This blog post summarizes a famous paper from 2016 called The China Shock. The post points out that a number of things in paper were misunderstood by general audiences, in some cases because it was politically convenient to do so.

Now, before I get into it I will say that I have some personal perspective on this. I come from a former manufacturing town in Appalachia and many of my relatives were employed in the furniture and textile industry there at one time. By the 1990s, these factories were closing as jobs were moving to Asia, where labor costs were much lower. The economic pain and attendant social problems are very real, and I have seen them firsthand. So some communities were in fact hit very hard. The U.S. government had a “Trade Adjustment Assistance” program that was supposed to retrain people, but it was just too little, too late and not all effective. There has been major brain drain with the younger generations leaving town for better opportunities, and the people left behind are in a very destitute situation. So some groups of people, in some locations, were very badly hurt by free trade, even if there is an argument to make that the country as a whole benefitted from low-cost goods and moving to higher-value-added industries.

Anyway, the facts and figures based on this article:

• The word “shock” in economics means something different than what it means it newspaper headlines. It means an unforeseen or outside event. It doesn’t necessarily have to be large or “shocking” in an emotional sense.
• The original paper estimated a loss of about a million manufacturing jobs over about a decade after China joined the WTO in 2001. This should be put in the context that the number of U.S. “goods producing jobs” has held steady at about 20 million while service sector jobs have boomed by around 100 million over the past 50 years. Although another chart shows a loss of about 8 million “manufacturing jobs” over roughly this same time, so “goods producing” and “manufacturing” must have different definitions. Either way, manufacturing certainly declined in relative importance to the economy and in the absolute number of jobs represented. But outsourcing to China specifically is only part of this. (I would note however that Chinese businesses themselves are outsourcing to Southeast Asia, and I don’t know how that gets accounted for in these numbers.)
• Despite the loss of U.S. manufacturing jobs, U.S. manufacturing output has not declined over this time period. It has stayed approximately constant since 2000, dipping during recessions and then bouncing back after each recession. The reason output can stay constant while jobs decrease is increased productivity due to automation.
• Bottom line: The original paper concluded that competition from China explained about 12% of overall manufacturing job losses during the decade after 2001, and manufacturing job losses were about 1.5% of jobs in the overall economy. Overall job gains were greater than job losses during this period, although some individual workers, towns, and regions were more heavily impacted than others (like my relatives in Appalachia).

I generally support more or less free trade. But if we are going to trade freely, we need a safety net for people who are hurt. We could do this with generous unemployment benefits and retraining programs. We could help people relocate to places with jobs. We could provide much better communication and transportation infrastructure allowing them to commute regionally to places with jobs. We could educate their children so they are prepared for the jobs of tomorrow. We could institute a value added tax on our productive, growing economy and use it to provide services or cash to workers. We could invest even more in research and development to make our economy even more productive and growing. We could invest in neighboring countries to help them be more productive and growing, import cheap stuff from them, and reduce some of the migration pressure on our borders. We could refer to these as “common sense” policies.