Who’s Afraid of the Dragon?”

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.”