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MMUNITY NEWS
The Implications of Trade
with China on U.S. Labor and
Wages: A New Perspective on a
Longstanding Debate
By the Stanford Center on China’s Economy and Institutions (SCCEI)
How has the explosive growth of China’s exports those U.S. businesses that directly compete with
after its accession to the WTO affected the Chinese imports — experience job losses. More
U.S. labor market? Studies published in the past specifically, they conclude that direct competition
have provided much-publicized evidence that U.S. with Chinese imports resulted in manufacturing
regions with greater exposure to China’s import sector job losses of, on average, 0.39% a year. This
competition experienced declines in employment figure rose to 0.63% when upstream exposure
and wages that persist to this day. However, a was also included. Both direct competition
new study adds to the debate by calculating how and upstream effects also produced a non-
cheaper intermediate inputs from China (such as manufacturing sector job loss of 1.34% a year.
laptops, printers, and office machine parts) have Taken together, the effects of direct competition
led to cost savings for U.S. firms, improving their and upstream exposure produced a reduction in
efficiency and adding to U.S. jobs. By calculating total employment of approximately 1.98%.
this broader “supply chain” effect, the researchers
of this study conclude that trading with China Downstream gains reverse U.S. employment
yielded a positive boost overall to employment and losses. The results of this study demonstrate,
real wages. however, that job losses from direct competition
and upstream exposure comprise only part of
The data. This study adds to previous research the “China shock” story. When the researchers
by explicitly introducing an analysis of imported incorporate the effects of intermediate goods
intermediate goods from China to assess their imports from China into downstream U.S. channels,
impact on the U.S. economy. In addition to they find strong evidence that the overall effect on
assessing the effects of direct import competition, U.S. employment is, in fact, positive. This positive
this research also: a) introduces measures that downstream effect, in other words, is greater
capture the “downstream” and “upstream” effects than the negative employment impact of direct
of imports from China; b) separates imported competition and upstream exposure combined.
intermediate inputs — i.e., imports used in the
production of final goods in the U.S. — from total In concrete terms, firms that use imported inputs
imports; and c) more precisely allocates imported from China (such as laptops, electronics, and
inputs from China across U.S. sectors. communications devices) include entities like
The researchers used the Inter-Country Input- research institutes, hospitals, and banks that go
Output tables from the OECD that detail supply beyond the manufacturing sector. Indeed, the
and demand contributions of countries and downstream channel produces large job gains in
sectors in global value chains from 1995 to 2014 the non-manufacturing sector (3.08% a year) and
to measure downstream and upstream exposures. even a small downstream increase in jobs in the
They also collected local employment microdata manufacturing sector (0.16%). When researchers
from the U.S. Census (1990–2000) and the
American Community Survey (ACS) provided by the
IPUMS-USA database (2001–2014), which they then
mapped onto each U.S. local labor market. The U.S.
Census and the ACS included information on each
respondent’s employment status, wage income,
gender, and educational attainment.
Direct competition and upstream channels Total employment effect of the China trade shock from all three
lead to employment losses. Researchers channels (% working age cohort; 722 commuting zones)
find that firms that do business in “upstream
channels” — i.e., companies that supply inputs to
31 AMCHAM SOUTH CHINA
The Implications of Trade
with China on U.S. Labor and
Wages: A New Perspective on a
Longstanding Debate
By the Stanford Center on China’s Economy and Institutions (SCCEI)
How has the explosive growth of China’s exports those U.S. businesses that directly compete with
after its accession to the WTO affected the Chinese imports — experience job losses. More
U.S. labor market? Studies published in the past specifically, they conclude that direct competition
have provided much-publicized evidence that U.S. with Chinese imports resulted in manufacturing
regions with greater exposure to China’s import sector job losses of, on average, 0.39% a year. This
competition experienced declines in employment figure rose to 0.63% when upstream exposure
and wages that persist to this day. However, a was also included. Both direct competition
new study adds to the debate by calculating how and upstream effects also produced a non-
cheaper intermediate inputs from China (such as manufacturing sector job loss of 1.34% a year.
laptops, printers, and office machine parts) have Taken together, the effects of direct competition
led to cost savings for U.S. firms, improving their and upstream exposure produced a reduction in
efficiency and adding to U.S. jobs. By calculating total employment of approximately 1.98%.
this broader “supply chain” effect, the researchers
of this study conclude that trading with China Downstream gains reverse U.S. employment
yielded a positive boost overall to employment and losses. The results of this study demonstrate,
real wages. however, that job losses from direct competition
and upstream exposure comprise only part of
The data. This study adds to previous research the “China shock” story. When the researchers
by explicitly introducing an analysis of imported incorporate the effects of intermediate goods
intermediate goods from China to assess their imports from China into downstream U.S. channels,
impact on the U.S. economy. In addition to they find strong evidence that the overall effect on
assessing the effects of direct import competition, U.S. employment is, in fact, positive. This positive
this research also: a) introduces measures that downstream effect, in other words, is greater
capture the “downstream” and “upstream” effects than the negative employment impact of direct
of imports from China; b) separates imported competition and upstream exposure combined.
intermediate inputs — i.e., imports used in the
production of final goods in the U.S. — from total In concrete terms, firms that use imported inputs
imports; and c) more precisely allocates imported from China (such as laptops, electronics, and
inputs from China across U.S. sectors. communications devices) include entities like
The researchers used the Inter-Country Input- research institutes, hospitals, and banks that go
Output tables from the OECD that detail supply beyond the manufacturing sector. Indeed, the
and demand contributions of countries and downstream channel produces large job gains in
sectors in global value chains from 1995 to 2014 the non-manufacturing sector (3.08% a year) and
to measure downstream and upstream exposures. even a small downstream increase in jobs in the
They also collected local employment microdata manufacturing sector (0.16%). When researchers
from the U.S. Census (1990–2000) and the
American Community Survey (ACS) provided by the
IPUMS-USA database (2001–2014), which they then
mapped onto each U.S. local labor market. The U.S.
Census and the ACS included information on each
respondent’s employment status, wage income,
gender, and educational attainment.
Direct competition and upstream channels Total employment effect of the China trade shock from all three
lead to employment losses. Researchers channels (% working age cohort; 722 commuting zones)
find that firms that do business in “upstream
channels” — i.e., companies that supply inputs to
31 AMCHAM SOUTH CHINA
