China's emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in the US industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, is a key item on the research agenda for trade and labor economists.


Article metrics loading...

Loading full text...

Full text loading...


Literature Cited

  1. Acemoglu D, Autor DH, Dorn D, Hanson GH, Price B. 2016. Import competition and the Great U.S. Employment Sag of the 2000s. J. Labor Econ. 34:S1S141–98 [Google Scholar]
  2. Acemoglu D, Carvalho VM, Ozdaglar A, Tahbaz-Salehi A. 2012. The network origins of aggregate fluctuations. Econometrica 80:51977–2016 [Google Scholar]
  3. Alder S, Shao L, Zilibotti F. 2013. The effect of economic reform and industrial policy in a panel of Chinese cities CEPR Discuss. Pap. 9748 [Google Scholar]
  4. Amiti M, Davis D. 2012. Trade, firms, and wages: theory and evidence. Rev. Econ. Stud. 79:11–36 [Google Scholar]
  5. Amiti M, Freund C. 2010. The anatomy of China's export growth. China's Growing Role in World Trade R Feenstra, S-J Wei 56–61 Cambridge: NBER [Google Scholar]
  6. Anders G. 2014. How we saw the future in 1989. The Wall Street Journal July 8, p. R13 [Google Scholar]
  7. Arkolakis C, Costinot A, Rodríguez-Clare A. 2012. New trade models, same old gains?. Am. Econ. Rev. 102:194–130 [Google Scholar]
  8. Arkolakis C, Costinot A, Donaldson D, Rodríguez-Clare A. 2015. The elusive pro-competitive effects of trade NBER Work. Pap. 21370 [Google Scholar]
  9. Artuç E, Chaudhuri S, McLaren J. 2010. Trade shocks and labor adjustment: a structural empirical approach. Am. Econ. Rev. 100:1008–45 [Google Scholar]
  10. Artuç E, McLaren J. 2015. Trade policy and wage inequality: a structural analysis with occupational and sectoral mobility. J. Int. Econ. 97:278–94 [Google Scholar]
  11. Ashournia D. 2015. Labor market effects when mobility is costly Discuss. Pap. 751, Dep. Econ., Oxford Univ., Oxford, UK [Google Scholar]
  12. Ashournia D, Munch J, Nguyen D. 2014. The impact of Chinese import penetration on Danish firms and workers Discuss. Pap. 8166, Inst. Study Labor, Bonn, Ger. [Google Scholar]
  13. Auer RA, Degen K, Fischer AM. 2013. Low-wage import competition, inflationary pressure, and industry dynamics in Europe. Eur. Econ. Rev. 59:C141–66 [Google Scholar]
  14. Autor DH, Dorn D. 2013. The growth of low-skill service jobs and the polarization of the US labor market. Am. Econ. Rev. 103:51553–97 [Google Scholar]
  15. Autor DH, Dorn D, Hanson GH. 2013a. The China syndrome: local labor market effects of import competition in the United States. Am. Econ. Rev. 103:62121–68 [Google Scholar]
  16. Autor DH, Dorn D, Hanson GH. 2013b. The geography of trade and technology shocks in the United States. Am. Econ. Rev. 103:3220–25 [Google Scholar]
  17. Autor DH, Dorn D, Hanson GH. 2015. Untangling trade and technology: evidence from local labor markets. Econ. J. 125:584621–46 [Google Scholar]
  18. Autor DH, Dorn D, Hanson GH, Song J. 2014. Trade adjustment: worker level evidence. Q. J. Econ. 129:41799–860 [Google Scholar]
  19. Autor DH, Duggan M. 2003. The rise in disability rolls and the decline in unemployment. Q. J. Econ. 118:1157–205 [Google Scholar]
  20. Bai X, Krishna K, Ma H. 2015. How you export matters: export mode, learning and productivity in China NBER Work. Pap. 21164 [Google Scholar]
  21. Baicker K, Rehavi MM. 2004. Policy watch: trade adjustment assistance. J. Econ. Perspect. 18:2239–55 [Google Scholar]
  22. Baily MN, Bosworth BP. 2014. US manufacturing: understanding its past and its potential future. J. Econ. Perspect. 28:13–26 [Google Scholar]
  23. Balsvik R, Jensen S, Salvanes KG. 2015. Made in China, sold in Norway: local labor market effects of an import shock. J. Public Econ. 127:137–44 [Google Scholar]
  24. Berman E, Bound J, Machin S. 1998. Implications of skill-biased technological change: international evidence. Q. J. Econ. 113:41245–79 [Google Scholar]
  25. Bernard AB, Jensen JB, Schott PK. 2006. Survival of the best fit: exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants. J. Int. Econ. 68:1219–37 [Google Scholar]
  26. Bhagwati J. 1989. Protectionism Cambridge, MA: MIT Press [Google Scholar]
  27. Blanchard O, Katz L. 1992. Regional evolutions. Brookings Papers Econ. Act. 23:11–76 [Google Scholar]
  28. Bloom N, Draca M, Van Reenen J. 2016. Trade induced technical change? The impact of Chinese imports on innovation, IT, and productivity. Rev. Econ. Stud. 83:87–117 [Google Scholar]
  29. Borjas GJ, Freeman RB, Katz LF. 1997. How much do immigration and trade affect labor market outcomes?. Brookings Pap. Econ. Act. 1:1–90 [Google Scholar]
  30. Borjas GJ, Ramey VA. 1995. Foreign competition, market power, and wage inequality. Q. J. Econ. 110:41075–110 [Google Scholar]
  31. Bound J, Holzer H. 2000. Demand shifts, population adjustments, and labor market outcomes during the 1980s. J. Labor Econ. 18:120–54 [Google Scholar]
  32. Brandt L, Ma D, Rawski TG. 2014. From divergence to convergence: reevaluating the history behind China's economic boom. J. Econ. Lit. 52:145–123 [Google Scholar]
  33. Brandt L, Morrow P. 2014. Tariffs and the organization of trade in China Unpublished manuscript, Univ. Toronto, Toronto, Can. [Google Scholar]
  34. Brandt L, Van Biesebroeck J, Zhang Y. 2012. Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing. J. Dev. Econ. 97:2339–51 [Google Scholar]
  35. Burstein A, Vogel J. 2011. Factor prices and international trade: a unifying perspective NBER Work. Pap. 16904 [Google Scholar]
  36. Burstein A, Vogel J. 2012. International trade, technology, and the skill premium Unpublished manuscript, Univ. Calif., Los Angel. [Google Scholar]
  37. Caliendo L, Dvorkin M, Parro F. 2015. The impact of trade on labor market dynamics NBER Work. Pap. 21149 [Google Scholar]
  38. Chetverikov D, Larsen B, Palmer C. 2016. IV quantile regression for group-level treatments, with an application to the distributional effects of trade. Econometrica 84:2809–33 [Google Scholar]
  39. Cheung Y-W, Chinn MD, Fujii E. 2007. The overvaluation of Renminbi undervaluation. J. Int. Money Finance 25:5762–85 [Google Scholar]
  40. Cline WR. 2010. Renminbi undervaluation, China's surplus, and the US trade deficit Policy Brief PB 10–20, Peterson Inst. Int. Econ. [Google Scholar]
  41. Costa FJM, Garred J, Pessoa JP. 2014. Winners and losers from a commodities-for-manufactures trades boom Discuss. Pap. 1269, Cent. Econ. Perform., London [Google Scholar]
  42. Crino R, Epifani P. 2014. Trade imbalances, export structure and wage inequality. Econ. J. 576:507–39 [Google Scholar]
  43. Dauth W, Findeisen S, Suedekum J. 2014. The rise of the East and the Far East: German labor markets and trade integration. J. Eur. Econ. Assoc. 12:61643–75 [Google Scholar]
  44. Diamond R. 2015. The determinants and welfare implications of U.S. workers' diverging location choices by skill: 1980–2000 Work. Pap. 3143, Stanford Univ., Stanford, CA [Google Scholar]
  45. Di Giovanni J, Levchenko A, Zhang J. 2014. The global welfare impact of China: trade integration and technological change. Am. Econ. J.: Macroecon. 6:3153–83 [Google Scholar]
  46. Dix-Carneiro R. 2014. Trade liberalization and labor market dynamics. Econometrica 82:3825–85 [Google Scholar]
  47. Dix-Carneiro R, Kovak BK. 2015. Trade reform and regional dynamics: evidence from 25 years of Brazilian matched employer-employee data NBER Work. Pap. 20908 [Google Scholar]
  48. Donoso V, Martín V, Minondo A. 2014. Do differences in exposure to Chinese imports lead to differences in local labour market outcomes? An analysis for Spanish provinces. Reg. Stud. 49:46–64 [Google Scholar]
  49. Donoso V, Martín V, Minondo A. 2015. Does competition from China raise the probability of becoming unemployed? An analysis using Spanish workers' micro-data. Soc. Indicators Res. 120:373–94 [Google Scholar]
  50. Eaton J, Kortum S. 2002. Technology, geography, and trade. Econometrica 70:51741–79 [Google Scholar]
  51. Ebenstein A, Harrison A, McMillan M, Phillips S. 2014. Estimating the impact of trade and offshoring on American workers using the current population survey. Rev. Econ. Stat. 96:3581–95 [Google Scholar]
  52. Edwards L, Lawrence RZ. 2013. Rising Tide: Is Growth in Emerging Economies Good for the United States? Washington, DC: Peterson Inst. Int. Econ. [Google Scholar]
  53. Eichengreen B, Park D, Shin K. 2013. Growth slowdowns redux: new evidence on the middle-income trap NBER Work. Pap. 18673 [Google Scholar]
  54. Ellison G, Glaeser E, Kerr W. 2010. What causes industry agglomeration? Evidence from coagglomeration patterns. Am. Econ. Rev. 100:31195–213 [Google Scholar]
  55. Feenstra RC. 1998. Integration of trade and disintegration of production in the global economy. J. Econ. Perspect. 12:431–50 [Google Scholar]
  56. Feenstra RC, Hanson GH. 1997. Foreign direct investment and relative wages: evidence from Mexico's maquiladoras. J. Int. Econ. 42:371–94 [Google Scholar]
  57. Feenstra RC, Hanson GH. 1999. The impact of outsourcing and high-technology capital on wages: estimates for the United States, 1979–1990. Q. J. Econ. 114:3907–40 [Google Scholar]
  58. Feenstra RC, Hanson GH. 2003. Global production and inequality: a survey of trade and wages. Handbook of International Trade EK Choi, J Harrigan 146–85 Hoboken, NJ: Blackwell [Google Scholar]
  59. Federico S. 2014. Industry dynamics and competition from low-wage countries: evidence on Italy. Oxf. Bull. Econ. Stat. 76:3389–410 [Google Scholar]
  60. Feler L, Senses M. 2015. Trade shocks and the provision of local public goods Unpublished manuscript, Johns Hopkins Univ., Baltim., MD [Google Scholar]
  61. Freeman R. 1995. Are your wages set in Beijing?. J. Econ. Perspect. 9:315–32 [Google Scholar]
  62. Galle S, Rodríguez-Clare A, Yi M. 2015. Slicing the pie: quantifying the aggregate and distributional effects of trade Unpublished manuscript, Univ. Calif., Berkeley [Google Scholar]
  63. Glaeser EL, Gyourko J. 2005. Urban decline and durable housing. J. Pol. Econ. 113:2345–75 [Google Scholar]
  64. Goldberg P, Khandelwal A, Pavcnik N, Topalova P. 2010. Imported intermediate inputs and domestic product growth: evidence from India. Q. J. Econ. 125:41727–67 [Google Scholar]
  65. Goldberg P, Pavcnik N. 2007. Distributional effects of globalization in developing countries. J. Econ. Lit. 45:139–82 [Google Scholar]
  66. Grossman GM. 1987. The employment and wage effects of import competition in the United States. J. Int. Econ. Integr. 2:11–23 [Google Scholar]
  67. Grossman GM, Rossi-Hansberg E. 2008. Trading tasks: a simple theory of offshoring. Am. Econ. Rev. 98:51978–97 [Google Scholar]
  68. Handley K, Limao N. 2014. Policy uncertainty, trade and welfare: theory and evidence for China and the U.S. Unpublished manuscript, Univ. Michigan [Google Scholar]
  69. Hanson G, Lind N, Muendler M-A. 2015. The dynamics of comparative advantage NBER Work. Pap. 21753 [Google Scholar]
  70. Harrison A, McLaren J, McMillan M. 2011. Recent perspectives on trade and wage inequality. Annu. Rev. Econ. 3:261–89 [Google Scholar]
  71. Helpman E, Itskhoki O, Redding S. 2010. Inequality and unemployment in a global economy. Econometrica 78:1239–83 [Google Scholar]
  72. Hsieh C-T, Ossa R. 2011. A global view of productivity growth in China NBER Work. Pap. 16778 [Google Scholar]
  73. Hsieh C-T, Song Z. 2015. Grasp the large, let go of the small: the transformation of the state sector in China. NBER Work. Pap. 21006 [Google Scholar]
  74. Hsieh C-T, Woo KT. 2005. The impact of outsourcing to China on Hong Kong's labor market. Am. Econ. Rev. 95:51673–87 [Google Scholar]
  75. Hummels D, Jorgensen R, Munch J, Xiang C. 2014. The wage effects of offshoring: evidence from Danish matched worker-firm data. Am. Econ. Rev. 104:61597–629 [Google Scholar]
  76. Iacovone L, Rauch F, Winters AL. 2013. Trade as an engine of creative destruction: Mexican experience with Chinese competition. J. Int. Econ. 89:2379–92 [Google Scholar]
  77. Katz LF, Autor D. 1999. Changes in the wage structure and earnings inequality. Handbook of Labor Economics 3A O Ashenfelter, D Card 1463–555 Amsterdam: Elsevier Sci. [Google Scholar]
  78. Kondo IO. 2013. Trade reforms, foreign competition, and labor market adjustments in the U.S. Discuss. Pap. 1095, Int. Finance, Fed. Reserve Board [Google Scholar]
  79. Koopman R, Powers W, Wang Z, Wei S-J. 2012. Estimating domestic content in exports when processing trade is pervasive. J. Dev. Econ. 99:1178–89 [Google Scholar]
  80. Kovak B. 2013. Regional effects of trade reform: What is the correct measure of liberalization?. Am. Econ. Rev. 103:51960–76 [Google Scholar]
  81. Krugman P. 1997. What should trade negotiators negotiate about?. J. Econ. Lit. 35:1113–20 [Google Scholar]
  82. Krugman P. 2000. Trade, technology, and factor prices. J. Int. Econ. 50:151–71 [Google Scholar]
  83. Krugman PR, Obstfeld M. 2008. International Economics: Theory and Policy New York: Pearson, 8th ed.. [Google Scholar]
  84. Lawrence RZ, Slaughter MJ. 1993. International trade and American wages in the 1980s: giant sucking sound or small hiccup?. Brookings Papers Econ. Act.: Microecon. 1993:3161–26 [Google Scholar]
  85. Leamer EE. 2000. What's the use of factor contents?. J. Int. Econ. 50:117–49 [Google Scholar]
  86. Levchenko AA, Lewis LT, Tesar LL. 2010. The collapse of international trade during the 2008–2009 crisis: in search of the smoking gun. IMF Econ. Rev. 58:2214–53 [Google Scholar]
  87. Li H, Li L, Wu B, Xiong Y. 2012. The end of cheap Chinese labor. J. Econ. Perspect. 26:457–74 [Google Scholar]
  88. Malamud O, Wozniak A. 2012. The impact of college education on geographic mobility. J. Hum. Resour. 47:913–50 [Google Scholar]
  89. Manova K, Zhang Z. 2012. Multi-product firms and product quality NBER Work. Pap. 18637 [Google Scholar]
  90. McLaren J, Hakobyan S. 2016. Looking for local labor market effects of NAFTA. Rev. Econ. Stat. In press [Google Scholar]
  91. Melitz MJ. 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71:61695–725 [Google Scholar]
  92. Mian A, Sufi A. 2014. What explains the 2007–2009 drop in employment?. Econometrica 82:62197–223 [Google Scholar]
  93. Mills J. 1993. Business lobbying for trade pact appears to sway few in Congress. The New York Times, Nov. 12 [Google Scholar]
  94. Mion G, Zhu L. 2013. Import competition from China: A curse or a blessing for firms?. J. Int. Econ. 94:185–101 [Google Scholar]
  95. Naughton B. 2007. The Chinese Economy: Transitions and Growth Cambridge, MA: MIT Press [Google Scholar]
  96. Neal D. 1995. Industry-specific human capital: evidence from displaced workers. J. Labor Econ. 13:653–77 [Google Scholar]
  97. Pessoa JP. 2016. International competition and labor market adjustment Discuss. Pap. 1411 Cent. Econ. Perform. London: [Google Scholar]
  98. Pierce JR, Schott PK. 2016. The surprisingly swift decline of U.S. manufacturing employment. Am. Econ. Rev In press [Google Scholar]
  99. President's Council of Economic Advisers 2015. 2015 Economic Report of the President Annu. Rep., White House, Washington, DC [Google Scholar]
  100. Redding S. 2012. Goods, factor trade, mobility, and welfare NBER Work. Pap. 18008 [Google Scholar]
  101. Sampson T. 2014. Selection into trade and wage inequality. Am. Econ. J.: Microecon. 6:3157–202 [Google Scholar]
  102. Song Z, Storesletten K, Zilibotti F. 2011. Growing like China. Am. Econ. Rev. 101:1196–233 [Google Scholar]
  103. Storesletten K, Zilibotti F. 2014. China's great convergence and beyond. Annu. Rev. Econ. 6:333–62 [Google Scholar]
  104. Tolbert CM, Sizer M. 1996. U.S. commuting zones and labor market areas: a 1990 update. Staff Pap. 9614, Rural Econ. Div., Econ. Res. Serv., US Dep. Agric. [Google Scholar]
  105. Topalova P. 2010. Factor immobility and regional impacts of trade liberalization: evidence on poverty from India. Am. Econ. J.: Appl. Econ. 2:1–41 [Google Scholar]
  106. Trefler D. 2004. The long and short of the Canada-U.S. Free Trade Agreement.. Am. Econ. Rev. 94:4870–95 [Google Scholar]
  107. Utar H. 2014. When the floodgates open: “Northern” firms' response to removal of trade quotas on Chinese goods. Am. Econ. J.: Appl. Econ. 6:4226–50 [Google Scholar]
  108. Utar H. 2015. Workers beneath the floodgates: impact of low-wage import competition and workers' adjustment Work. Pap. 12-2014, Dep. Econ., Univ. Bielefeld [Google Scholar]
  109. Utar H, Torres-Ruiz L. 2013. International competition and industrial evolution: evidence from the impact of Chinese competition on Mexican maquiladoras. J. Dev. Econ. 105:267–87 [Google Scholar]
  110. Vogel J. 2011. Spatial price discrimination with heterogeneous firms. J. Ind. Econ. 59:4661–76 [Google Scholar]
  111. Wei S-J, Zhang X. 2011. The competitive saving motive: evidence from rising sex ratios and savings rates in China. J. Pol. Econ. 119:3511–64 [Google Scholar]
  112. Wozniak A. 2010. Are college graduates more responsive to distant labor market opportunities?. J. Hum. Resour. 45:944–70 [Google Scholar]
  113. Yagan D. 2014. Moving to opportunity? Migratory insurance over the Great Recession Presented at NBER Conf. Tax Policy Econ., Cambridge, MA [Google Scholar]
  114. Yu M, Tian W. 2012. China's firm-level processing trade: trends, characteristics, and productivity. Work. Pap. E2012002, China Cent. Econ. Res., Peking Univ., Beijing, China [Google Scholar]
  115. Zhu X. 2012. Understanding China's growth: past, present, and future. J. Econ. Perspect. 26:4103–24 [Google Scholar]

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error