Who’s Afraid of the Dragon?”

The Economist; October 15, 2011

SHOULD a free trader laugh or cry? On October 12th, Congress finally rat­i­fied long-stalled trade pacts with Colombia, Panama and South Korea. But the pre­vi­ous day the Senate threw down the gaunt­let to China. It passed, by a stonk­ingly bipar­ti­san mar­gin of 63-35, a bill that would autho­rise the Commerce Department to impose coun­ter­vail­ing tar­iffs on Chinese imports it deems to have ben­e­fited from an under­val­ued cur­rency. The bill is unlikely to pass in the House, but the vote is a sign that China-bashing, always pop­u­lar in Congress, has become more so as America’s job mar­ket has strug­gled…  The bill’s advo­cates, some of whom claim, implau­si­bly, that the yuan is as much as 40% under­val­ued, reckon dri­ving away Chinese imports will bring some of those jobs back. But are their claims jus­ti­fied? A new paper by three econ­o­mists: David Autor, David Dorn and Gordon Hanson, looks at the effects of ris­ing Chinese import com­pe­ti­tion on regional American labour mar­kets from 1990 to 2007. They find that regions whose man­u­fac­tur­ers had higher expo­sure to com­pe­ti­tion from Chinese imports saw higher over­all unem­ploy­ment, lower labour force par­tic­i­pa­tion and reduced wages. Every $1,000 of addi­tional Chinese import expo­sure in a region per worker low­ered the employ­ment rate by 0.77%, enough to add up to sev­eral per­cent­age points in the worst affected areas. Mr Autor says that more recent data cor­rob­o­rate these trends.”