Link between Chinese exports and US job losses isn't cut and dried

New academic research on jobshedding in the US manufacturing industry points to Chinese exports as a culprit, but other factors are at play

PUBLISHED : Wednesday, 03 September, 2014, 11:48am
UPDATED : Thursday, 04 September, 2014, 1:01am

Is China to blame for unemployment in the United States? A recent study by five prominent US economists found that the US lost between two million and 2.4 million manufacturing jobs to increased imports from China between 1999 and 2011.

The analysis leading to this conclusion distinguishes between the direct and indirect effects of rises in China's manufactured exports on US manufacturing jobs.

The indirect effects are upstream and downstream net job losses in other industries.

The US lost 5.8 million manufacturing jobs from 1999 to 2011. China's share of US manufactured imports over the period was about 15 per cent, up from less than 10 per cent in 1999 to 23 per cent in 2011.

Relations between China and the United States should not be viewed as a zero-sum game

Given the structure of Chinese imports, the authors calculate that the US lost 560,000 jobs to Chinese exports during the period, or a little less than 10 per cent of the 5.8 million.

Those were the direct losses.

The indirect knock-on effects within the economy caused the loss of a further 1.4 to 1.8 million jobs. Besides the estimated Chinese footprint, we are told nothing about other indirect job losses.

Who else was responsible? A positive correlation exists between import expansion from China and that from other trading partners.

The debate around what Chinese dynamism has done to US economic prospects is not new.

Assuming that scholarly works do not set out to bash China - as this one seemingly does not - they can nevertheless provide grist to that mill.

The analysis has ignored US exports to China. Positive employment effects in manufacturing (and elsewhere) were certainly generated through this channel. Why else would US President Barack Obama have made a pledge to double exports?

The authors say in a footnote that they have ignored exports because of data challenges. They also say their analytical construction cannot predict the job benefits.

The import numbers used for the study rely on gross flows rather than looking at where value is added in geographical terms.

China imports a lot of intermediate goods that go into its exports.

But when measuring trade in gross terms, they are all recorded as US imports from China, including some US exports to China. By this reckoning, all of these imports from China are deemed to take away US jobs.

Even US exports reduce domestic employment. According to data from the Organisation for Economic Cooperation and Development and the World Trade Organisation on value added, the foreign content of China's merchandise trade was 33 per cent in 2009.

In that year, 35 per cent of US imports from China were textiles and clothing, and electrical equipment. Eighty-one per cent and 73 per cent, respectively, of value in these industries were imported intermediates.

Bigger issues are in play.

The disregard of services makes for a very partial picture. Services are the dominant source of value and job creation in the US, as they are in many countries. Yet they are ignored, making for a far less interesting story about what is really happening in the US job market.

Moreover, not only trade affects employment and the rate of job churning. Other factors at work are changes in demand and in productivity growth. All this, of course, is against the background of a secular shift out of manufacturing in OECD countries.

We should not equate a partial analysis with partiality. That would be to accuse the authors of political motives for chosen methodological paths and analytical procedures, of which there is no evidence. But scholarly pursuits can be put to opportunistic ends. A paper like this attracts attention in politics and policy circles.

In a world where Sino-American cooperation must surely be at a premium, public attitudes towards constructive cooperation are unlikely to be nourished if gains and losses to parties are depicted as mutually offsetting - an implication of the approach of the present paper.

Relations between China and the United States should not be viewed as a zero-sum game that only decides how to divide up the cake. The quest for a positive-sum game built on cooperation will enlarge the size of the cake.

Patrick Low is vice-president of research at the Fung Global Institute