

Among specific industries, the trade deficit in the computer and electronic products industry grew the most, and 1,064,800 jobs were displaced, 38.8 percent of the 2001–2011 total. As a result, many of the hardest-hit congressional districts were in California, Texas, Oregon, Massachusetts, Colorado, and Minnesota, where jobs in that industry are concentrated. Some districts in North Carolina, Georgia, and Alabama were also especially hardhit by job displacement in a variety of manufacturing industries, including computers and electronic products, textiles and apparel, and furniture.

But the jobs impact of the China trade deficit is not restricted to job loss and displacement. Competition with low-wage workers from less-developed countries such as China has driven down wages for workers in U.S. manufacturing and reduced the wages and bargaining power of similar, non-college-educated workers throughout the economy. The affected population includes essentially all workers with less than a four-year college degree—roughly 70 percent of the workforce, or about 100 million workers (U.S. Census Bureau 2012b).

Put another way, for a typical full-time median-wage earner, earnings losses due to globalization totaled approximately $1,400 per year as of 2006 (Bivens 2008a). For a typical household with two earners, the annual cost is more than $2,500. China is the most important source of downward wage pressure from trade with less-developed countries because it pays very low wages and because its products make up such a large portion of U.S. imports (China was responsible for 55.3 percent of U.S. non-oil imports from less-developed countries in 2011).

These conclusions about the jobs impact of trade with China arise from the following specific findings of this study:

  • Most of the jobs lost or displaced by trade with China between 2001 and 2011 were in manufacturing industries (more than 2.1 million jobs, or 76.9 percent).
  • Within manufacturing, rapidly growing imports of computer and electronic products (including computers, parts, semiconductors, and audio-video
    equipment) accounted for 54.9 percent of the $217.5 billion increase in the U.S. trade deficit with China between 2001 and 2011. The growth of this deficit contributed to the elimination of 1,064,800 U.S. jobs in computer and electronic products in this period. Indeed, in 2011, the total U.S. trade deficit with China was $301.6 billion—$139.3 billion of which was in computer and electronic products.
  • Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China. This broad category of high-end technology
    products includes the more advanced elements of the computer and electronic products industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology.
    In 2011, the United States had a $109.4 billion deficit in advanced technology products with China, which was responsible for 36.3 percent of the total U.S.-China trade deficit. In contrast, the United States had a $9.7 billion surplus in advanced technology products with the rest of the world in 2011.
  • Other industrial sectors hit hard by growing trade deficits with China between 2001 and 2011 include apparel and accessories (211,200 jobs), textile mills and textile product mills (106,200), fabricated metal products (120,600), furniture and fixtures (80,700), plastics and rubber products (57,600), motor vehicles and parts (19,800), and miscellaneous manufactured goods (111,800). Several service sectors were also hit hard by indirect job losses, including administrative, support, and waste management services (160,600) and professional, scientific, and technical services (145,000).
  • The more than 2.7 million U.S. jobs lost or displaced by the trade deficit with China between 2001 and 2011 were distributed among all 50 states, the District of Columbia, and Puerto Rico, with the biggest
    net losses occurring in California (474,700 jobs), Texas (239,600), New York (158,800), Illinois (113,700), North Carolina (110,300), Florida (106,100), Pennsylvania (101,200), Ohio (95,900), Massachusetts (92,700), and Georgia (87,300).
  • Jobs displaced due to growing deficits with China equaled or exceeded 2.2 percent of total employment in the 12 hardest-hit states: New Hampshire (20,400 jobs lost or displaced, equal to 2.94 percent of total state employment), California (474,700, 2.87 percent), Massachusetts (92,700, 2.86 percent), Oregon (50,200, 2.85 percent), North Carolina (110,300, 2.67 percent), Minnesota (72,300, 2.66 percent), Idaho (18,200, 2.65 percent), Vermont (8,000, 2.43 percent), Colorado (57,800, 2.38 percent), Texas (239,600, 2.26 percent), Rhode Island (11,800, 2.24 percent), and Alabama (43,900, 2.20 percent).
  • The hardest-hit congressional districts were concentrated in states that were heavily exposed to growing China trade deficits in computer and electronic products and other industries such as furniture, textiles, apparel, and durable goods manufacturing. The three hardest-hit congressional districts were all locatedm in Silicon Valley in California, including the 15th (Santa Clara County, which lost 44,700 jobs, equal to 13.77 percent of all jobs in the district), the 14th (Palo Alto and nearby cities, 32,700 jobs, 10.20 percent), and the 16th (San Jose and other parts of Santa Clara County, 29,000 jobs, 9.55 percent). Of the top 20 hardest-hit districts, seven were in California (in rank order, the 15th, 14th, 16th, 13th, 31st, 34th, and 50th), four were in Texas (31st, 10th, 25th, and 3rd), two were in North Carolina (4th and 10th), two were in Massachusetts (5th and 3rd), and one each in Oregon (1st), Georgia (9th), Colorado (4th), Minnesota (1st), and Alabama (5th). Each of these districts lost at least 11,400 jobs, or more than 3.7 percent of its total jobs.

The job displacement estimates in this study are conservative. They include only the direct and indirect jobs displaced by trade, and exclude jobs in  domestic wholesale and retail trade or advertising; they also exclude  re-spending employment.1 However, during the Great Recession of 2007–2009, and continuing through 2011, jobs displaced by China trade reduced wages and spending, which led to further job losses.

Introduction

Today’s international trading system grew out of the Bretton Woods Agreements negotiated among Allied nations in July 1944. Bretton Woods established rules for financial relations among signatories and established the International Monetary Fund and the World Bank. A subsequent U.N. Conference on Trade and Employment produced the General Agreement on Tariffs and Trade (GATT) in 1947. The GATT treaty established the international trading system, which evolved as a series of global trade negotiations that refined the rules of the system while progressively lowering tariffs and non-tariff barriers. The Uruguay Round, which lasted from September 1986 until December 1993, led to the 1994 creation of the World Trade Organization, an institution charged with settling disagreements among nations regarding the rules agreed upon in GATT.

The World Trade Organization was empowered to engage in dispute resolution and to authorize imposition of offsetting duties if its decisions were ignored or rejected by member governments. It expanded the trading system’s coverage to include a huge array of subjects never before included in trade agreements, such as food safety standards, environmental laws, social service policies, intellectual property standards, government procurement rules, and more (Wallach and Woodall 2011).

Over time, countries that were not part of the original GATT group have sought entry into the WTO to gain improved market access for their goods at lower tariff levels, and to encourage development of their traded goods industries.

Proponents of China’s entry into the WTO frequently claimed that it would create jobs in the United States, increase U.S. exports, and improve the trade deficit with China. In 2000, President Clinton claimed that the agreement then being negotiated to allow China into theWTO “creates a win-win result for both countries.” Exports to China “now support hundreds of thousands of American jobs,” and these figures “can grow substantially with the new access to the Chinese market the WTO agreement creates,” he said (Clinton 2000, 9–10).

China’s entry into the WTO in 2001 was supposed to bring it into compliance with an enforceable, rules-based regime that would require China to open its markets to imports from the United States and other nations by reducing tariffs and addressing non-tariff barriers to trade. Promoters of liberalized U.S.-China trade argued that the United States would benefit because of increased exports to a large and growing consumer market in China. The United States also negotiated a series of special safeguard measures designed to limit the disruptive effects of surging imports from China on domestic producers.

However, as a result of China’s currency manipulation and other trade-distorting practices, including extensive subsidies, legal and illegal barriers to imports, dumping, and suppression of wages and labor rights, the envisioned flow of U.S. exports to China did not occur. Further, the agreement
spurred foreign direct investment in Chinese enterprises, which has expanded China’s manufacturing sector at the expense of the United States. Finally, the core of the agreement failed to include any protections to maintain or improve labor or environmental standards or to prohibit currency manipulation.

In retrospect, the promises about jobs and exports misrepresented the real effects of trade on the U.S. economy: Trade leads to both job creation and job loss or displacement. (This paper describes the net effect of trade on employment as jobs “lost or displaced,” with the terms “lost” and “displaced” used interchangeably.) Increases in U.S. exports tend to create jobs in the United States, but increases in imports will lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. This is what has occurred with China since it entered the WTO; the United States’ widening trade deficit with China is costing U.S. jobs.

U.S.-China Trade and Job Displacement

Growing Trade Deficits and Job Losses

Each $1 billion in exports to China from the United States supports some American jobs. However, each $1 billion in imports from China displaces the American workers who would have been employed making these products in the United States. The net employment effect of trade depends on the changes in the trade balance. An improving trade balance can support job creation, but growing trade deficits usually result in growing net U.S. job displacement. The United States has had large trade deficits with China since 2001, which increased in every year except 2009, when U.S. trade with all countries collapsed due to the recession of 2007–2009.

The employment impacts of the growing U.S. trade deficit with China are estimated in this paper using an inputoutput model that estimates the direct and indirect labor requirements of producing output in a given domestic industry. The model includes 195 U.S. industries, 77 of which are in the manufacturing sector (see the box titled “Trade and employment models,” as well as the Appendix, for details on model structure and data sources). The Bureau of Labor Statistics Office of Employment Projections (BLS–OEP) revised and updated its labor requirements model and related data in December 2011 (a; b). Our models have been completely revised and updated using the newest, best available data for this report.

The model estimates the amount of labor (number of jobs) required to produce a given volume of exports and the labor displaced when a given volume of imports is substituted for domestic output.9 The difference between these two numbers is essentially the jobs displaced by growing trade deficits, holding all else equal.

Jobs displaced by the growing China trade deficit are a net drain on employment in trade-related industries, especially those in manufacturing. Even if increases in demand in other sectors absorb all the workers displaced by trade (which is unlikely), job quality will likely suffer because many non-traded industries such as retail and home health care pay lower wages and have less comprehensive benefits than traded-goods industries.

U.S. exports to China in 2001 supported 169,400 jobs, but U.S. imports displaced production that would have supported 1,139,500 jobs, as shown in the bottom half of Table 1. Therefore, the $84.1 billion trade deficit in 2001 displaced 970,100 jobs in that year. Job displacement rose to 3,050,200 jobs in 2008 and 3,712,300 jobs in 2011.

Since China’s entry into the WTO in 2001 and through 2011, the increase in U.S.-China trade deficits eliminated or displaced 2,742,200 U.S. jobs, as shown in the bottom half of Table 1. Rising trade deficits have displaced a growing number of jobs every year since China joined the WTO, with the exception of 2009 (during the Great Recession), as shown in Figure A. The U.S. trade deficit with China increased by $31.2 billion (or 11.6 percent) between 2008 and 2011, and the number of jobs disdisplaced increased by 21.7 percent. Meanwhile, the U.S. trade deficit with the rest of the world declined 19.3 percent between 2008 and 2011 (according to the author’s analysis of U.S. International Trade Commission 2012). These figures illustrate the damage done when China took advantage of the Great Recession to expand its beggar-thy-neighbor trade policies through currency manipulation and other illegal and unfair trade policies, which undermined job creation in the U.S. economy throughout the downturn.

Between 2008 and 2011 alone 662,100 jobs were lost, either by the elimination of existing jobs or by the prevention of new job creation (Figure A). On average, 274,200 jobs per year have been lost or displaced since China’s entry into the WTO (Table 1). The continuing growth of job displacement between 2008 and 2011 despite the relatively small increase in the trade deficit reflects the relatively rapid growth of U.S. imports of computer and electronics products from China, and the fact that the price index for most of these products fell continuously throughout the study period, as noted later in this paper. The share of U.S. imports from China accounted for by computer and electronic products (in current, nominal dollars) increased from 32.9 percent in 2008 to 37.4 percent in 2011 (according to the author’s analysis of USITC 2012).

Cumulative U.S. Jobs Displaced Since 2001

Change in U.S. Trade with China, by Industry

Job Losses By State

Growing trade deficits with China have reduced demand for goods produced in every region of the United States and led to job displacement in all 50 states, Puerto Rico, and the District of Columbia, as shown in Table 4 and Figure B. (Appendix Table 1 ranks the states by the number of net jobs displaced, while Appendix Table 2 presents the same data but sorts the states alphabetically.) Table 4 shows that jobs displaced from 2001 to 2011 due to growing deficits with China equaled or exceeded 2.2 percent of total state employment in states such as New Hampshire, California, Massachusetts, Oregon, North Carolina, Minnesota, Idaho, Vermont, Colorado, Texas, Rhode Island, and Alabama. As shown in Appendix Tables 1 and 2, nearly 475,000 jobs were lost in California, compared with nearly 240,000 in Texas, almost 159,000 in New York, and nearly 114,000 in Illinois. The more than 2.7 million U.S. jobs displaced due to growing trade deficits with China represented about 1.9 percent of total U.S. employment (Table 4).

Figure B shows the broad impact of growing trade deficits with China across the United States, with no areas exempt. Job losses have been most concentrated in states with high-tech industries, such as California, Massachusetts, Oregon, Minnesota, Idaho, Colorado, and Texas, and in manufacturing states, including New Hampshire, North Carolina, and Vermont. Other hard-hit states include traditional manufacturing powers such as Rhode Island, Alabama, South Carolina, Georgia, Tennessee, Wisconsin, Kentucky, Indiana, Illinois, New Jersey, New York, Ohio, and Pennsylvania.

Conclusion

The growing U.S. trade deficit with China has displaced millions of jobs in the United States and contributed heavily to the crisis in U.S. manufacturing employment, which has heightened over the last decade largely due to trade with China. Moreover, the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment.

Is America’s loss China’s gain? The answer is not clearly affirmative. China has become dependent on the U.S. consumer market for employment generation, suppressed the purchasing power of its own middle class with a weak currency, and, most important, now holds over $3 trillion in hard currency reserves instead of investing them in public goods that could benefit Chinese households.

Although economic growth in China has been rapid, it is unbalanced and unsustainable. Its vast purchases of foreign exchange reserves have led to the overheating of its domestic economy, and inflation in China has accelerated rapidly in the recent past. Its repression of labor rights has suppressed wages, thereby artificially subsidizing exports. China’s economy is teetering on the edge between inflation and a growth slump, and a soft landing is nowhere in sight. China needs to rebalance its economy by becoming less dependent on exports and more dependent on domestic demand led by higher wages and infrastructure spending.

The U.S.-China trade relationship needs a fundamental change. Addressing the exchange rate policies and labor standards issues in the Chinese economy is an important first step. It is time for the administration to respond to the growing chorus of calls from economists, workers, businesses, and Congress and take action to stop illegal currency manipulation by China and other countries.

 

—The author thanks Ross Eisenbrey for comments, Hilary Wething for research assistance, Michael McCarthy and Patrick Watson for editing, and Dan Essrow for graphic design assistance.

—This research was made possible by support from the Alliance for American Manufacturing.

Methodology

The trade and employment analyses in this report are based on a detailed, industry-based study of the relationships between changes in trade flows and employment for each of approximately 195 individual industries of the U.S. economy, specially grouped into 53 custom sectors17 and using the North American Industry Classification System (NAICS) with data obtained from the U.S. Census Bureau (2009) and the U.S. International Trade Commission (USITC 2012).

This study separates exports produced domestically from foreign exports—which are goods produced in other countries, exported to the United States, and then reexported from the United States. Because only domestically produced exports generate jobs in the United States, employment calculations here are based only on domestic exports. The measure of the net impact of trade used here to calculate the employment content of trade is the difference between domestic exports and consumption imports.

The number of jobs supported by $1 million of exports or imports for each of 195 different U.S. industries is estimated using a labor requirements model derived from an input-output table developed by the BLS–OEP (2011a).18 This model includes both the direct effects of changes in output (for example, the number of jobs supported by $1 million in auto assembly) and the indirect effects on industries that supply goods used in the manufacture of cars. The indirect impacts include jobs in auto parts, steel, and rubber, as well as service industries such as accounting, finance, and computer programming. This model estimates the labor content of trade using empirical estimates of labor content and trade flows between U.S. industries in a given base year (an input-output table for the year 2001 was used in this study) that were developed by the U.S. Department of Commerce and the BLS–OEP. It is not a statistical survey of actual jobs gained or lost in individual companies, or the opening or closing of particular production facilities (Bronfenbrenner and Luce 2004 is one of the few studies based on news reports of individual plant closings).

Nominal trade data used in this analysis were converted to constant 2005 dollars using industry-specific deflators (see next section for further details). This was necessary because the labor requirements table was estimated using price levels in that year. Data on real trade flows were converted to constant 2005 dollars using industry-specific price deflators from the BLS–OEP (2011b). These price deflators were updated using Bureau of Labor Statistics producer price indexes (industry and commodity data; Bureau of Labor Statistics 2012b). Use of constant 2005 dollars was required for consistency with the other BLS models used in this study.