The ‘China shock,’ exports and U.S. employment: A global input–output analysis

• Date: 01 November 2018
• Author: Akira Sasahara,Robert C. Feenstra
• DOI: http://doi.org/10.1111/roie.12370
• Published date: 01 November 2018

Rev Int Econ. 2018;26:1053–1083. wileyonlinelibrary.com/journal/roie © 2018 John Wiley & Sons Ltd

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DOI: 10.1111/roie.12370

SPECIAL ISSUE PAPER

The ‘China shock,’ exports and U.S. employment:

A global input–output analysis

Robert C. Feenstra1,2

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Akira Sasahara3

1Department of Economics,University of

California, Davis, California

2NBER, Cambridge, Massachusetts

3College of Business and

Economics,University of Idaho, Moscow,

Idaho

Correspondence

Robert C. Feenstra, Department of

Economics, University of California, Davis,

One Shields Avenue, Davis, CA 95616.

Email: rcfeenstra@ucdavis.edu

Abstract

This paper quantifies the impact on U.S. employment

from imports and exports during 1995–2011, using the

World Input–Output Database. We find that the growth

in U.S. exports led to increased demand for 2 million

jobs in manufacturing, 0.5 million in resource indus-

tries, and a remarkable 4.1 million jobs in services, to-

taling 6.6 million. Two‐thirds of those service sectors

jobs are due to the export of services themselves,

whereas one‐third is due to the intermediate demand

from manufacturing and resource—or merchandise—

exports, so the total labor demand gain due to merchan-

dise exports was 3.7 million jobs. In comparison, U.S.

merchandise imports from China led to reduced demand

of 1.4 million jobs in manufacturing and 0.6 million in

services (with small losses in resource industries), with

total job losses of 2.0 million. It follows that the expan-

sion in U.S. merchandise exports relative to imports

from China over 1995–2011 created net demand for

about 1.7 million jobs. Comparing the growth of U.S.

merchandise exports to merchandise imports from all

countries, we find a fall in net labor demand due to

trade, but comparing the growth of total U.S. exports to

total imports from all countries, then there is a rise in

net labor demand because of the growth in service

exports.

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FEENSTRA and SASAHARA

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INTRODUCTION

Arguably among the most significant events in international trade in recent decades has been the rapid

rise in exports from China since its entry into the World Trade Organization (WTO) in 2001, or the

“China shock.” Even before that date China received the low, most‐favored‐nation tariffs associated

with WTO membership by a vote of the U.S. Congress each year. But after China’s accession to the

WTO, the reduction in the uncertainty associated with that vote contributed importantly to the surge in

exports to the United States. This argument is made by Pierce and Schott (2016) and by Handley and

Limão (2017).1 Pierce and Schott find that the surge in Chinese exports to the United States coincides

with a substantial decline in U.S. manufacturing employment. Handley and Limão find that the wel-

fare gain for consumers due to this increase in Chinese imports is of the same order of magnitude as

the U.S. gain from new imported varieties in the preceding decade. These findings highlight the dual

roles that Chinese imports play for the United States: on the one hand, they create import competition

and labor‐market dislocation; and on the other hand, they benefit U.S. consumers.2

The first of these roles is pursued in a series of papers by Autor, Dorn, and Hanson (2013, 2015),

and with Song, 2014. They analyze the effect of rising Chinese import competition between 1990 and

2007 on local U.S. labor markets, exploiting the geographic differences in import exposure arising

from initial differences in industry specialization. Rising import exposure increases unemployment,

lowers labor force participation, and reduces wages in local labor markets. At the aggregate level, a

conservative estimate is that the import surge accounts for one‐quarter of the decline in U.S. manu-

facturing employment. Most recently, in joint work with Acemoglu and Price, these authors find that

the import surge from China also contributes to the unusually slow employment growth in the United

States following the financial crisis and the Great Recession (Acemoglu, Autor, Dorn, Hanson, &

Price, 2016).

While these papers by Autor and co‐authors have explored the negative impact of import competi-

tion from China on employment in the United States, some recent articles highlight the role of China

as an engine of world economic growth (e.g., Vianna, 2016; IMF, 2017; World Bank, 2017). These

articles speak to the second role played by China, in bringing consumer benefits as well as benefits

to workers in export‐oriented industries. Feenstra, Ma, and Xu (2017) have examined the positive

employment effects of U.S. exports using techniques similar to those in Autor et al. (2013, 2015).3

Depending on the estimation method, they find that employment in manufacturing industries grew by

roughly the same amount due to global exports as the decline in employment due to Chinese imports.

This result is perhaps not surprising given the magnitude of growth in U.S. exports as compared to

total imports and imports from China. Relative to GDP, U.S. exports rose by 10 percentage points

from 1995 to 2011, imports rose by 15 percentage points, and imports from China rose by 4 percent-

age points from a very low base, as depicted in Figure 1. So whether we focus on U.S. exports to the

world or on imports from China, the magnitude of changes over this period has been large and the

potential employment effects are correspondingly large.

In this paper, we quantify the employment impacts of U.S. imports and exports using a global

input–output analysis.4 Specifically, we use the World Input–Output Database (WIOD) of Timmer,

Erumban, Los, Stehrer, and de Vries (2014) and Timmer, Dietzenbacher, Los, Stehrer, and de Vries

(2015). In Section 2, we follow the method of Los, Timmer, and de Vries (2015, 2016), which focuses

on the demand side of the labor market, to quantify the positive impact from U.S. exports on employ-

ment. We find that the growth in exports led to demand for 2 million jobs in manufacturing, 0.5 mil-

lion in resource industries, and a remarkable 4.1 million jobs in services over 1995–2011, totaling 6.6

million. Two‐thirds of those service‐sectors jobs are due to the export of services themselves, whereas

one‐third is due to the intermediate demand from the manufacturing and resource—or what we call