The flood of Chinese imports into the U.S. does not just cost jobs. It shuts down factories and businesses altogether, with devastating consequences for the communities where they are located.
After years of denial, it is now widely known that the opening of the U.S. market to Chinese imports was devastating, inflicting deep and lasting damage to many areas in the U.S. Regions most exposed to competition from China not only lost manufacturing jobs, they saw overall employment decline and never recovered. Areas with higher exposure have also been shown to have more people relying on food stamps and disability payments, more people addicted to opioids, lower rates of marriage, higher rates of political polarization, and higher rates of incarceration.
New research suggests that one of the main reasons the damage has been so deep and lasting is that the jobs lost from Chinese imports were not just from companies downsizing or becoming more efficient but from closing manufacturing plants altogether. The paper by four economists — Brian Asquith of the National Bureau of Economic Research and University of California at Irvine’s Sajana Goswami, David Neumark, and Antonio Rodriguez-Lopez — finds that the so-called “China shock” operated mainly through “deaths of establishments.”
This makes the job losses from the China shock fundamentally different from other adverse shocks, such as recessions, that can hit the U.S. labor market. In those situations, job losses are primarily from contractions of the number of people employed at a plant, rather than the outright closing of a plant.
“From a local-labor markets point of view, regional economies are likely to suffer more from deaths than from contractions (which tend to be one-off events or cyclical) because closed establishments can more permanently reduce local employment,” the authors write.
The economists say that many of the workers thrown out of work because of “establishment deaths” are later “reabsorbed” into the “nontradeable” sector, mainly through the births of new establishments. What is not explored in the paper is that many of these nontradeable sector jobs, however, a likely to be lower-paying service sector jobs.