The China shock ended long ago
By Scott Sumner
A much cited study by Autor, Dorn and Hanson found that the surge in imports from China reduced employment in numerous local US labor markets during the period from 1990 to 2007. Of course that was a period where the overall labor market did pretty well, with unemployment trending lower. But what about the period since 2007?
A new study suggests that the China shock was considerably smaller than previously estimated, and basically came to an end in 2008. Here’s The Economist:
But the new report argues, in effect, that a $100 manufactured import from China does not represent $100-worth of Chinese manufacturing competition. Some of that value will have been counted already (if, for example, a phone casing had been imported to America, stuffed with components and returned to China for final assembly). Some represents the non-manufacturing inputs (including services and metals) required to make the product. And some of that $100 will have been created outside China by its foreign suppliers, including American firms. Properly measured, the report argues, the “China shock” looks less bad, hitting a third fewer jobs and ending in 2008 rather than persisting indefinitely.
The current trade war with China is like a general fighting the last war. It’s time to move on. As Ramesh Ponnuru recently observed, the best way to respond to China is to join the TPP trade agreement with other Pacific rim nations:
In suggesting that companies should relocate production from China to Vietnam, Trump is recapitulating the logic of the strategy he abandoned at the start of his term when he abandoned the Trans-Pacific Partnership. The TPP would have enabled companies to make that decision rather than just exhort them to do it.