Updated May 14, 2018 - Economy

China blamed for destroying U.S. manufacturing

Steel furnace in the U.K., 1954. Photo: Maurice Broomfield/SSPL/Getty

New data have persuaded many economists that Chinese trade, and not robots, is at fault for vanished manufacturing jobs across the Ohio and Mississippi river belts, but a key expert is disputing the finding.

Why it matters: Within the answer may lie the answer to resurrecting at least some of the hollowed out manufacturing heartland, or at least not making the same mistakes again. And it may also help explain the rise of populist leaders like President Trump.

  • A growing consensus is that trade deals such as China's 2001 entry to the WTO are far more to blame for manufacturing job losses than automation.
  • But some economists continue to dissent and seek a larger explanation.

The background: In a long piece earlier this month, Quartz's Gwynn Guilford profiled the work of Susan Houseman, an economist with the Upjohn Institute. In a 2011 paper and subsequent followup work, Houseman found that, when you strip away productivity gains by the computer sector, the rest of the manufacturing economy had super-slow growth starting in the late 1970s, and almost no growth starting about 2000, approximately the time of China's WTO accession.

  • That was puzzling, since a productivity bump should have been present if manufacturing was automating in spades, as was claimed.
  • Therefore something else was responsible for the wipeout of jobs.

David Autor, an MIT economist who pioneered research into China's 2001 entry to the WTO, told me that automation has been "overblown and the importance of trade under-appreciated" in grasping the U.S. manufacturing implosion. From his own work, Autor had already intuited that China's WTO membership was primarily to blame, but Houseman provided the final pieces of data that proved it. "She has cracked a big puzzle," he said.

Other economists said the same thing: At the McKinsey Global Institute, for instance, Sree Ramaswamy added pharmaceuticals as an industry that, along with computing, accounted for almost all the real rise in productivity.

  • The big job hit, he said, was to medium and small manufacturers who, in the cutthroat global competition that erupted after big trade agreements, failed to compete.
  • Karen Harris, director of Bain Macro Trends, said it's now clear that trade was "the key channel" that drove down wages across sectors, leading to the rising income inequality that has dogged the U.S. economy.
  • The suggestion in these conclusions is that, from labor unions to Trump, trade critics have been right to all-but ignore automation and blame pacts like NAFTA.

But but but: In so doing, they challenge the work of Carl Frey, an Oxford economist and co-author of a 2013 paper that is the baseline for the study of the impact of automation on jobs.

  • In October, Frey posted a draft of a new paper in which he linked automation anxiety and Trump's 2016 election: Support for Trump was greater in areas of relatively high robot adoption. Lower adoption, he said, would have swung Michigan, Pennsylvania or Wisconsin to Hillary Clinton.
  • Frey told me that his work had taken account of Chinese trade. "We control ... for Chinese import competition in our study. Doing so, robots still have a significant impact," he said.

In addition, in terms of the populist wave, a new study by University of Pennsylvania political scientist Diana Mutz found a completely separate explanation from job destruction: people have reacted not to lost income, but to a perceived threat to their local status. In other words, it has been tribalism.

  • If Metz is right, no amount of righted trade deals will turn the populism.
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