How Do Increased Imports from China Impact America’s Regional Labor Markets?

Discussion Paper

David Autor, David Dorn, and Gordon Hanson

May 2012

A new study by David Autor, David Dorn, and Gordon Hanson explores the effect of rising Chinese import competition between 1990 and 2007 on local U.S. labor markets to reveal a large impact not only within the scope of manufacturing, but also on worker and household welfare.

While freer trade with countries at any income level may affect wages and employment, trade theory identifies low-wage countries as a likely source of disruption to high-wage labor markets. In 1991, low-income countries accounted for just 2.9% of US manufacturing imports. However, largely due to China’s spectacular growth, the situation has changed markedly. In 2000, the low-income-country share of U.S. imports reached 5.9% and climbed to 11.7% by 2007, with China accounting for 91.5% of this import growth over the period. The share of total U.S. spending on Chinese goods rose from 0.6% in 1991 to 4.6% in 2007, with an inflection in 2001 when China joined the World Trade Organization. Increased exposure to trade with China and other developing economies suggests that the labor market consequences of trade may be larger today than 20 years ago.

The study finds that the value of annual U.S. goods imports from China has increased by a staggering 1,156% from 1991 to 2007. The rapid increase in U.S. exposure to trade with China and other developing economies over this period suggests that the labor-market consequences of trade may have increased considerably during the past 20 years. Previous research has studied the effects of imports on manufacturing firms or employees of manufacturing industries. By analyzing local labor markets that are subject to differential trade shocks according to initial patterns of industry specialization, this paper extends the analysis of the consequences of trade beyond wage and employment changes in manufacturing. Specifically, we relate changes in manufacturing and non-manufacturing employment, earnings, and transfer payments across U.S. local labor markets to changes in market exposure to Chinese import competition.