Economists Realize Trade With China Has Hurt U.S. Workers

By Matthew McMullan
Jan 28 2016 |
There used to be a lot more jobs in places like this old steel mill near Detroit before America normalized trade with China. | Photo by Joe Guldi

The cat’s out of the bag, but here’s what we can do about it.

There’s a new report out this week, prepared by some of the same academics who a few years ago made note of the huge drop-off in U.S. manufacturing employment that came after Washington normalized trade relations with China and helped it join the World Trade Organization (WTO).

This one’s about “China shock.” The researchers found that for workers in industries exposed to Chinese import competition, the hits came hard and they still haven’t recovered from them. Those workers experience lots of job churn and their earnings have been reduced, meaning: They haven’t been absorbed into other industries that pay wages comparable to those they once had.

They’re going from low-wage job to low-wage job, and they’re more likely to be on welfare. Trade with China, for lots of our fellow Americans, has been a bum deal.  

Writes Noah Smith at Bloomberg View:

Economists may blithely declare that free trade is wonderful, but our best researchers have now shown that public misgivings about these smooth assurances have been completely justified.

So the economics profession is coming around to the reality that liberalizing trade with China has been, uh, problematic for many American workers? Whoa. 

So now what? What are we gonna do about this? What are we gonna do, man?

We’ve got a couple of ideas. And more gifs!

Crack down on currency.

China has spent years keeping its currency artificially cheap in order to boost its own exports. That’s called currency manipulation. Twice a year, the Department of Treasury issues a report to Congress that looks at exchange rate shenanigans by foreign governments. But not once in its 14 reports has the Obama administration’s Treasury named China a currency manipulator, which would make it sit down with its Chinese counterparts at the International Monetary Fund to negotiate over the issue. Simply naming China a currency manipulator would be a big step.

But that’s not all: Congress should take up currency legislation that passed the Senate last summer. The provision would put currency manipulation on the list of illegal subsidies that could warrant imposing counter-vailing duties.  

Don't lock in a bad trade relationship.

Back in 2000, when Washington lawmakers were normalizing trade relations with Beijing, the pro-trade crowd claimed that normalization would create a boom in American exports to China. But even back then, there were honest assessments sprinkled into the media coverage. “This deal is about investment, not exports,” said an economist with Morgan Stanley in May of that year.

We’ve had a lot of manufacturing move to China since that time, and very little growth in exports, so that assessment has proven true.

Now we’re considering another trade deal with China, a bilateral investment treaty (BIT), which would open up off-limits sectors of the closed Chinese market to American companies looking to set up shop there. But! Given how damaging the last round of China trade negotiations have been for many Americans, the average Joe will want to know why providing greater protections to U.S. companies looking to offshore production to China such a good idea.

Don’t change China's non-market economy status.

Nope. Don’t do it. When China joined the WTO, it agreed to provisions that would designate it a “non-market economy.” That means that when trade regulators around the world consider whether China is “dumping” products into the global market – like it’s doing right now in the steel sector – they don’t have to rely on unreliable Chinese prices or costs to draw their conclusions. That’s important, because China’s government plays a bigger role in the function of its economy than the free market does.

One of those provisions is due to expire in December 2016, and China and its advocates say that requires its trading partners around the world to treat China as a market economy in anti-dumping investigations. But does anyone really think that China’s economy is dictated by its market? Changing that designation is a terrible idea.

Obviously, these steps alone won’t bring back all of the American jobs that Chinese trade has killed off. But that doesn’t mean our poor trade relationship China should be enshrined in permanency.

Address currency manipulation, take it easy on the BIT, and keep that non-market status in place. Those are some of the steps America should take to make trade with China fair.