Rethinking the impact of US-China Trade on US Employment: A Value-Chain Perspective

Judith and Marshall Meyer Lectures on China’s Economy
Shang-Jin Wei, N.T. Wang Professor of Chinese Business and Economy, Columbia University
| Stiteler Hall B26

Political rhetoric and recent research have emphasized the effect of US-China trade on displacement of US manufacturing jobs. However, the United States imports intermediate inputs from China, helping downstream US firms to improve efficiency and expand employment. By taking a value-chain perspective, we find strong evidence that the impact of trading with China on local employment is (modestly) positive. The most important channel is an expansion of employment outside the manufacturing sector through the downstream effect. Furthermore, while the impact on the real wage depends on the education level of the workers, the total wage payment for all workers goes up as a result of trading with China. In short, the value-chain perspective overturns the received wisdom in the literature. At the same time, if voters pay more attention to the direct competition effect than the indirect downstream effect, they could erroneously believe in the benefits of restrictions on trading with China.