Each $1 billion in exports to another country from the United States supports some American jobs. However, each $1 billion in imports from another country leads to job loss—by eliminating existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers.3 The net employment effect of trade depends on the changes in the trade balance. An improving trade balance can support job creation, but a growing trade deficit usually results in growing net U.S. job displacement. The net change in the U.S.–China trade balance between 2001 and 2017 also reflects the effect of trade in intermediate products between the two countries on net trade flows and job losses.
This is what has occurred with China since it entered the WTO; the United States’ widening trade deficit with China has been costing U.S. jobs. While some imports of parts and components from China have gone into the production of final goods, some of which have then been exported to China and the rest of the world, the overall U.S. trade deficit in manufactured products with China and the rest of the world has grown substantially since China entered the WTO.
This paper describes the net effect of the growing U.S.–China goods trade deficit (hereafter referred to as the U.S.–China trade deficit) on employment as jobs “lost or displaced,” with the terms “lost” and “displaced” used interchangeably.4 The employment impacts of the growing U.S. trade deficit with China are estimated in this paper using an input-output model that estimates the direct and indirect labor requirements of producing output in a given domestic industry.
The model estimates the amount of labor (number of jobs) required to produce a given volume of exports and the labor displaced when a given volume of imports is substituted for domestic output. The difference between these two numbers is essentially the jobs displaced by the growing trade deficit, holding all else equal.
Jobs displaced by the United States’ growing trade deficit with China are a net drain on employment in trade-related industries, especially those in manufacturing. Even if increases in demand in other sectors absorb all the workers displaced by trade (which is unlikely), job quality will likely suffer because many nontraded industries such as retail trade and home health care pay lower wages and have less comprehensive benefits than traded-goods industries (Scott 2013, 2017a).
As shown in the bottom panel of Table 1, U.S. exports to China in 2001 supported 179,200 jobs, but U.S. imports displaced production that would have supported 1,170,700 jobs. Therefore, the $83.0 billion trade deficit in 2001 displaced 991,500 jobs in that year. Net job displacement rose to 3,052,700 jobs in 2008 and 4,352,200 jobs in 2017. As a result, since China’s entry into the WTO in 2001 and through 2017, the increase in the U.S.–China trade deficit eliminated or displaced 3,360,600 U.S. jobs. Also shown in Table 1, the U.S. trade deficit with China increased by $108.9 billion (or 40.9 percent) between 2008 and 2017. During that period, the number of jobs displaced increased by 1,299,400 (or 42.6 percent).