China’s economic ascent is likely remembered by many Americans as a story of shuttered factories and hollowed-out towns. Oh, and an anxious turn in U.S. politics that continues today. But for all the sustained force of that narrative, it’s incomplete: The United States, taken as a whole, grew more prosperous even as China transformed the global economy. The contrast between national gain and local pain helps explain why the China shock story has endured—and why it also obscures as much as it reveals.
A new National Bureau of Economic Research study helps fill in the missing context. In “Accommodating Emerging Giants in the Global Economy,” economists (Zhuokai Huang, Benny Kleinman, Ernest Liu, and Stephen Redding) examine six decades of global trade and productivity data to ask a simple question: What happens to a country like the United States when massive emerging economies grow faster than it does? From the paper:
We find that reductions in worldwide trade frictions over the period from 1960-2020 reduced the share of the United States in global GDP but raised its aggregate welfare. Similarly, productivity growth in Japan and China led to a decline in the relative income of the United States, but brought aggregate welfare gains from the resulting expansion in global production possibilities.
Their answer might seem counterintuitive, although it fits with standard economic theory. China’s rapid growth reduced America’s share of global GDP, but it also helped Americans by making a wide range of goods cheaper to buy and easier for U.S. companies to produce. America looked relatively smaller, economywise—but became absolutely richer.
This top-down, macro view puts the famous China-shock findings of David Autor, David Dorn and Gordon Hanson in a different light. Their work showed that U.S. regions heavily exposed to Chinese import competition suffered deep and lasting damage: higher unemployment, lower earnings, and slow adjustment to the new economic reality. They highlighted the deep losses felt in the communities most exposed to Chinese imports. That, even as the corresponding national gains were spread thinly across millions of households and far harder to detect.
Other research widens the frame even further. Yes, Chinese imports did lead to job losses in U.S. manufacturing, especially in places that produced the goods China began exporting after joining the WTO. But when researchers examined the full picture—including the jobs created by rising U.S. exports to all foreign markets—they found that export growth replaced most of the lost jobs. At the industry level, U.S. exports made up almost all the China-related losses from 1991 to 2011. At the regional level, job losses and job gains were pretty much balanced over the full 20-year period.
The stories we tell ourselves matters. And there’s nothing wrong with that—at last if we update those stories as needed.