Gains and Losses from Trade with China

A new analysis of this is available.  It supports that many people are works are hurt by trade with China.   These impacts are not just reduced wages, also some people dropping out of the labor market due to reduced opportunities.

It’s important to note this looks at the effects on labor only.  Low cost imports can and do benefit consumers, increase profits and benefit some laborers.

It is easy to show trade if beneficial, but while gains exceed loses.  There are losers, and for trade with China labor appears to be a loser overall.  the policy issue is how mitigate those loses since society as a whole is better off.

From the conclusion to a provocative paper by David Autor, David Dorn, and Gordon Hanson, entitled The China Syndrome: Local Labor Market Effects of Import Competition in the United States:

our study suggests that the rapid increase in U.S. imports of Chinese goods during the past two decades has had a substantial impact on employment and household incomes, benefits program enrollments, and transfer payments in local labor markets exposed to increased import competition. These e¤ects extend far outside the manufacturing sector, and they imply substantial changes in worker and household welfare.

…. The relationship between employment and (instrumented) import exposure is illustrated in Panel B of Figure 3.

Figure from Autor, Dorn, and Gordon (2011).

While there are losses along several dimensions (employment, wages, deadweight losses associated with transfers), there are also gains. Putting these together, the authors conclude:


Gains and Losses from Trade with China
Menzie Chinn
Tue, 05 Apr 2011 05:22:34 GMT


One response to “Gains and Losses from Trade with China

  1. Consumers benefit because, well, who wouldn’t benefit from having the functional equivalent of slave labor working to produce stuff for you? I think the real harm is seen in the current account deficit which grew to over 7% of GDP by 2007. It’s rising again after having been taken down to earth in the early days of the recession (but still significantly in negative territory). Ultimately I think our real problem is too much consumption and not enough production. I’m not sure what we should produce or where our comparative advantage lies, but ultimately you can’t keep consuming so much more than you produce.

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