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Think Tank Study Blames U.S. Job Losses on Trade Deficit with Mainland China

The Washington, D.C.-based Economic Policy Institute on 23 October issued a report on the employment effect of the U.S. manufactured goods trade deficit with mainland China. Among other analyses, the report models the net employment effect of trade for the period since mainland China joined the World Trade Organisation in 2001. EPI contends that growth in the U.S. trade deficit with mainland China during 2001-2017 has cost 3.4 million U.S. jobs, including 1.3 million jobs lost since 2008, with losses in every state and congressional district.

According to the report, “jobs displaced by the United States’ growing trade deficit with China are a net drain on employment in trade-related industries, especially those in manufacturing.” The think tank states that “while some imports of parts and components from China have gone into the production of final goods, some of which have then been exported to China and the rest of the world, the overall U.S. trade deficit in manufactured products with China and the rest of the world has grown substantially since China entered the WTO.” The effect of technological change on U.S. manufacturing employment was not given significant consideration in the report, however.

The report decries that U.S. exports to mainland China since 2001 have not increased at the same rate. It notes, for example, that for mainland China to become a better market for U.S. exports it would have to “stimulate the growth of domestic consumption through policies that would allow workers to organize and bargain collectively, thus raising wages”, as well as “increase domestic consumption through increased social spending and reductions to the country’s massive savings rate.” However, EPI asserts that “none of these policies have been implemented at anywhere near a large enough scale, and China’s national savings rate has actually increased significantly over the past 15 years.”

While EPI describes itself as a non-profit and non-partisan think tank, it is worth noting that it was founded by the U.S. labour movement and continues to receive 29 percent of its income directly from labour unions, which tend to be very critical of mainland China. About half of EPI’s funding comes from foundations and ten percent from individuals.

EPI is interested in the effect of economic and policy changes on workers, especially unionised workers. This think tank has focused on growing inequality in U.S. wages vis-à-vis productivity gains, executive pay and corporate earnings, as well as on the dynamics of international trade. EPI asserts on its website that it proposes public policies that protect and improve the economic conditions of low- and middle-income workers and assesses policies with respect to how they affect those workers. Moreover, EPI believes to have changed the nature of public debates over international trade agreements by underscoring their effects on workers and the importance of putting enforceable labour standards in trade agreements. Hence EPI’s interest in wages and worker rights in mainland China.

The report goes on to make a direct U.S. political argument, illustrated by charts that show the calculated net employment effect sorted by U.S. state and congressional district. Interestingly, the calculated employment impacts are highest for states and districts with substantial employment in high-technology fields, since much of the recent import growth from mainland China has been in advanced technology products.

According to the report, the states and districts most recently affected by increased imports from mainland China include many on the U.S. West Coast and East Coast, rather than the Midwestern states whose manufacturing employment woes were seen as having contributed to the election of President Trump. In many of the coastal states, the employment options are more varied so job losses are not as devastating as when a town loses its one main employer. The EPI analysis on the trade deficit with mainland China thus has some subtleties that are not apparent at first glance.

Content provided by Picture: HKTDC Research
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