See also:

Since China entered the World Trade Organization in 2001, the extraordinary growth of trade between China and the United States has had a dramatic effect on U.S. workers and the domestic economy, though in neither case has this effect been beneficial. The United States is piling up foreign debt and losing export capacity, and the growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9 percent) were in manufacturing. These lost manufacturing jobs account for more than half  of all U.S. manufacturing jobs lost or displaced between 2001 and 2011.

Supplemental Table A: Jobs displaced due to U.S. trade deficits with China, by congressional district, 2001–2011 (ranked by share of jobs displaced) [PDF ] [Excel ]

Supplemental Table B: Jobs displaced due to U.S. trade deficits with China, by congressional district, 2001–2011 (sorted by state and congressional district) [PDF ] [Excel ]

Supplemental Table C: U.S. trade with China, by industry, 2001–2011 [PDF ] [Excel ]

The more than 2.7 million jobs lost or displaced in all sectors include 662,100 jobs from 2008 to 2011 alone—even though imports from China and the rest of the world plunged in 2009. (Imports from China have since recovered and surpassed their peak of 2008.) The growing trade deficit with China has cost jobs in all 50 states and the District of Columbia and Puerto Rico, as well as in each congressional district.

Among specific industries, the trade deficit in the computer and electronic products industry grew the most, and 1,064,800 jobs were displaced, 38.8 percent of the 2001–2011 total. As a result, many of the hardest-hit congressional districts were in California, Texas, Oregon, Massachusetts, Colorado, and Minnesota, where jobs in that industry are concentrated. Some districts in North Carolina, Georgia, and Alabama were also especially hard-hit by job displacement in a variety of manufacturing industries, including computers and electronic products, textiles and apparel, and furniture.

But the jobs impact of the China trade deficit is not restricted to job loss and displacement. Competition with low-wage workers from less-developed countries such as China has driven down wages for workers in U.S. manufacturing and reduced the wages and bargaining power of similar, non-college-educated workers throughout the economy. The affected population includes essentially all workers with less than a four-year college degree—roughly 70 percent of the workforce, or about 100 million workers (U.S. Census Bureau 2012b).

Put another way, for a typical full-time median-wage earner, earnings losses due to globalization totaled approximately $1,400 per year as of 2006 (Bivens 2008a). For a typical household with two earners, the annual cost is more than $2,500. China is the most important source of downward wage pressure from trade with less-developed countries because it pays very low wages and because its products make up such a large portion of U.S. imports (China was responsible for 55.3 percent of U.S. non-oil imports from less-developed countries in 2011).

These conclusions about the jobs impact of trade with China arise from the following specific findings of this study:

• Most of the jobs lost or displaced by trade with China between 2001 and 2011 were in manufacturing industries (more than 2.1 million jobs, or 76.9 percent).
• Within manufacturing, rapidly growing imports of computer and electronic products (including computers, parts, semiconductors, and audio-video equipment) accounted for 54.9 percent of the $217.5 billion increase in the U.S. trade deficit with China between 2001 and 2011. The growth of this deficit contributed to the elimination of 1,064,800 U.S. jobs in computer and electronic products in this period. Indeed, in 2011, the total U.S. trade deficit with China was $301.6 billion—$139.3 billion of which was in computer and electronic products.
• Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China. This broad category of high-end technology products includes the more advanced elements of the computer and electronic products industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology. In 2011, the United States had a $109.4 billion deficit in advanced technology products with China, which was responsible for 36.3 percent of the total U.S.-China trade deficit. In contrast, the United States had a $9.7 billion surplus in advanced technology products with the rest of the world in 2011.
• Other industrial sectors hit hard by growing trade deficits with China between 2001 and 2011 include apparel and accessories (211,200 jobs), textile mills and textile product mills (106,200), fabricated metal products (120,600), furniture and fixtures (80,700), plastics and rubber products (57,600), motor vehicles and parts (19,800), and miscellaneous manufactured goods (111,800). Several service sectors were also hit hard by indirect job losses, including administrative, support, and waste management services (160,600) and professional, scientific, and technical services (145,000).
• The more than 2.7 million U.S. jobs lost or displaced by the trade deficit with China between 2001 and 2011 were distributed among all 50 states, the District of Columbia, and Puerto Rico, with the biggest net losses occurring in California (474,700 jobs), Texas (239,600), New York (158,800), Illinois (113,700), North Carolina (110,300), Florida (106,100), Pennsylvania (101,200), Ohio (95,900), Massachusetts (92,700), and Georgia (87,300).
• Jobs displaced due to growing deficits with China equaled or exceeded 2.2 percent of total employment in the 12 hardest-hit states: New Hampshire (20,400 jobs lost or displaced, equal to 2.94 percent of total state employment), California (474,700, 2.87 percent), Massachusetts (92,700, 2.86 percent), Oregon (50,200, 2.85 percent), North Carolina (110,300, 2.67 percent), Minnesota (72,300, 2.66 percent), Idaho (18,200, 2.65 percent), Vermont (8,000, 2.43 percent), Colorado (57,800, 2.38 percent), Texas (239,600, 2.26 percent), Rhode Island (11,800, 2.24 percent), and Alabama (43,900, 2.20 percent).
• The hardest-hit congressional districts were concentrated in states that were heavily exposed to growing China trade deficits in computer and electronic products and other industries such as furniture, textiles, apparel, and durable goods manufacturing. The three hardest-hit congressional districts were all located in Silicon Valley in California, including the 15th (Santa Clara County, which lost 44,700 jobs, equal to 13.77 percent of all jobs in the district), the 14th (Palo Alto and nearby cities, 32,700 jobs, 10.20 percent), and the 16th (San Jose and other parts of Santa Clara County, 29,000 jobs, 9.55 percent). Of the top 20 hardest-hit districts, seven were in California (in rank order, the 15th, 14th, 16th, 13th, 31st, 34th, and 50th), four were in Texas (31st, 10th, 25th, and 3rd), two were in North Carolina (4th and 10th), two were in Massachusetts (5th and 3rd), and one each in Oregon (1st), Georgia (9th), Colorado (4th), Minnesota (1st), and Alabama (5th). Each of these districts lost at least 11,400 jobs, or more than 3.7 percent of its total jobs.

The job displacement estimates in this study are conservative. They include only the direct and indirect jobs displaced by trade, and exclude jobs in domestic wholesale and retail trade or advertising; they also exclude re-spending employment. 1 However, during the Great Recession of 2007–2009, and continuing through 2011, jobs displaced by China trade reduced wages and spending, which led to further job losses.

Introduction: High expectations attended China’s entry into the WTO

Today’s international trading system grew out of the Bretton Woods Agreements negotiated among Allied nations in July 1944. Bretton Woods established rules for financial relations among signatories and established the International Monetary Fund and the World Bank. A subsequent U.N. Conference on Trade and Employment produced the General Agreement on Tariffs and Trade (GATT) in 1947. The GATT treaty established the international trading system, which evolved as a series of global trade negotiations that refined the rules of the system while progressively lowering tariffs and non-tariff barriers. The Uruguay Round, which lasted from September 1986 until December 1993, led to the 1994 creation of the World Trade Organization, an institution charged with settling disagreements among nations regarding the rules agreed upon in GATT.

The World Trade Organization was empowered to engage in dispute resolution and to authorize imposition of offsetting duties if its decisions were ignored or rejected by member governments. It expanded the trading system’s coverage to include a huge array of subjects never before included in trade agreements, such as food safety standards, environmental laws, social service policies, intellectual property standards, government procurement rules, and more (Wallach and Woodall 2011).

Over time, countries that were not part of the original GATT group have sought entry into the WTO to gain improved market access for their goods at lower tariff levels, and to encourage development of their traded goods industries.

Proponents of China’s entry into the WTO frequently claimed that it would create jobs in the United States, increase U.S. exports, and improve the trade deficit with China. In 2000, President Clinton claimed that the agreement then being negotiated to allow China into the WTO “creates a win-win result for both countries.” Exports to China “now support hundreds of thousands of American jobs,” and these figures “can grow substantially with the new access to the Chinese market the WTO agreement creates,” he said (Clinton 2000, 9–10).

China’s entry into the WTO in 2001 was supposed to bring it into compliance with an enforceable, rules-based regime that would require China to open its markets to imports from the United States and other nations by reducing tariffs and addressing non-tariff barriers to trade. Promoters of liberalized U.S.-China trade argued that the United States would benefit because of increased exports to a large and growing consumer market in China. The United States also negotiated a series of special safeguard measures designed to limit the disruptive effects of surging imports from China on domestic producers.

However, as a result of China’s currency manipulation and other trade-distorting practices, including extensive subsidies, legal and illegal barriers to imports, dumping, and suppression of wages and labor rights, the envisioned flow of U.S. exports to China did not occur. Further, the agreement spurred foreign direct investment in Chinese enterprises, which has expanded China’s manufacturing sector at the expense of the United States. Finally, the core of the agreement failed to include any protections to maintain or improve labor or environmental standards or to prohibit currency manipulation.

In retrospect, the promises about jobs and exports misrepresented the real effects of trade on the U.S. economy: Trade leads to both job creation and job loss or displacement. (This paper describes the net effect of trade on employment as jobs “lost or displaced,” with the terms “lost” and “displaced” used interchangeably.) Increases in U.S. exports tend to create jobs in the United States, but increases in imports will lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. This is what has occurred with China since it entered the WTO; the United States’ widening trade deficit with China is costing U.S. jobs.

Currency manipulation is a major cause of the trade deficit

A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar. 2  Instead, China has tightly pegged its currency to the U.S. dollar at a rate that encourages a large bilateral trade surplus with the United States.

As China’s productivity has soared, its currency should have adjusted, increasing in value to maintain balanced trade. But the yuan has instead remained artificially low as China has aggressively acquired dollars and other foreign exchange reserves to further depress the value of its own currency. (To depress the value of its own currency, a government can sell its own currency and buy government securities such as U.S. Treasury bills, which increases its foreign reserves.) China had to purchase $337 billion in U.S. Treasury bills and other securities between December 2010 and December 2011 alone to maintain the peg to the U.S. dollar (International Monetary Fund 2012a). As of June 30, 2012, China held a total of $3.24 trillion in foreign exchange reserves (Bloomberg News 2012), about 70 percent of which were held in U.S. dollars. This intervention makes the yuan artificially cheap relative to the dollar, effectively subsidizing Chinese exports.

Although the yuan has appreciated significantly since 2005, economist H.W. Brock (2012) estimates that the Chinese currency is still massively undervalued, and is “arguably one-sixth of what it should be (Miller 2012). 3 New research by Joe Gagnon (2012, 3) estimates that massive currency manipulation, especially by countries in Asia, has raised “the current account of the developing economies by roughly $700 billion [per year], relative to what it would have been.” Gagnon also notes that this “amount is roughly equivalent to the large output gaps in the United States and euro area. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies…” (Gagnon 2012, 1). China is the single most important currency manipulator, based on both its massive currency intervention over the past decade and its share of global current account surpluses. 4 Currency intervention artificially raises the cost of U.S. exports to China and the rest of the world by a similar amount, making U.S. goods less competitive in that country and in every country where U.S. exports compete with Chinese goods. This is because China is the most important competitor for the United States in all other third country markets, even more important than Germany and all other members of the European Union combined.

China’s currency manipulation has compelled other countries to follow similar policies in order to protect their relative competitiveness and to promote their own exports. Widespread currency manipulation has also contributed to the growth of very large global current account imbalances (a country’s current account balance is the broadest measure of its trade balance; there are currently many countries with large surpluses or deficits). Gagnon recommends that the rules of the WTO be changed to allow countries to impose tariffs on imports from currency manipulators. Since changing the rules of the WTO requires unanimous consent of all members, Gagnon observes that “the main targets of currency manipulation—the United States and euro area—may have to play tough. One strategy would be to tax or otherwise restrict purchases of U.S. and euro area financial assets by currency manipulators (Gagnon 2012, 1). Such financial taxes would be “consistent with international law” (Gagnon 2011).

A recent report showed that full revaluation of the yuan and other undervalued Asian currencies would improve the U.S. current account balance by up to $190.5 billion, thereby increasing U.S. GDP by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing the federal budget deficit by up to $857 billion over 10 years (Scott 2011a). Revaluation would also help workers in China and other Asian countries by reducing inflationary overheating and increasing workers’ purchasing power.

It would also benefit other countries. The undervaluation of the yuan has put the burden of global current account realignment pressures on other countries such as Australia, New Zealand, South Africa, and Brazil, along with members of the euro area, whose currencies have also become overvalued with respect to those of China and other currency manipulators.

Policy remedies available to address currency manipulation

A growing number of economists, workers, members of Congress, businesses, and communities are calling for increased action on currency manipulation. The Ryan-Murphy Currency Reform for Fair Trade Act (H.R. 2378) was approved by the House of Representatives on September 29, 2010 (OpenCongress.org 2012), near the end of the 111th Congress. 5 It received an 80 percent approval margin, with a vote of 348–79, with six abstentions. In the 112th Congress, the Senate passed a similar bill, the Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619), authored by Sen. Sherrod Brown (D-Ohio), by a margin of 63–25 (Thomas 2012). A similar measure was introduced in the House in 2011 by Rep. Sander Levin with 234 cosponsors, but it is being held up by the House leadership. These bills would revise the Tariff Act of 1930 to include a “countervailable subsidy” that would allow tariffs to be imposed on some imports from countries with a “fundamentally undervalued currency.” There is strong bipartisan support for such legislation in Congress.

Recently, a number of economists have condemned currency manipulation and developed innovative policy proposals for combating it. Paul Krugman has denounced China for its “predatory” trade policies (Krugman 2010). Fred Bergsten has described China’s currency intervention as the “largest protection measure adopted by any country since the Second World War—and probably in all of history (Palmer 2011). Joseph Gagnon and Gary Hufbauer (2011) have developed a proposal for taxing Chinese assets in the United States. They recommend withholding a share of the proceeds of interest payments on U.S. Treasury securities held by China’s central bank. There are two problems with this proposal. First, since interest rates on U.S. securities are very low at present, a tax would have little impact on China. But the fundamental problem is that China is not holding and purchasing U.S. assets (at a rate of about $1 billion per day) to earn interest on these investments; these purchases are made simply to suppress the value of the Chinese yuan.

Daniel Gros (2010) has developed an innovative, alternative proposal that goes directly to the mechanism of currency manipulation. He recommends that the United States, Japan, and European countries “invoke the [WTO] principle of reciprocity and declare that they will limit sales of public debt henceforth to only include official institutions from countries in which they, themselves, are allowed to buy and hold public debt.” Since China maintains strict capital controls, other central banks are not allowed to buy or hold Chinese debt (which is in part why China is able to manipulate the value of its currency). Gros would simply outlaw Chinese purchases of U.S. debt. Gros (2010) asserts, “No reputable financial institution would dare to become a hidden intermediary for the Chinese…as it would have to certify to the U.S. authorities that the beneficial owner is not from a country in which foreigners cannot buy and hold public debt.” Gros notes that this form of capital control is “perfectly legal” under IMF rules because, “in contrast to the area of trade, there are no legal constraints on the impositions of capital controls.” 6

Gagnon (2011) estimates that many developing countries are manipulating their currencies. IMF data show that foreign central banks are spending about $1.2 trillion per year buying foreign exchange reserves, with China making about half the purchases (according to the authors analysis of IMF 2012a). These figures exclude sovereign wealth funds (SWFs), which many countries use to make investments in other countries; although Gagnon acknowledges that “foreign investment by SWFs clearly is currency manipulation,” he excludes it from his calculations “for now” (Gagnon 2012, 4). Gagnon (2011) estimates that U.S. net exports are $400 billion lower than they would be without currency manipulation, a figure that would support three million or more jobs per year.

Other illegal laws, regulations, and policies are also responsible for the large U.S. trade deficit with China

Currency manipulation is one practice that violates the rules of the international trading system set out in the GATT and WTO agreements (Stewart and Drake 2010). Other Chinese government policies also illegally encourage exports. China extensively suppresses labor rights, which lowers production costs within China. An AFL-CIO study estimated that repression of labor rights by the Chinese government has lowered manufacturing wages of Chinese workers by 47 percent to 86 percent (AFL-CIO, Cardin, and Smith 2006, 138). China also provides massive direct export subsidies to many key industries (see, for example, Haley 2008, 2009, 2012). Finally, it maintains strict, non-tariff barriers to imports. As a result, China’s $398.5 billion of exports to the United States in 2011 were more than four times greater than U.S. exports to China, which totaled only $96.9 billion (Table 1 ), making the China trade relationship the United States’ most imbalanced by far.

Table 1 Table 1 (continued)