Photographer: Patrick T. Fallon/Bloomberg

Trump and Sanders Have a Point About Trade With China

When U.S. imports rise, so do unemployment and disability payments.

As the presidential primaries land in New York Tuesday, Bernie Sanders and Donald Trump have been hammering home their arguments that free trade--especially with China--has harmed a lot of ordinary Americans, even as it lowered prices for consumers. They have a point, according to research by three economists who studied what happened to the U.S. when imports from China soared.

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The chart below comes from "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade," a paper by David Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich, and Gordon Hanson of the University of California-San Diego. It's been getting a lot of attention since its release in January, including in this article I wrote for Bloomberg Businessweek.

The bars show what happened from 1990 and 2007, as imports from China killed U.S. jobs. The chart takes the dollar value of imports from China and divides that sum by the number of American workers. Then it compares that number with the attendant increase in government transfer payments such as unemployment, disability, and retirement benefits. 

Here's the math: Statistically speaking, for each $1,000-per-worker increase in annual imports from China, there's a roughly $58-per-capita increase in annual transfer payments. Those payouts aren't giveaways: They're partial compensation to workers, their families, and communities for the losses suffered when their jobs went away.

Economics 101 says this shouldn't be happening. In theory, if the U.S. imports more from China, it should also sell more to China, keeping the trade balance even and Americans fully employed. In reality, that isn't happening. China sells far more to the U.S. than it buys. Autor, Dorn, and Hanson found that, as a result, many displaced American workers stayed unemployed or underemployed, rather than landing jobs in other sectors or other cities.

Economist Tyler Cowen of George Mason University argued in a column for the New York Times on April 17 that better days (for the U.S.) may be ahead. He noted that, as China shifts to higher-value production, it's doing more original research, rather than merely copying foreign-made products. Moving to the leading edge instead of just exploiting American technology is costing the Chinese real money, Cowen wrote.

That would be good for American consumers, and it might even help some U.S. companies and their employees. So far, though, trade with China has been a bust for millions of unemployed factory workers and their families.

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