Debunking the China Shock Hoax

(pdf)

The “China Shock Hoax,”  a perversion by many U.S. politicians and protectionists of legitimate academic research, alleges that trade with China cost the United States millions of jobs and wiped out American manufacturing.^[1] This hoax has spawned a resurgence of mercantilist trade policies from the Biden administration and on Capitol Hill, yet it is easily debunked by examining the facts.

Imports From China Did Not Displace U.S. Manufacturing

Tariff cuts and economic reforms adopted by China followed by its entry into the WTO corresponded to a surge in U.S. imports of manufactured goods from China. These imports did not displace overall U.S. manufacturing production.

Government statistics show that from 2000 to 2021 imports of Chinese manufactured goods increased by $391 billion, but the value of U.S. manufacturing output increased by $947 billion.^[2] In other words, for every dollar increase in imports of manufactured goods from China, U.S. manufacturing output increased by $2.42.

What About Jobs?

Some U.S. workers lost their jobs as a result of the creative destruction resulting from trade with China. However, Bureau of Labor Statistics data show these losses were more than offset by a dynamic American economy that generated 23 million net new jobs after China joined the WTO in December 2000.^[3] American job growth was accompanied by an increase in average real wages and, according to the Congressional Budget Office, higher real incomes for all quintiles of American households.^[4] 

It’s also true that the share of total U.S. employment devoted to manufacturing fell after China joined the WTO, but this was just the continuation of a trend that started in the 1950s, decades before China emerged as a major U.S. trading partner.^[5] The Bureau of Labor Statistics reports that U.S. manufacturing layoffs have trended downward ever since China joined the WTO, and more than half of manufacturing job losses since 2001 were not due to layoffs or plant closures, but due to workers voluntarily leaving for better opportunities.^[6] Annual U.S. manufacturing employment has actually increased in 11 of the last 12 years.^[7] 

Economic experts reject the version of the China Shock Hoax pushed by many politicians. Acclaimed China Shock researchers David Autor, David Dorn, and Gordon Hanson recently wrote (emphasis in the original): “The lesson of the China trade shock isn’t that trade is bad for America — it’s that the concentrated and long lasting impacts of job loss require our attention.” ^[8] 

U.S. Trade Policy Should Not Be Driven by Economic Hoaxes

Section 301 tariffs imposed by the Trump administration and extended by the Biden administration provide a case study on the impact of tariffs as a policy tool intended to change China’s bad actions. The tariffs were a costly failure. Chinese Communist Party intervention in the economy broadened after the United States imposed tariffs^[9] – tariffs that have so far cost American taxpayers an average of more than $1,400 per household in hidden taxes.^[10] 

The China Shock Hoax’s influence has spread beyond trade with China and contributed to a broad-based resurgence of mercantilism in the United States. To Biden administration policymakers who think trade harms U.S. workers, there is no inherent difference in the economic impact of an import from China and an import from Canada.^[11] U.S. officials should understand that increasing tariffs is not a zero-cost activity. Policymakers should not allow economic hoaxes to drive American trade policy.

 

---