China Trade, Outsourcing, and Jobs

Growing U.S. trade deficit and outsourcing with China cost 3.2 million jobs between 2001 and 2013, with job losses in every state.

China Trade, Outsourcing, and Jobs

Since China entered the World Trade Organization in 2001, the massive growth of trade between China and the United States has had a dramatic and negative effect on U.S. workers and the domestic economy. Specifically, a growing U.S. goods trade deficit with China has the United States piling up foreign debt, losing export capacity, and losing jobs, especially in the vital but under-siege manufacturing sector. Growth in the U.S. goods trade deficit with China between 2001 and 2013 eliminated or displaced 3.2 million U.S. jobs, 2.4 million (three-fourths) of which were in manufacturing. These lost manufacturing jobs account for about two-thirds of all U.S. manufacturing jobs lost or displaced between December, 2001 and December 2013.

Among specific industries, the trade deficit in the computer and electronic parts industry grew the most, and 1,249,100 jobs were lost or displaced due to outsourcing, 39.6 percent of the 2001–2013 total. As a result, many of the hardest-hit congressional districts were in California, Texas, Oregon, Massachusetts, and Minnesota, where jobs in that industry are concentrated. Some districts in New York, Georgia, and Illinois were also especially hard-hit by trade-related job displacement due to outsourcing in a variety of manufacturing industries, including computer and electronic parts, textiles and apparel, and furniture.

The growing trade deficit with China has cost jobs in all 50 states and the District of Columbia. Using a new model and new congressional district data to estimate the job impacts of trade for the 113th Congress, this study also finds that job losses occurred in every congressional district but one.¹

This summary of 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, due to outsourcing, with China between 2001 and 2013 were in manufacturing industries (2.4 million jobs, or 75.7 percent).
• Within manufacturing, rapidly growing imports of computer and electronic parts (including computers, parts, semiconductors, and audio and video equipment) accounted for 56.0 percent of the $240.1 billion increase in the U.S. goods trade deficit with China between 2001 and 2013. The growth of this deficit eliminated 1,249,100 U.S. jobs in computer and electronic parts in this period. Indeed, in 2013, the total U.S. trade deficit with China was $324.2 billion—$154.4 billion of which was in computer and electronic parts.
• 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 parts industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology. In 2013, the United States had a $116.9 billion deficit in advanced technology products with China, and this deficit was responsible for 36.0 percent of the total U.S.-China goods trade deficit. In contrast, the United States had a $35.6 billion surplus in advanced technology products with the rest of the world in 2013.
• Other industrial sectors hit hard by the growing trade deficit with China between 2001 and 2013 include apparel (203,900 jobs); textile mills and textile product mills (106,800); fabricated metal products (141,200); electrical equipment, appliances, and components (96,700); furniture and related products (94,700); plastics and rubber products (72,800); motor vehicles and parts (34,800); and miscellaneous manufactured goods (107,600). Several service sectors were also hit hard, by indirect job losses, including administrative and support and waste management and remediation services (196,900) and professional, scientific, and technical services (169,900).
• The 3.2 million U.S. jobs lost or displaced by the goods trade deficit with China between 2001 and 2013 were distributed among all 50 states and the District of Columbia, with the biggest net losses occurring in California (564,200 jobs), Texas (304,700), New York (179,200), Illinois (132,500), Pennsylvania (122,600), North Carolina (119,600), Florida (115,700), Ohio (106,400), Massachusetts (97,200), and Georgia (93,700).
• In percentage terms, the jobs lost or displaced due to the growing goods trade deficit with China in the 10 hardest-hit states ranged from 2.44 percent to 3.67 percent of the total state employment: Oregon (62,700 jobs lost or displaced, equal to 3.67 percent of total state employment), California (564,200 jobs, 3.43 percent), New Hampshire (22,700 jobs, 3.31 percent), Minnesota (83,300 jobs, 3.05 percent), Massachusetts (97,200 jobs, 2.96 percent), North Carolina (119,600 jobs, 2.85 percent), Texas (304,700 jobs, 2.66 percent), Rhode Island (13,200 jobs, 2.58 percent), Vermont (8,200 jobs, 2.51 percent), and Idaho (16,700 jobs, 2.44 percent).
• The hardest-hit congressional districts were concentrated in states that were heavily exposed to the growing U.S.-China trade deficit in computer and electronic parts and other durable goods industries such as furniture as well nondurable industries such as textiles and apparel. The three hardest-hit congressional districts were all located in Silicon Valley in California, including the 17th (South Bay, encompassing Sunnyvale, Cupertino, Santa Clara, Fremont, Newark, North San Jose, and Miltpitas²), which lost 61,500 jobs, equal to 17.77 percent of all jobs in the district), the 18th Congressional District (including parts of San Jose, Palo Alto, Redwood City, Mountain View, and Los Gatos), which lost 50,700 jobs, 14.72 percent), and the 19th Congressional District (most of San Jose and other parts of Santa Clara County, which lost 39,900 jobs, 12.31 percent of all jobs). Of the top 20 hardest-hit districts, eight were in California (in rank order, the 17th, 18th, 19th, 15th, 40th, 34th, 52nd, and 45th), six were in Texas (31st, 3rd, 10th, 18th, 17th, and 2nd), and one each in Oregon (1st), Massachusetts (3rd), Georgia (14th), Minnesota (1st), New York (18th), and Illinois (6th). Job losses in these districts ranged from 13,900 jobs to 61,500 jobs, and 4.28 percent to 17.77 percent of total district jobs.

The job displacement estimates in this study are conservative. They include only the jobs directly or indirectly displaced by trade and outsourcing, and exclude jobs in domestic wholesale and retail trade or advertising; they also exclude respending employment.³ They also do not account for the fact that during the Great Recession of 2007–2009, and continuing through 2013, jobs displaced by China trade reduced wages and spending, which led to further job losses.

Further, the jobs impact of the U.S. trade deficit with China is not limited to job loss and displacement and the associated direct wages losses. 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, as previous EPI research has shown. 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 2012).

As earlier EPI research has shown, trade with China between 2001 and 2011 displaced 2.7 million workers, who suffered a direct loss of $37.0 billion in reduced wages alone in 2011 (Scott 2013a). The nation’s 100 million non-college educated workers suffered a total loss of roughly $180 billion due to increased trade with low-wage countries (Bivens 2013). These indirect wage losses were nearly five times greater than the direct losses suffered by workers displaced by China trade, and the pool of affected workers was nearly 40 times larger (100 million non-college-educated workers versus 2.7 million displaced workers).

The U.S. trade deficit with China has increased since China entered into the WTO

Proponents of China’s entry into the World Trade Organization (WTO) frequently claimed that it would create jobs in the United States, increase U.S. exports, and improve the trade deficit with China.⁴ In 2000, President Bill Clinton claimed that the agreement then being negotiated to allow China into the WTO would create “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 nontariff 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 (FDI) 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 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.

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