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The China Syndrome: Local Labor Market Effects of Import Competition in the United States

How Do Increased Imports from China Impact America’s Regional Labor Markets?

Income Distribution, May 2012

A new study by David Autor, David Dorn, and Gordon Hanson explores the effect of rising Chinese import competition between 1990 and 2007 on local U.S. labor markets to reveal a large impact not only within the scope of manufacturing, but also on worker and household welfare.

While freer trade with coun­tries at any income lev­el may affect wages and employ­ment, trade the­o­ry iden­ti­fies low-wage coun­tries as a like­ly source of dis­rup­tion to high-wage labor mar­kets. In 1991, low-income coun­tries account­ed for just 2.9% of US man­u­fac­tur­ing imports. However, large­ly due to China’s spec­tac­u­lar growth, the sit­u­a­tion has changed marked­ly. In 2000, the low-income-coun­try share of U.S. imports reached 5.9% and climbed to 11.7% by 2007, with China account­ing for 91.5% of this import growth over the peri­od. The share of total U.S. spend­ing on Chinese goods rose from 0.6% in 1991 to 4.6% in 2007, with an inflec­tion in 2001 when China joined the World Trade Organization. Increased expo­sure to trade with China and oth­er devel­op­ing economies sug­gests that the labor mar­ket con­se­quences of trade may be larg­er today than 20 years ago.

The study finds that the val­ue of annu­al U.S. goods imports from China has increased by a stag­ger­ing 1,156% from 1991 to 2007. The rapid increase in U.S. expo­sure to trade with China and oth­er devel­op­ing economies over this peri­od sug­gests that the labor-mar­ket con­se­quences of trade may have increased con­sid­er­ably dur­ing the past 20 years. Previous research has stud­ied the effects of imports on man­u­fac­tur­ing firms or employ­ees of man­u­fac­tur­ing indus­tries. By ana­lyz­ing local labor mar­kets that are sub­ject to dif­fer­en­tial trade shocks accord­ing to ini­tial pat­terns of indus­try spe­cial­iza­tion, this paper extends the analy­sis of the con­se­quences of trade beyond wage and employ­ment changes in man­u­fac­tur­ing. Specifically, we relate changes in man­u­fac­tur­ing and non-man­u­fac­tur­ing employ­ment, earn­ings, and trans­fer pay­ments across U.S. local labor mar­kets to changes in mar­ket expo­sure to Chinese import competition.