POLS 4133 International Political Economy
Debate Paper Guidelines
Spring 2017
You will evaluate the information on a contentious issue and then convince the audience
that your opinion is valid and defensible. Your job is to take one side of the argument
and then persuade your audience that the evidence validates your claims and refutes any
counterclaims.
Guidelines for the papers are as follows:
1. Students may not select alternate topics. Specific questions for each debate will be
given.
2. Each paper will be a maximum of three pages of text in length, not including a cover
page or a bibliography. Your text should be no more than 3 pages, double-spaced, with
one-inch margins, and 12-point Times New Roman font.
Your paper will be organized to include:
• An introductory paragraph that describes your thesis/position statement on the
topic. Your position should be clear and based on facts rather than belief or
opinion.
• At least two to three paragraphs giving relevant evidence to support your position.
Each paragraph should focus on only one point of evidence. Paragraphs are
typically organized from weakest point to strongest point.
• At least one paragraph that provides a refutation of the most significant
counterargument to your position. Be sure to say why the counterclaim is not
supported based on facts or false logic in the claim itself.
• At least one paragraph concluding your paper.
To help you organize the information in your papers, you might wish to consider the
following questions as you read the sources and gather your evidence.
• What is the author’s main argument? What research question is the author trying
to answer? What are the assumptions, explicit and implicit, upon which the
author’s argument is based?
• What are the strengths and weaknesses of the author’s analysis? Can you think of
an alternative explanation for the author’s evidence?
• Do you agree or disagree with the author? How would you approach a similar
puzzle? What questions still need to be addressed?
• What advice would you give to policy makers based on this reading?
3. Students must use the readings provided to them on Folio (and our course readings) to
form the basis of their evidence. Students may supplement these readings with additional
evidence taken from credible news sources or peer reviewed academic research. Students
must cite all sources with in-text citations and include full citations in a bibliography.
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4. Students are expected to submit papers that have been carefully edited and are free
from common mistakes in spelling, grammar, and formatting. Students are expected to
work individually and properly cite all sources; any student found to be engaging in
academic dishonesty will receive a failing grade for this assignment.
In grading your papers, I will be looking for evidence that you (a) clearly explain
your thesis, (b) provide strong support of your thesis using evidence from the course, (c)
provide a discussion of at least one counterclaim, (d) use concepts and themes from our
course, and (e) follow writing conventions. You will also receive credit for (f) relevant
and engaging class participation on the day of the debate. Grading criteria can be found
in the debate paper rubric.
NOTE: Failure to follow these guidelines will result in a reduction of points
awarded.
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A New Deal for Globalization
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Home > A New Deal for Globalization
Sunday, July 1, 2007
A New Deal for Globalization
Kenneth F. Scheve and Matthew J. Slaughter
Kenneth F. Scheve is Professor of Political Science
at Yale University. Matthew J. Slaughter is Professor of Economics at the Tuck School
of Business at Dartmouth and Adjunct Senior Fellow for Business and Globalization
at the Council on Foreign Relations. He served on the White House Council of Economic
Advisers from 2005 to 2007.
WAGES FALLING, PROTECTIONISM RISING
Over the last several years, a striking new feature of the U.S. economy has emerged: real
income growth has been extremely skewed, with relatively few high earners doing well while
incomes for most workers have stagnated or, in many cases, fallen. Just what mix of forces is
behind this trend is not yet clear, but regardless, the numbers are stark. Less than four percent of
workers were in educational groups that enjoyed increases in mean real money earnings from
2000 to 2005; mean real money earnings rose for workers with doctorates and professional
graduate degrees and fell for all others. In contrast to in earlier decades, today it is not just those
at the bottom of the skill ladder who are hurting. Even college graduates and workers with
nonprofessional master's degrees saw their mean real money earnings decline. By some
measures, inequality in the United States is greater today than at any time since the 1920s.
Advocates of engagement with the world economy are now warning of a protectionist drift in
public policy. This drift is commonly blamed on narrow industry concerns or a failure to explain
globalization's benefits or the war on terrorism. These explanations miss a more basic point: U.S.
policy is becoming more protectionist because the American public is becoming more
protectionist, and this shift in attitudes is a result of stagnant or falling incomes. Public support for
engagement with the world economy is strongly linked to labor-market performance, and for most
workers labor-market performance has been poor.
Given that globalization delivers tremendous benefits to the U.S. economy as a whole, the rise in
protectionism brings many economic dangers. To avert them, U.S. policymakers must recognize
and then address the fundamental cause of opposition to freer trade and investment. They must
also recognize that the two most commonly proposed responses -- more investment in education
and more trade adjustment assistance for dislocated workers -- are nowhere near adequate.
Significant payoffs from educational investment will take decades to be realized, and trade
adjustment assistance is too small and too narrowly targeted on specific industries to have much
effect.
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The best way to avert the rise in protectionism is by instituting a New Deal for globalization -- one
that links engagement with the world economy to a substantial redistribution of income. In the
United States, that would mean adopting a fundamentally more progressive federal tax system.
The notion of more aggressively redistributing income may sound radical, but ensuring that most
American workers are benefiting is the best way of saving globalization from a protectionist
backlash.
RISING PROTECTIONISM
U.S. economic policy is becoming more protectionist. First, consider trade. The prospects for
congressional renewal of President George W. Bush's trade promotion authority, which is set to
expire this summer, are grim. The 109th Congress introduced 27 pieces of anti-China trade
legislation; the 110th introduced over a dozen in just its first three months. In late March, the
Bush administration levied new tariffs on Chinese exports of high-gloss paper -- reversing a 20year precedent of not accusing nonmarket economies of illegal export subsidies.
Barriers to inward foreign direct investment (FDI) are also rising. In 2005, the Chinese energy
company CNOOC tried to purchase U.S.-headquartered Unocal. The subsequent political storm
was so intense that CNOOC withdrew its bid. A similar controversy erupted in 2006 over the
purchase of operations at six U.S. ports by Dubai-based Dubai Ports World, eventually causing
the company to sell the assets. The Committee on Foreign Investments in the United States,
which is legally required to review and approve certain foreign acquisitions of U.S. businesses,
has raised the duration and complexity of many reviews. Both chambers of the 109th Congress
passed bills to tighten CFIUS scrutiny even further; similar legislation has already passed in the
current House.
This protectionist drift extends to much of the world. The Doha Development Round of trade
negotiations, the centerpiece of global trade liberalization, is years behind schedule and now on
the brink of collapse. Key U.S. trading partners are becoming increasingly averse to foreign
investment, as expressed both in their rhetoric (recent public pronouncements by the
governments of France and Germany) and in their actions (new restrictions in China on foreign
retailers).
At first glance, this rise in protectionism may seem puzzling. The economic gains from
globalization are immense. In the United States, according to estimates from the Peter G.
Peterson Institute for International Economics and others, trade and investment liberalization
over the past decades has added between $500 billion and $1 trillion in annual income -between $1,650 and $3,300 a year for every American. A Doha agreement on global free trade
in goods and services would generate, according to similar studies, $500 billion a year in
additional income in the United States.
International trade and investment have spurred productivity growth, the foundation of rising
average living standards. The rate of increase in output per worker hour in the U.S. nonfarm
business sector has doubled in the past decade, from an annual average of 1.35 percent
between 1973 and 1995 to an annual average of 2.7 percent since 1995. Much of the initial
acceleration was related to information technology (IT) -- one of the United States' most globally
engaged industries, at the forefront of establishing and expanding production networks linked by
trade and investment around the globe.
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Gains from globalization have been similarly large in the rest of the world. China and India have
achieved stupendous rates of productivity growth, lifting hundreds of millions of people out of
poverty. Central to this success has been the introduction of market forces, in particular
international market forces related to trade and FDI. In Chinese manufacturing, foreign
multinational companies account for over half of all exports. And in the Indian IT sector, Indian
and foreign multinational firms account for two-thirds of sales.
Freer trade and investment can also enhance other foreign policy goals. The Doha Round was
launched shortly after 9/11 because of the view that global poverty is intimately linked to
international insecurity and instability. The Doha Round was also intended to remedy the
widespread perception that previous rounds of trade negotiations had treated poor nations
unfairly by failing to open the very sectors -- such as agriculture -- whose openness would most
likely help the world's poor. Accordingly, it is believed that a successful Doha agreement would
enhance the United States' image and promote its interests around the world.
There are three common explanations for why protectionism is on the rise in the United States
even though globalization is good for both the U.S. economy and U.S. security interests. None,
however, is convincing. The first is that a narrow set of industries, such as agriculture and
apparel manufacturing, have been harmed by freer trade and, in response, have lobbied hard to
turn lawmakers against liberalization. But the incentives for these industries to oppose
globalization have not changed in recent years, and there are also many industries that have
benefited from, and thus lobbied for, further liberalization. What is new today is that specialinterest protectionists are facing a more receptive audience.
The second explanation is that policymakers and the business community have failed to
adequately explain the benefits of freer trade and investment to the public. But in fact, publicopinion data show the opposite: large majorities of Americans acknowledge these broad benefits.
If anything, the public seems to understand certain benefits better than ever -- for example, that
its enjoyment of relatively affordable toys, DVD players, and other products depends on
globalization.
Finally, there is the security explanation: that the need to balance economic interests with
national security concerns has resulted in a more protectionist stance. This may help explain
policy debates on certain issues, such as immigration. But generally, security concerns
strengthen rather than weaken the case for further trade and investment liberalization, as long as
such liberalization is viewed as fair to the developing world.
THE ROOTS OF PROTECTIONISM
The fundamental explanation is much simpler: policy is becoming more protectionist because the
public is becoming more protectionist, and the public is becoming more protectionist because
incomes are stagnating or falling. The integration of the world economy has boosted productivity
and wealth creation in the United States and much of the rest of the world. But within many
countries, and certainly within the United States, the benefits of this integration have been
unevenly distributed -- and this fact is increasingly being recognized. Individuals are asking
themselves, "Is globalization good for me?" and, in a growing number of cases, arriving at the
conclusion that it is not.
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This account of rising protectionism depends on two key facts. First, there is a strong link
between individuals' labor-market interests and their policy opinions about globalization. Second,
in the past several years labor-market outcomes have become worse for many more Americans - and globalization is plausibly part of the reason for this poor performance.
Research on polling data shows that opinions about trade, FDI, and immigration are closely
correlated to skill and educational levels. Less skilled Americans -- who make up the majority of
the U.S. labor force -- have long led opposition to open borders. Workers with only high school
educations are almost twice as likely to support protectionist policies as workers with college
educations are.
This divide in opinion according to skill level reflects the impact that less skilled Americans
expect market liberalization to have on their earnings. It also reflects their actual poor real and
relative earnings performance in recent decades. It is now well established that income inequality
across skill levels has been rising since (depending on the measure) the mid- to late 1970s and
that the benefits of productivity gains over this time accrued mainly to higher-skilled workers. For
example, from 1966 to 2001, the median pretax inflation-adjusted wage and salary income grew
just 11 percent -- versus 58 percent for incomes in the 90th percentile and 121 percent for those
in the 99th percentile. Forces including skill-biased technological change played a major role in
these income trends; the related forces of globalization seem to have played a smaller role -- but
a role nonetheless.
There are two important points about this link between policy opinions and labor-market skills
and performance. One is that it does not simply reflect different understandings of the benefits of
globalization. Polling data are very clear here: large majorities of Americans acknowledge the
many benefits of open borders -- lower prices, greater product diversity, a competitive spur to
firms -- which are also highlighted by academics, policymakers, and the business community. At
the same time, they perceive that along with these benefits, open borders have put pressures on
worker earnings.
Second, a worker's specific industry does not appear to drive his view of globalization. This is
because competition in the domestic labor market extends the pressures of globalization beyond
trade- and foreign-investment-exposed industries to the entire economy. If workers in a sector
such as automobile manufacturing lose their jobs, they compete for new positions across sectors
-- and thereby put pressure on pay in the entire economy. What seems to matter most is what
kind of worker you are in terms of skill level, rather than what industry you work in.
The protectionist drift also depends on worsening labor-market outcomes over the past several
years. By traditional measures, such as employment growth and unemployment rates, the U.S.
labor market has been strong of late. Today, with unemployment at 4.5 percent, the United
States is at or near full employment. But looking at the number of jobs misses the key change:
for several years running, wage and salary growth for all but the very highest earners has been
poor, such that U.S. income gains have become extremely skewed.
Of workers in seven educational categories -- high school dropout, high school graduate, some
college, college graduate, nonprofessional master's, Ph.D., and M.B.A./J.D./M.D. -- only those in
the last two categories, with doctorates or professional graduate degrees, experienced any
growth in mean real money earnings between 2000 and 2005. Workers in these two categories
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comprised only 3.4 percent of the labor force in 2005, meaning that more than 96 percent of U.S.
workers are in educational groups for which average money earnings have fallen. In contrast to
in earlier decades, since 2000 even college graduates and those with nonprofessional master's
degrees -- 29 percent of workers in 2005 -- suffered declines in mean real money earnings.
The astonishing skewness of U.S. income growth is evident in the analysis of other measures as
well. The growth in total income reported on tax returns has been extremely concentrated in
recent years: the share of national income accounted for by the top one percent of earners
reached 21.8 percent in 2005 -- a level not seen since 1928. In addition to high labor earnings,
income growth at the top is being driven by corporate profits, which are at nearly 50-year highs
as a share of national income and which accrue mainly to those with high labor earnings. The
basic fact is clear: the benefits of strong productivity growth in the past several years have gone
largely to a small set of highly skilled, highly compensated workers.
Economists do not yet understand exactly what has caused this skewed pattern of income
growth and to what extent globalization itself is implicated, nor do they know how long it will
persist. Still, it is plausible that there is a connection. Poor income growth has coincided with the
integration into the world economy of China, India, and central and eastern Europe. The IT
revolution has meant that certain workers are now facing competition from the overseas
outsourcing of jobs in areas such as business services and computer programming. Even if
production does not move abroad, increased trade and multinational production can put pressure
on incomes by making it easier for firms to substitute foreign workers for domestic ones.
These twin facts -- the link between labor-market performance and opinions on globalization and
the recent absence of real income growth for so many Americans -- explain the recent rise in
protectionism. Several polls of U.S. public opinion show an alarming rise in protectionist
sentiment over the past several years. For example, an ongoing NBC News/Wall Street Journal
poll found that from December 1999 to March 2007, the share of respondents stating that trade
agreements have hurt the United States increased by 16 percentage points (to 46 percent) while
the "helped" share fell by 11 points (to just 28 percent). A 2000 Gallup poll found that 56 percent
of respondents saw trade as an opportunity and 36 percent saw it as a threat; by 2005, the
percentages had shifted to 44 percent and 49 percent, respectively. The March 2007 NBC
News/Wall Street Journal poll found negative assessments of open borders even among the
highly skilled: only 35 percent of respondents with a college or higher degree said they directly
benefited from the global economy.
Given the lack of recent real income growth for most Americans, newfound skepticism about
globalization is not without cause. Nor is it without effect: the change in public opinion is the
impetus for the protectionist drift in policy. Politicians have an incentive to propose and
implement protectionist policies because more citizens want them, and protectionist special
interests face an audience of policymakers more receptive to their lobbying efforts than at any
time in the last two decades.
INADEQUATE ADJUSTMENTS
Because the protectionist drift reflects the legitimate concerns of a now very large majority of
Americans, the policy debate needs fresh thinking. There is reason to worry even if one does not
care about social equity. When most workers do not see themselves as benefiting from the
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related forces of globalization and technology, the resulting protectionist drift may end up
eliminating the gains from globalization for everybody. Current ignorance about the exact causes
of the skewed income growth is not reason for inaction. Policymakers may not be able to attack
the exact source (or sources) and likely would not want to even if they could identify them,
because doing so could reduce or even eliminate the aggregate gains from globalization.
Supporters of globalization face a stark choice: shore up support for an open global system by
ensuring that a majority of workers benefit from it or accept that further liberalization is no longer
sustainable. Given the aggregate benefits of open borders, the preferable option is clear.
Current policy discussions addressing the distributional consequences of globalization typically
focus on the main U.S. government program for addressing the labor-market pressures of
globalization -- Trade Adjustment Assistance (TAA) -- and on investing more in education. These
ideas will help but are inadequate for the problem at hand.
The problem with TAA is that it incorrectly presumes that the key issue is transitions across jobs
for workers in trade-exposed industries. Established in the Trade Act of 1974 (with a related
component connected to the North American Free Trade Agreement), the program aids groups
of workers in certain industries who can credibly claim that increased imports have destroyed
their jobs or have reduced their work hours and wages. TAA-certified workers can access
supports including training, extended unemployment benefits while in full-time training, and jobsearch and relocation allowances.
In short, TAA is inappropriately designed to address the protectionist drift. The labor-market
concern driving this drift is not confined to the problem of how to reemploy particular workers in
particular sectors facing import competition. Because the pressures of globalization are spread
economy-wide via domestic labor-market competition, there is concern about income and job
security among workers employed in all sectors.
Today many are calling for reform and expansion of TAA. For example, President Bush has
proposed streamlining the processes of eligibility determination and assistance implementation to
facilitate reemployment. This year, TAA is due to be reauthorized by Congress, and many
legislators have proposed broadening the number of industries that are TAA-eligible. TAA
improvements like these are surely welcome. But they alone cannot arrest the protectionist drift.
The idea behind investing in education is that higher-skilled workers generally earn more and are
more likely to directly benefit from economic openness. The problem with this approach,
however, is that upgrading skills is a process that takes generations -- its effects will come far too
late to address today's opposition to globalization. It took 60 years for the United States to boost
the share of college graduates in the labor force from six percent (where it was at the end of
World War II) to about 33 percent (where it is today). And that required major government
programs, such as the GI Bill, and profound socioeconomic changes, such as increased female
labor-force participation.
If the United States today undertook the goal of boosting its college-graduate share of the work
force to 50 percent, the graduation of that median American worker would, if the rate of past
efforts are any indication, not come until about 2047. And even this far-off date might be too
optimistic. In the past generation, the rate of increase in the educational attainment of U.S.
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natives has slowed from its 1960s and 1970s pace, in part because college-completion rates
have stalled. Rising income inequality may itself be playing a role here. Since 1988, 74 percent
of American students at the 146 top U.S. colleges have come from the highest socioeconomic
quartile, compared with just 3 percent from the lowest quartile. Moreover, even college graduates
and holders of nonprofessional master's degrees have experienced falling mean real money
earnings since 2000. If this trend continues, even completing college will not assuage the
concerns behind rising protectionism.
GLOBALIZATION AND REDISTRIBUTION
Given the limitations of these two reforms and the need to provide a political foundation for
engagement with the world economy, the time has come for a New Deal for globalization -- one
that links trade and investment liberalization to a significant income redistribution that serves to
share globalization's gains more widely. Recall that $500 billion is a common estimate of the
annual income gain the United States enjoys today from earlier decades of trade and investment
liberalization and also of the additional annual income it would enjoy as a result global free trade
in goods and services. These aggregate gains, past and prospective, are immense and therefore
immensely important to secure. But the imbalance in recent income growth suggests that the
number of Americans not directly sharing in these aggregate gains may now be very large.
Truly expanding the political support for open borders requires a radical change in fiscal policy.
This does not, however, mean making the personal income tax more progressive, as is often
suggested. U.S. taxation of personal income is already quite progressive. Instead, policymakers
should remember that workers do not pay only income taxes; they also pay the FICA (Federal
Insurance Contributions Act) payroll tax for social insurance. This tax offers the best way to
redistribute income.
The payroll tax contains a Social Security portion and a Medicare portion, each of which is paid
half by the worker and half by the employer. The overall payroll tax is a flat tax of 15.3 percent on
the first $94,200 of gross income for every worker, with an ongoing 2.9 percent flat tax for the
Medicare portion beyond that. Because it is a flat-rate tax on a (largely) capped base, it is a
regressive tax -- that is, it tends to reinforce rather than offset pretax inequality. At $760 billion in
2005, the regressive payroll tax was nearly as big as the progressive income tax ($1.1 trillion).
Because it is large and regressive, the payroll tax is an obvious candidate for meaningful income
redistribution linked to globalization.
A New Deal for globalization would combine further trade and investment liberalization with
eliminating the full payroll tax for all workers earning below the national median. In 2005, the
median total money earnings of all workers was $32,140, and there were about 67 million
workers at or below this level. Assuming a mean labor income for this group of about $25,000,
these 67 million workers would receive a tax cut of about $3,800 each. Because the economic
burden of this tax falls largely on workers, this tax cut would be a direct gain in after-tax real
income for them. With a total price tag of about $256 billion, the proposal could be paid for by
raising the cap of $94,200, raising payroll tax rates (for progressivity, rates could escalate as they
do with the income tax), or some combination of the two. This is, of course, only an outline of the
needed policy reform, and there would be many implementation details to address. For example,
rather than a single on-off point for this tax cut, a phase-in of it (like with the earned-income tax
credit) would avoid incentive-distorting jumps in effective tax rates.
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This may sound like a radical proposal. But keep in mind the figure of $500 billion: the annual
U.S. income gain from trade and investment liberalization to date and the additional U.S. gain a
successful Doha Round could deliver. Redistribution on this scale may be required to overcome
the labor-market concerns driving the protectionist drift. Determining the right scale and structure
of redistribution requires a thoughtful national discussion among all stakeholders. Policymakers
must also consider how exactly to link such redistribution to further liberalization. But this should
not obscure the essential idea: to be politically viable, efforts for further trade and investment
liberalization will need to be explicitly linked to fundamental fiscal reform aimed at distributing
globalization's aggregate gains more broadly.
SAVING GLOBALIZATION
Averting a protectionist backlash is in the economic and security interests of the United States.
Globalization has generated -- and can continue to generate -- substantial benefits for the United
States and the rest of the world. But realizing those broad benefits will require addressing the
legitimate concerns of U.S. voters by instituting a New Deal for globalization.
In many ways, today's protectionist drift is similar to the challenges faced by the architect of the
original New Deal. In August 1934, President Franklin Roosevelt declared:
Those who would measure confidence in this country in the future must look first to the average
citizen. . . .
This Government intends no injury to honest business. The processes we follow in seeking social
justice do not, in adding to general prosperity, take from one and give to another. In this modern
world, the spreading out of opportunity ought not to consist of robbing Peter to pay Paul. In other
words, we are concerned with more than mere subtraction and addition. We are concerned with
multiplication also -- multiplication of wealth through cooperative action, wealth in which all can
share.
Today, such multiplication will depend on striking a delicate balance -- between allowing globally
engaged companies to continue to generate large overall gains for the United States and using
well-targeted fiscal mechanisms to spread the gains more widely.
Would addressing concerns about income distribution make voters more likely to support open
borders? The public-opinion data suggest that the answer is yes. Americans consistently say that
they would be more inclined to back trade and investment liberalization if it were linked to more
support for those hurt in the process. The policy experience of other countries confirms this point:
there is greater support for engagement with the world economy in countries that spend more on
programs for dislocated workers.
U.S. policymakers face a clear choice. They can lead the nation down the dangerous path of
creeping protectionism. Or they can build a stable foundation for U.S. engagement with the world
economy by sharing the gains widely. A New Deal for globalization can ensure that globalization
survives.
Copyright © 2016 by the Council on Foreign Relations, Inc.
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E P I BR I EFING PAPER
E C O N O M I C P O L I C Y I N S T I T U T E • A U G U S T 2 3 , 2 0 1 2 • B R I E F I N G PA P E R # 3 4 5
THE CHINA TOLL
Growing U.S. trade deficit with China
cost more than 2.7 million jobs
between 2001 and 2011, with job
losses in every state
BY ROBERT E. SCOT T
S
ince 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.
ECONOMIC POLICY INSTITUTE • 1333 H STREET, NW • SUITE 300, EAST TOWER • WASHINGTON, DC 20005 • 202.775.8810 • WWW.EPI.ORG
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.
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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 perPAGE 2
cent), 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 located 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.
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Introduction: High expectations
attended China’s entry into
the WTO
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 the
PAGE 3
WTO “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).
the United States’ widening trade deficit with China is
costing U.S. jobs.
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.
A major cause of the rapidly growing U.S. trade deficit
with China is currency manipulation. Unlike other currencies, the Chinese yuan does not fluctuate freely against
the dollar.2 Instead, China has tightly pegged its currency
to the U.S. dollar at a rate that encourages a large bilateral
trade surplus with the United States.
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;
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Currency manipulation is a major
cause of the trade deficit
As China’s productivity has soared, its currency should
have adjusted, increasing in value to maintain balanced
trade. But the yuan has instead remained artificially low as
China has aggressively acquired dollars and other foreign
exchange reserves to further depress the value of its own
currency. (To depress the value of its own currency, a government can sell its own currency and buy government
securities such as U.S. Treasury bills, which increases its
foreign reserves.) China had to purchase $337 billion in
U.S. Treasury bills and other securities between December 2010 and December 2011 alone to maintain the peg
to the U.S. dollar (International Monetary Fund 2012a).
As of June 30, 2012, China held a total of $3.24 trillion in
foreign exchange reserves (Bloomberg News 2012), about
70 percent of which were held in U.S. dollars. This intervention makes the yuan artificially cheap relative to the
dollar, effectively subsidizing Chinese exports.
Although the yuan has appreciated significantly since
2005, economist H.W. Brock (2012) estimates that the
Chinese currency is still massively undervalued, and is
“arguably one-sixth of what it should be” (Miller 2012).3
New research by Joe Gagnon (2012, 3) estimates that
massive currency manipulation, especially by countries in
Asia, has raised “the current account of the developing
economies by roughly $700 billion [per year], relative to
what it would have been.” Gagnon also notes that this
“amount is roughly equivalent to the large output gaps
in the United States and euro area. In other words, milPAGE 4
lions more Americans and Europeans would be employed
if other countries did not manipulate their currencies…”
(Gagnon 2012, 1). China is the single most important
currency manipulator, based on both its massive currency
intervention over the past decade and its share of global
current account surpluses.4 Currency intervention artificially raises the cost of U.S. exports to China and the
rest of the world by a similar amount, making U.S. goods
less competitive in that country and in every country
where U.S. exports compete with Chinese goods. This
is because China is the most important competitor for
the United States in all other third country markets, even
more important than Germany and all other members of
the European Union combined.
China’s currency manipulation has compelled other countries to follow similar policies in order to protect their relative competitiveness and to promote their own exports.
Widespread currency manipulation has also contributed
to the growth of very large global current account imbalances (a country’s current account balance is the broadest
measure of its trade balance; there are currently many
countries with large surpluses or deficits). Gagnon recommends that the rules of the WTO be changed to allow
countries to impose tariffs on imports from currency
manipulators. Since changing the rules of the WTO
requires unanimous consent of all members, Gagnon
observes that “the main targets of currency manipulation—the United States and euro area—may have to play
tough. One strategy would be to tax or otherwise restrict
purchases of U.S. and euro area financial assets by currency manipulators” (Gagnon 2012, 1). Such financial
taxes would be “consistent with international law”
(Gagnon 2011).
A recent report showed that full revaluation of the yuan
and other undervalued Asian currencies would improve
the U.S. current account balance by up to $190.5 billion,
thereby increasing U.S. GDP by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing
the federal budget deficit by up to $857 billion over 10
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years (Scott 2011a). Revaluation would also help workers in China and other Asian countries by reducing inflationary overheating and increasing workers’ purchasing power.
It would also benefit other countries. The undervaluation
of the yuan has put the burden of global current account
realignment pressures on other countries such as Australia, New Zealand, South Africa, and Brazil, along with
members of the euro area, whose currencies have also
become overvalued with respect to those of China and
other currency manipulators.
Policy remedies available to
address currency manipulation
A growing number of economists, workers, members of
Congress, businesses, and communities are calling for
increased action on currency manipulation. The RyanMurphy Currency Reform for Fair Trade Act (H.R. 2378)
was approved by the House of Representatives on September 29, 2010 (OpenCongress.org 2012), near the end of
the 111th Congress.5 It received an 80 percent approval
margin, with a vote of 348–79, with six abstentions. In
the 112th Congress, the Senate passed a similar bill, the
Currency Exchange Rate Oversight Reform Act of 2011
(S. 1619), authored by Sen. Sherrod Brown (D-Ohio),
by a margin of 63–25 (Thomas 2012). A similar measure
was introduced in the House in 2011 by Rep. Sander
Levin with 234 cosponsors, but it is being held up by the
House leadership. These bills would revise the Tariff Act
of 1930 to include a “countervailable subsidy” that would
allow tariffs to be imposed on some imports from countries with a “fundamentally undervalued currency.” There
is strong bipartisan support for such legislation in Congress.
Recently, a number of economists have condemned currency manipulation and developed innovative policy proposals for combating it. Paul Krugman has denounced
China for its “predatory” trade policies (Krugman 2010).
Fred Bergsten has described China’s currency intervention
PAGE 5
as the “largest protection measure adopted by any country
since the Second World War—and probably in all of history” (Palmer 2011). Joseph Gagnon and Gary Hufbauer
(2011) have developed a proposal for taxing Chinese
assets in the United States. They recommend withholding
a share of the proceeds of interest payments on U.S. Treasury securities held by China’s central bank. There are two
problems with this proposal. First, since interest rates on
U.S. securities are very low at present, a tax would have
little impact on China. But the fundamental problem is
that China is not holding and purchasing U.S. assets (at a
rate of about $1 billion per day) to earn interest on these
investments; these purchases are made simply to suppress
the value of the Chinese yuan.
Daniel Gros (2010) has developed an innovative, alternative proposal that goes directly to the mechanism of
currency manipulation. He recommends that the United
States, Japan, and European countries “invoke the
[WTO] principle of reciprocity and declare that they will
limit sales of public debt henceforth to only include official institutions from countries in which they, themselves,
are allowed to buy and hold public debt.” Since China
maintains strict capital controls, other central banks are
not allowed to buy or hold Chinese debt (which is in
part why China is able to manipulate the value of its currency). Gros would simply outlaw Chinese purchases of
U.S. debt. Gros (2010) asserts, “No reputable financial
institution would dare to become a hidden intermediary
for the Chinese…as it would have to certify to the U.S.
authorities that the beneficial owner is not from a country
in which foreigners cannot buy and hold public debt.”
Gros notes that this form of capital control is “perfectly
legal” under IMF rules because, “in contrast to the area of
trade, there are no legal constraints on the impositions of
capital controls.” 6
Gagnon (2011) estimates that many developing countries
are manipulating their currencies. IMF data show that
foreign central banks are spending about $1.2 trillion per
year buying foreign exchange reserves, with China mak-
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ing about half the purchases (according to the author’s
analysis of IMF 2012a). These figures exclude sovereign
wealth funds (SWFs), which many countries use to make
investments in other countries; although Gagnon
acknowledges that “foreign investment by SWFs clearly is
currency manipulation,” he excludes it from his calculations “for now” (Gagnon 2012, 4). Gagnon (2011) estimates that U.S. net exports are $400 billion lower than they
would be without currency manipulation, a figure that
would support three million or more jobs per year.
Other illegal laws, regulations,
and policies are also responsible
for the large U.S. trade deficit
with China
Currency manipulation is one practice that violates the
rules of the international trading system set out in the
GATT and WTO agreements (Stewart and Drake 2010).
Other Chinese government policies also illegally encourage exports. China extensively suppresses labor rights,
which lowers production costs within China. An AFLCIO study estimated that repression of labor rights by the
Chinese government has lowered manufacturing wages
of Chinese workers by 47 percent to 86 percent (AFLCIO, Cardin, and Smith 2006, 138). China also provides
massive direct export subsidies to many key industries
(see, for example, Haley 2008, 2009, 2012). Finally, it
maintains strict, non-tariff barriers to imports. As a result,
China’s $398.5 billion of exports to the United States in
2011 were more than four times greater than U.S. exports
to China, which totaled only $96.9 billion (Table 1),
making the China trade relationship the United States’
most imbalanced by far.
Partly because the agreement accepting China into the
WTO failed to include any protections to maintain or
improve labor or environmental standards, China’s entry
has further tilted the international economic playing field
against U.S. domestic workers and firms and in favor
of multinational companies from the United States and
PAGE 6
TA B L E 1
U.S.-China trade and job displacement, 2001–2011
CHANGE ($BILLIONS)
2001
2008
2011
2001–2011
2008–2011
PERCENT
CHANGE
2001–2011
U.S. trade with China ($billions, nominal)
U.S. domestic exports*
18.0
67.2
96.9
78.9
29.7
439.6%
U.S. imports for consumption
102.1
337.5
398.5
296.4
61.0
290.4%
U.S. trade balance
-84.1
-270.3
-301.6
-217.5
-31.2
258.5%
-21.7
-10.4
13.6%
Average annual change in the trade
balance
CHANGE (THOUSANDS OF
JOBS)
PERCENT
CHANGE
U.S. trade-related jobs supported and displaced (thousands of jobs)
U.S. domestic exports-jobs
supported
169.4
547.9
707.4
538.0
159.5
317.7%
U.S. imports for consumption-jobs
displaced
1,139.5
3,598.1
4,419.7
3,280.2
821.6
287.9%
U.S. trade deficit-net jobs displaced
970.1
3,050.2
3,712.3
2,742.2
662.1
282.7%
274.2
220.7
14.4%
Average annual change in net jobs
displaced
* Domestic exports are goods produced in the United States and exclude re-exports, i.e., goods produced in other countries and
shipped through the United States. Total exports as reported by the U.S. International Trade Commission include re-exports.
Total exports were estimated to be $103.9 billion in 2011, and U.S. re-exports to China represent 6.72% of total exports. The
employment estimates shown here are based on domestic exports only. See endnotes nine and 10 for additional details.
Source: Author’s analysis of U.S. Census Bureau (2009), U.S. International Trade Commission (2012), and Bureau of Labor Statistics Office of Employment Projections (2011a and 2011b). For a more detailed explanation of data sources and computations, see
the Appendix.
other countries, as well as state- and privately owned
exporters in China. This shift has accelerated the global
“race to the bottom” in wages and environmental quality
and closed thousands of U.S. factories, decimating
employment in a wide range of communities, states, and
entire regions of the United States. U.S. national interests
have suffered while U.S. multinationals have enjoyed
record profits on their foreign direct investments (Scott
2007, 2011b).
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Some actions have recently been taken in response. In
September 2009, the Obama administration announced
that it would take action to restrict imports of Chinese
tires for three years under the special safeguard measures,
the first time since 2001 that these measures had
been utilized.
In September 2010, the United Steelworkers (USW) filed
a Section 301 petition with the U.S. Trade Representative, accusing China of illegally stimulating and protecting producers of green technology exports, ranging from
PAGE 7
wind and solar energy products to advanced batteries and
energy-efficient vehicles. Indeed, the U.S. trade deficit in
clean energy products had more than doubled between
2008 and 2010, displacing more than 8,000 U.S. jobs in
2010 alone (Scott 2010). The 2010 USW petition details
more than 80 Chinese laws, regulations, and practices
that violate international trade agreements and have hurt
U.S. clean energy manufacturing and green technology
industries.
In July 2012, the Obama administration filed a WTO
complaint against China over its tariffs on large vehicles
exported from the United States to China. This was the
seventh complaint filed by the administration against
China, and the previous six have all been successful
(Scott 2012).
Another crucial missing link:
Foreign direct investment and
outsourcing
Proponents of trade deals such as the agreement to
endorse China’s admission to the World Trade Organization usually focus on the impacts of these deals on tariff
and non-tariff barriers to trade.7 China agreed to make
major tariff reductions as a condition of entry into the
WTO. President Clinton and many others argued that
since U.S. tariff barriers were already low, the agreement
would have a much larger effect on U.S. exports to China
than on U.S. imports.
But proponents failed to consider the effect of China’s
entry on foreign direct investment (FDI) and outsourcing. FDI has played a key role in the growth of
China’s manufacturing sector. China is the largest recipient of FDI of all developing countries (Xing 2010) and
is the third-largest recipient of FDI over the past three
decades, trailing only the United States and the United
Kingdom. Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for
52.4 percent of China’s exports and 84.1 percent of its
trade surplus in 2011 (Ministry of Commerce, China
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
2012). Outsourcing—through foreign direct investment
in factories that make goods for export to the United
States—has played a key role in the shift of manufacturing
production and jobs from the United States to China
since it entered the WTO in 2001. Foreign invested
enterprises were responsible for the vast majority of
China’s global trade surplus in 2011.
Failed expectations of a growing
Chinese market for U.S. goods
Another critically important promise made by the promoters of liberalized U.S.-China trade was that the
United States would benefit because of increased exports
to a large and growing consumer market in China.
However, despite widespread reports of the rapid growth
of the Chinese middle class, this growth has not resulted
in a significant increase in U.S. consumer exports to
China. The most rapidly growing exports to China are
bulk commodities such as grains, scrap, and chemicals;
intermediate products such as semiconductors; and producer durables such as aircraft and non-electrical
machinery (see the discussion of Table 2 later in this
paper, and Supplemental Table C to this report at
http://www.epi.org/publication/bp345-china-growingtrade-deficit-cost/). Furthermore, the increase in U.S.
exports to China since 2001 has been overwhelmed by the
growth of U.S. imports, as discussed next.
Trade-distorting policies and
unplanned-for investment shifts
have combined to radically
increase China’s share of the U.S.
trade deficit
The bottom line of the influences discussed above is this:
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 increase in foreign
direct investment in China and related growth of its man-
PAGE 8
ufacturing sector, and the absence of a growing market
for U.S. consumer goods in China, the U.S. trade deficit
with China rose from $84.1 billion in 2001 to $301.6 billion in 2011, an increase of $217.5 billion, as shown in
Table 1. Since China entered the WTO in 2001, this deficit has increased annually by $21.7 billion, or 13.6 percent, on average.
Despite the collapse in world trade between 2008 and
2009 caused by the Great Recession, the U.S. trade deficit
with China increased $31.2 billion between 2008 and
2011. China’s share of the overall U.S. trade deficit
increased from 32.6 percent to 40.8 percent, and its share
of the total U.S. non-oil trade deficit jumped from 69.6
percent in 2008 to 77.7 percent in 2011 (according to
the author’s analysis of U.S. International Trade Commission 2012).
Unless China raises the real value of the yuan by at least
a third and eliminates these other trade distortions, the
U.S. trade deficit and related job losses will continue to
grow rapidly. (Although China did respond to international pressure in the late 2000s and allowed some appre-
ciation in the yuan, it was too little and too late to help
arrest the widening U.S.-China trade gap.8)
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
Trade and employment models
The Economic Policy Institute and other researchers have examined the job impacts of trade in recent years
by netting the job opportunities lost to imports against those gained through exports. This report uses standard input-output models and data to estimate the jobs displaced by trade. Many reports by economists in the
public and private sectors have used an “all-but-identical” methodology to estimate jobs gained or displaced
by trade, including Groshen, Hobijn, and McConnell (2005) of the Federal Reserve Bank of New York, and
Bailey and Lawrence (2004) in the Brookings Papers on Economic Activity. The U.S. Department of Commerce recently published estimates of the jobs supported by U.S. exports (Tschetter 2010). That study used
input-output and “employment requirements” tables from the Bureau of Labor Statistics Office of Employment Projections (2011a), the same source used to develop job displacement estimates in this report. The
Tschetter report represents the work of a panel of experts from 20 federal agencies, including Mark Doms,
chief economist at the U.S. Department of Commerce, and David Walters, chief economist at the Office of
the U.S. Trade Representative.
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PAGE 9
of which are in the manufacturing sector (see the box
placed increased by 21.7 percent. Meanwhile, the U.S.
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.
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.
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 disE PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
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).
Trade and jobs, by industry
The composition of imports from China is changing in
fundamental ways, with serious implications for certain
kinds of high-skill, high-wage jobs once thought to be
the hallmark of the U.S. economy. China is moving rapidly “upscale,” from low-tech, low-skilled, labor-intensive
industries such as apparel, footwear, and basic electronics
to more capital- and skills-intensive sectors such as computers, electrical machinery, and motor vehicle parts. It
has also developed a rapidly growing trade surplus in
high-technology products.
PAGE 10
FIGURE A
Cumulative U.S. jobs displaced by growing trade deficits with China since 2001
Source: Author’s analysis of U.S. Census Bureau (2009), U.S. International Trade Commission (2012), and Bureau of Labor Statistics Office of Employment Projections (2011a and 2011b). For a more detailed explanation of data sources and computations, see
the Appendix.
From 2001 to 2011, imports from China increased dramatically, rising from $102.1 billion in 2001 to $398.5
billion in 2011, as shown in Table 1.10 Table 2 provides
a snapshot of the changes in goods trade flows between
2001 and 2011, by sector, for exports, imports, and the
trade balance. The rapid growth of the bilateral trade deficit in computer and electronic products (including computers, parts, semiconductors, and audio-video equipment) accounted for more than 54.9 percent of the
$217.5 billion increase in the U.S. trade deficit with
China between 2001 and 2011. 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
(trade flows by industry in 2001 and 2011 are shown in
Supplemental Table C, available at http://www.epi.org/
publication/bp345-china-growing-trade-deficit-cost/).
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
Table 2 shows that the growth in manufactured imports
explained 99.2 percent of total growth in imports from
China between 2001 and 2011, and included a wide
array of products. Computer and electronic products were
responsible for 42.1 percent of the growth in imports in
this period, including computer equipment ($60.2 billion, or 20.3 percent of the overall growth in imports)
and communications, audio, and video equipment ($46.4
billion, 15.6 percent). Other major importing sectors
included apparel ($23.8 billion, 8.0 percent) and miscellaneous manufactured commodities ($22.7 billion,
7.7 percent).
U.S. exports to China rose rapidly from 2001 to 2011,
but from a much smaller base, from $18.0 billion in 2001
to $96.9 billion in 2011 (as depicted in Table 1). As Table
2 shows, manufacturing was the top industry exportPAGE 11
TA B L E 2
Change in U.S. trade with China, by industry, 2001–2011
IMPORTS
Industry*
Change
($billions)
EXPORTS
Share of
total
change
Change
($billions)
TRADE BALANCE
Share of
total
change
Change
($billions)
Share of
total
change
Agriculture, forestry, fisheries
2.2
0.7%
15.8
20.0%
13.7
-6.3%
Mining
0.0
0.0%
2.5
3.1%
2.5
-1.1%
-0.1
0.0%
0.1
0.1%
0.1
-0.1%
0.0
0.0%
2.4
3.1%
2.4
-1.1%
294.1
99.2%
50.2
63.5%
-243.9
112.2%
46.6
15.7%
3.7
4.7%
-42.9
19.7%
Food and kindred products
2.8
0.9%
2.6
3.3%
-0.2
0.1%
Beverage and tobacco products
0.0
0.0%
0.4
0.5%
0.4
-0.2%
Textile mills and textile product
mills
8.3
2.8%
0.4
0.5%
-7.9
3.6%
Apparel and accessories
23.8
8.0%
0.0
0.0%
-23.8
11.0%
Leather and allied products
11.6
3.9%
0.2
0.3%
-11.4
5.2%
Industrial supplies
29.1
9.8%
16.4
20.8%
-12.8
5.9%
Wood products
1.9
0.6%
0.7
0.9%
-1.2
0.5%
Paper
2.2
0.8%
2.1
2.6%
-0.2
0.1%
Printed matter and related
products
1.5
0.5%
0.1
0.2%
-1.4
0.7%
Petroleum and coal products
0.0
0.0%
1.0
1.2%
1.0
-0.4%
10.8
3.6%
11.1
14.0%
0.3
-0.1%
Plastics and rubber products
9.2
3.1%
1.0
1.3%
-8.2
3.8%
Nonmetallic mineral products
3.5
1.2%
0.4
0.5%
-3.1
1.4%
Durable goods
218.3
73.7%
30.1
38.1%
-188.3
86.6%
Primary metal
3.4
1.2%
2.3
2.9%
-1.1
0.5%
Fabricated metal products
12.7
4.3%
1.4
1.8%
-11.2
5.2%
Machinery, except electrical
16.8
5.7%
7.9
10.0%
-9.0
4.1%
Computer and electronic
products
124.9
42.1%
5.4
6.8%
-119.5
54.9%
Computer and
peripheral equipment
60.2
20.3%
-0.2
-0.2%
-60.4
27.8%
Communications, audio, and
video equipment
46.4
15.6%
-0.2
-0.3%
-46.6
21.4%
Oil and gas
Minerals and ores
Manufacturing
Nondurable goods
Chemicals
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PAGE 12
TA B L E 2 ( C O N T I N U E D )
IMPORTS
Industry*
Change
($billions)
Navigational, measuring,
electromedical, and control
instruments
EXPORTS
Share of
total
change
Change
($billions)
TRADE BALANCE
Share of
total
change
Change
($billions)
Share of
total
change
3.9
1.3%
3.1
3.9%
-0.8
0.4%
14.3
4.8%
2.7
3.4%
-11.6
5.4%
Electrical equipment, appliances, and components
18.8
6.3%
1.3
1.6%
-17.5
8.1%
Transportation equipment
9.0
3.0%
9.9
12.5%
0.9
-0.4%
Motor vehicles and parts
7.7
2.6%
6.0
7.6%
-1.7
0.8%
Aerospace products and parts
0.5
0.2%
3.8
4.8%
3.2
-1.5%
Railroad, ship, and other transportation equipment
0.7
0.2%
0.1
0.2%
-0.6
0.3%
Furniture and fixtures
10.1
3.4%
0.1
0.1%
-10.0
4.6%
Miscellaneous manufactured
commodities
22.7
7.7%
1.8
2.3%
-20.9
9.6%
Information**
0.0
0.0%
0.1
0.1%
0.1
0.0%
Scrap and second-hand goods
0.2
0.1%
10.4
13.2%
10.2
-4.7%
Subtotal change, non-oil goods
296.5
100.0%
77.9
98.7%
-218.6
100.5%
Total change
296.4
100.0%
78.9
100.0%
-217.5
100.0%
Semiconductor and other electronic components, and magnetic and storage media
* Excludes utilities, construction, and service sectors, which do not have trade in these data.
** Includes publishing industries (excluding Internet); goods trade in this sector is concentrated in NAICS 5111, Newspaper, periodical, book, and directory publishers.
Source: Author’s analysis of U.S. International Trade Commission (2012). For a more detailed explanation of the data sources and
computations, see the Appendix.
ing to China—63.5 percent of the growth in exports
to China between 2001 and 2011 was in manufactured
goods, totaling $50.2 billion. Within manufacturing, key
export-growth sectors included chemicals ($11.1 billion,
or 14.0 percent of the growth in exports), aerospace
products and parts ($3.8 billion, 4.8 percent), machinery
($7.9 billion, 10.0 percent), and motor vehicles and parts
($6.0 billion, 7.6 percent). Scrap and second-hand goods
industries (which support no jobs, according to
BLS–OEP 2011a models11) accounted for 13.2 percent
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
($10.4 billion) of the growth in exports. Agricultural
exports, which were dominated by corn, soybeans, and
other cash grains, grew faster than any individual manufacturing sector, increasing $15.8 billion (20.0 percent
of the total increase) between 2001 and 2011. Nonetheless, the overall scale of U.S. exports to China in 2011
was dwarfed by imports from China in that year, which
exceeded the value of exports by more than 4 to 1.
The data reflect China’s rapid expansion into highervalue-added commodities once considered strengths of
PAGE 13
the United States, such as computer and electronic
products, which accounted for 37.4 percent ($149.2 billion) of U.S. imports from China in 2011. This growth
is apparent in the shifting trade balance in advanced technology products (ATP), a broad category of high-end
technology goods trade tracked by the U.S. Census Bureau.12 ATP includes the more advanced elements of the
computer and electronic products industry as well as
other sectors such as biotechnology, life sciences,
aerospace, nuclear technology, and flexible manufacturing. The ATP sector includes some auto parts; China
is now one of the top suppliers of auto parts to the
United States, having recently surpassed Germany (Scott
and Wething 2012).
In 2011, the United States had a $109.4 billion trade deficit with China in ATP, reflecting a nine-fold increase from
$11.8 billion in 2002. This ATP deficit was responsible
for 36.3 percent of the total U.S.-China trade deficit in
2011. It dwarfs the $9.7 billion surplus in ATP that the
United States had with the rest of the world in 2011,
the result of a 5.1 percent annual increase in U.S. ATP
exports to the rest of the world between 2002 and 2011.
As a result of the U.S. ATP deficit with China, the United
States ran an overall deficit in ATP products in 2011 (of
$99.6 billion), as it has in every year since 2002 (U.S.
Census Bureau 2012c).
Trade deficits are highly correlated with job loss or displacement by industry, as shown in Table 3. Growing
trade deficits with China eliminated 2,109,700 manufacturing jobs between 2001 and 2011, more than threequarters (76.9 percent) of the total. By far the largest job
displacements occurred in the computer and electronic
products sector, which lost 1,064,800 jobs (38.8 percent of the more than 2.7 million jobs displaced overall).
This sector includes computer and peripheral equipment
(620,700 jobs, 22.6 percent of the overall jobs displaced),
semiconductors and components (235,000 jobs, 8.6 percent), and communications, audio, and video equipment
(203,500 jobs, 7.4 percent). Other hard-hit sectors
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
included apparel and accessories (211,200 jobs displaced,
equal to 7.7 percent of the total), textile mills and textile
product mills (106,200, 3.9 percent), fabricated metal
products (120,600, 4.4 percent), furniture and fixtures
(80,700, 2.9 percent), plastics and rubber products
(57,600, 2.1 percent), motor vehicles and parts (19,800,
0.7 percent), and miscellaneous manufacturing (111,800
jobs, 4.1 percent). Several service industries, which
provide key inputs to traded-goods production, experienced significant job displacement, including administrative, support, and waste management services (160,600
jobs, 5.9 percent) and professional, scientific, and technical services (145,000 jobs, 5.3 percent).
These job displacement estimates are based on changes
in the real value of exports and imports. For example,
while the share of U.S. imports accounted for by computer and electronic products from China rose from 23.8
percent in 2001 to 37.4 percent in 2011 (to $149.2 billion), the average price indexes (deflators) for most of
these products fell sharply between 2001 and 2011—28.9
percent on a trade-weighted basis. Thus, the real value
of computer and electronic imports increased more than
10-fold in this period, rising from $19.5 billion to $198.5
billion in 2011 in constant 2005 dollars.13
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 CaliPAGE 14
TA B L E 3
Net jobs created (+) or displaced (-) by U.S. trade with China, by industry, 2001–2011
Industry
Industry
total*
Industry share of total jobs
displaced
Agriculture, forestry, fisheries
53,200
-1.9%
Mining
-1,000
0.0%
Oil and gas
-900
0.0%
Minerals and ores
-100
0.0%
Utilities
-10,600
0.4%
Construction
-15,400
0.6%
-2,109,700
76.9%
-396,300
14.5%
-7,200
0.3%
800
0.0%
Textile mills and textile product mills
-106,200
3.9%
Apparel and accessories
-211,200
7.7%
-72,500
2.6%
Industrial supplies
-153,300
5.6%
Wood products
-17,200
0.6%
Paper
-17,700
0.6%
Printed matter and related products
-16,400
0.6%
-500
0.0%
Chemicals
-19,000
0.7%
Plastics and rubber products
-57,600
2.1%
Nonmetallic mineral products
-24,900
0.9%
Durable goods
-1,560,100
56.9%
Primary metal
-35,900
1.3%
Fabricated metal products
-120,600
4.4%
Machinery, except electrical
-54,300
2.0%
-1,064,800
38.8%
Computer and peripheral equipment
-620,700
22.6%
Communications, audio, and video equipment
-203,500
7.4%
-5,500
0.2%
-235,000
8.6%
Manufacturing
Nondurable goods
Food and kindred products
Beverage and tobacco products
Leather and allied products
Petroleum and coal products
Computer and electronic products
Navigational, measuring, electromedical, and control instruments
Semiconductor and other electronic components, and magnetic and
optical media production
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PAGE 15
TA B L E 3 ( C O N T I N U E D )
Industry
total*
Industry
Industry share of total jobs
displaced
Electrical equipment, appliances, and components
-78,100
2.8%
Transportation equipment
-13,800
0.5%
Motor vehicles and parts
-19,800
0.7%
8,000
-0.3%
-2,000
0.1%
-80,700
2.9%
-111,800
4.1%
0
0.0%
Transportation
-76,500
2.8%
Information
-48,700
1.8%
Finance and insurance
-28,000
1.0%
Real estate and rental and leasing
-27,400
1.0%
-145,000
5.3%
-90,000
3.3%
-160,600
5.9%
-400
0.0%
1,800
-0.1%
Arts, entertainment, and recreation
-8,500
0.3%
Accommodation and food services
-41,500
1.5%
Other services
-29,900
1.1%
-4,100
0.1%
0
0.0%
-2,740,800
99.9%
-2,742,200
100.0%
Aerospace products and parts
Railroad, ship, and other transportation equipment
Furniture and fixtures
Miscellaneous manufactured commodities
Wholesale and retail trade
Professional, scientific, and technical services
Management of companies and enterprises
Administrative and support and waste management and remediation
services
Education services
Health care and social assistance
Government
Scrap and second-hand goods
Subtotal, non-oil goods
Total jobs created or displaced*
* Subcategory and category totals may not sum exactly due to rounding.
Source: Author’s analysis of U.S. Census Bureau (2009), U.S. International Trade Commission (2012), and Bureau of Labor Statistics Office of Employment Projections (2011a and 2011b). For a more detailed explanation of data sources and computations, see
the Appendix.
fornia, 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
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
trade deficits with China represented about 1.9 percent of
total U.S. employment (Table 4).
PAGE 16
TA B L E 4
Jobs displaced due to U.S. trade with China, by state, 2001–2011 (ranked by jobs
displaced as share of state employment)
Net jobs
displaced
Total state
employment*
20,400
694,200
2.94%
474,700
16,565,000
2.87%
Massachusetts
92,700
3,241,300
2.86%
Oregon
50,200
1,764,400
2.85%
110,300
4,133,000
2.67%
Minnesota
72,300
2,713,700
2.66%
Idaho
18,200
685,800
2.65%
Vermont
8,000
329,700
2.43%
Colorado
57,800
2,424,500
2.38%
239,600
10,602,400
2.26%
Rhode Island
11,800
526,500
2.24%
Alabama
43,900
1,996,000
2.20%
South Carolina
40,800
1,950,800
2.09%
Georgia
87,300
4,310,000
2.03%
Tennessee
56,100
2,778,500
2.02%
Wisconsin
54,600
2,849,100
1.92%
Kentucky
35,700
1,863,500
1.92%
Indiana
56,600
3,000,700
1.89%
Illinois
113,700
6,087,800
1.87%
Puerto Rico
22,200
1,199,900
1.85%
New Jersey
76,000
4,212,200
1.80%
158,800
8,954,600
1.77%
95,900
5,412,100
1.77%
Pennsylvania
101,200
5,825,400
1.74%
Connecticut
29,900
1,742,300
1.72%
Arizona
47,100
2,756,400
1.71%
Arkansas
20,500
1,237,400
1.66%
Washington
50,200
3,051,500
1.65%
Mississippi
19,700
1,201,700
1.64%
State
New Hampshire
California
North Carolina
Texas
New York
Ohio
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
Jobs displaced as share
of state employment
PAGE 17
TA B L E 4 ( C O N T I N U E D )
State
Net jobs
displaced
Total state
employment*
Utah
20,000
1,228,900
1.63%
Michigan
68,900
4,503,100
1.53%
Maine
10,000
656,400
1.52%
Virginia
52,700
3,739,700
1.41%
Missouri
38,700
2,774,000
1.40%
Maryland
37,800
2,827,400
1.34%
Iowa
20,300
1,530,400
1.33%
New Mexico
11,500
868,100
1.32%
5,300
407,600
1.30%
Florida
106,100
8,204,700
1.29%
Kansas
17,500
1,370,300
1.28%
Oklahoma
20,400
1,626,900
1.25%
Delaware
5,000
407,900
1.23%
Nebraska
10,600
908,100
1.17%
Nevada
13,200
1,206,800
1.09%
West Virginia
7,200
753,200
0.96%
District of Columbia
2,600
286,400
0.91%
15,300
1,872,100
0.82%
North Dakota
2,700
336,900
0.80%
Hawaii
4,300
605,800
0.71%
Montana
2,800
464,900
0.60%
Alaska
1,800
322,300
0.56%
Wyoming
1,500
268,800
0.56%
2,742,200
141,348,700
1.94%
South Dakota
Louisiana
Total**
Jobs displaced as share
of state employment
* Average state employment in 2005–2007. Analysis based on pooled, three-year time series data from the U.S. Census American
Community Survey, as described in the Appendix.
** Total may vary slightly due to rounding.
Source: Author’s analysis of U.S. Census Bureau (2009), U.S. International Trade Commission (2012), and Bureau of Labor Statistics Office of Employment Projections (2011a and 2011b). For a more detailed explanation of data sources and computations, see
the Appendix.
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
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with high-tech industries, such as California, Massachusetts, Oregon, Minnesota, Idaho, Colorado, and Texas,
and in manufacturing states, including New Hampshire,
PAGE 18
FIGURE B
Jobs displaced due to U.S. trade with China as a share of state employment, 2001–2011
Source: Author’s analysis of U.S. Census Bureau (2009), U.S. International Trade Commission (2012), and Bureau of Labor Statistics Office of Employment Projections (2011a and 2011b). For a more detailed explanation of data sources and computations, see
the Appendix.
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.
Job losses by
congressional district
This study also reports the employment impacts of growing trade deficits in every congressional district, including
the District of Columbia and Puerto Rico. (Data for all
435 districts plus the District of Columbia and Puerto
Rico are shown in Supplemental Tables A and B posted
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
online along with this report at http://www.epi.org/publication/bp345-china-growing-trade-deficit-cost/.)
Because the computer and electronic products industry
experienced the largest growth in trade deficits with
China, many of the hardest-hit congressional districts
were located in California, Texas, Oregon, Massachusetts,
Colorado, and Minnesota, where remaining jobs in that
industry are concentrated. Other states with hard-hit districts include North Carolina, Georgia, and Alabama,
which suffered considerable job displacement in a variety
of manufacturing industries.14
The top 20 hardest-hit congressional districts are shown
in Table 5. Seven were in California, four were in Texas,
PAGE 19
TA B L E 5
Top 20 congressional districts hardest-hit by U.S. trade deficits with China (ranked by
jobs displaced as share of district employment), 2001–2011
Jobs
displaced
District
employment*
Jobs displaced as
share of district
employment
Rank
District
1
California 15
44,700
324,600
13.77%
2
California 14
32,700
320,700
10.20%
3
California 16
29,000
303,700
9.55%
4
Texas 31
24,300
338,200
7.19%
5
California 13
20,200
313,900
6.44%
6
Texas 10
26,300
436,900
6.02%
7
Oregon 1
21,100
388,100
5.44%
8
Massachusetts 5
17,200
317,400
5.42%
9
California 31
14,600
291,600
5.01%
10
Massachusetts 3
15,500
322,800
4.80%
11
North Carolina 4
17,700
384,800
4.60%
12
California 34
12,000
262,800
4.57%
13
Texas 25
15,600
377,800
4.13%
14
Georgia 9
14,300
352,100
4.06%
15
California 50
13,600
344,500
3.95%
16
Colorado 4
13,800
352,500
3.91%
17
Minnesota 1
12,900
334,100
3.86%
18
North
Carolina 10
11,600
301,100
3.85%
19
Alabama 5
11,400
302,400
3.77%
20
Texas 3
15,600
418,300
3.73%
* Average congressional district employment in 2005–2007. Analysis based on pooled, three-year time series data from U.S.
Census American Community Survey, as described in the Appendix.
Source: Author’s analysis of U.S. Census Bureau (2009), U.S. International Trade Commission (2012), and Bureau of Labor Statistics Office of Employment Projections (2011a and 2011b). For a more detailed explanation of data sources and computations, see
the Appendix.
two were in North Carolina, two were in Massachusetts,
and one each was in Oregon, Georgia, Colorado, Minnesota, and Alabama. Each of these districts lost at least
11,400 jobs between 2001 and 2011, or more than 3.7
percent of its total jobs. These distributions reflect both
E PI BRIEFING PAPER # 345 | AU GU S T 23, 2012
the size of some states (e.g., California and Texas) and also
the concentration of the industries hardest-hit by growing China trade deficits, such as computer and electronic
products and other industries including furniture, textiles,
apparel, and durable goods manufacturing.
PAGE 20
The three hardest-hit congressional districts were all located in Silicon Valley in California, including the 15th
(Santa Clara County), the 14th (Palo Alto and nearby
cities), and the 16th (San Jose and other parts of Santa
Clara County).
Summing up trade’s overall
employment and wage impact
Growing trade deficits with China have clearly reduced
domestic employment in traded-goods industries, especially in the manufacturing sector, which has been
pummeled by plant closings and job losses. Workers from
the manufacturing sector displaced by trade have had particular difficulty securing comparable employment elsewhere in the economy. Many have not been reemployed,
and more than half of those reemployed have experienced
a decline in wages. One-third experienced a wage decline
of more than 20 percent, according to the most recent
Bureau of Labor Statistics survey covering workers displaced from January 2007 to December 2009 (BLS
2010). Nearly two-thirds (61.3 percent) of displaced
workers in manufacturing remained unemployed, including 16.7 percent who were not in the labor force. The
average wage decline for those who were reemployed was
17.5 percent (Farber 2011, 21). The lost output of unemployed workers, especially that of labor force dropouts,
can never be regained and is one of the largest costs of displacement to the economy as a whole.
Some economists and others have argued that job loss
numbers extrapolated from trade flows are uninformative
because aggregate employment levels in the United States
are set by a broad range of macroeconomic influences, not
just by trade flows.15 However, while the trade balance is
but one of many variables affecting aggregate job creation,
it plays a much larger role in explaining structural change
in employment, especially in the manufacturing sector.
Between December 2001 and December 2011, 3.9 million U.S. manufacturing jobs were lost (Bureau of Labor
Statistics 2012a). The growth of U.S. trade deficits with
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China was responsible for the displacement of more than
2.1 million manufacturing jobs in this period, or about
54 percent of manufacturing jobs lost.16
The employment impacts of trade identified in this paper
can be interpreted as the “all else equal” effect of trade on
domestic employment. The Federal Reserve, for example,
may decide to cut interest rates to make up for job losses
stemming from deteriorating trade balances (or any other
economic influence), leaving net employment
unchanged. This, however, does not change the fact that
trade deficits by themselves are a net drain on employment.
Many of the mechanisms that could offset employment
losses caused by growing trade deficits are not operating
in the current downturn. The Federal Reserve cannot cut
interest rates any further than it already has, and interestrate-sensitive industries such as residential construction
are not experiencing employment gains from lower rates.
In short, in today’s economy with its high unemployment
rate, jobs displaced due to trade deficits with China are
much more likely to be actual net, economy-wide losses
than simply job reallocations.
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.
PAGE 21
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.
Appendix
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).
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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
PAGE 22
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.
Estimation and data sources
Data requirements
Step 1. U.S.-China trade data were obtained from the
U.S. International Trade Commission DataWeb (U.S.
International Trade Commission 2012) in four-digit,
three-digit, and two-digit NAICS format. Consumption
imports and domestic exports are downloaded for
each year.
Step 2. To conform to the BLS Employment Requirements tables (BLS–OEP 2011a), trade data must be converted into the BLS industry classifications system. For
NAICS-based data, there are 195 BLS industries. The
data are then mapped from NAICS industries onto their
respective BLS sectors.
The trade data, which are in current dollars, are deflated
into real 2005 dollars using published price deflators from
the BLS–OEP (2011b) and the Bureau of Labor Statistics (2012b).
Step 3. Real domestic employment requirements tables
are downloaded from the BLS (2011a). These matrices
are input-output industry-by-industry tables that show
the employment requirements for $1 million in outputs
in 2005 dollars. So, for industry i the aij entry is the
employment indirectly supported in industry i by final
sales in industry j and where i=j, the employment directly
supported.
Analysis
Step 1. Job equivalents
BLS trade data are compiled into matrices. Let [T2001]
be the 195×2 matrix made up of a column of imports
and a column of exports for 2001. [T2011] is defined as
the 195×2 matrix of 2011 trade data. Finally, [T2008] is
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defined as the 195×2 matrix of 2008 trade data. Define
[E2001] as the 195×195 matrix consisting o...
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