The “China Shock” and American Jobs

July 24, 2025 by Dan Mitchell  @ International Liberty

From an economic perspective, the most important part of this video is at 2:22, when I explain that everyone is better off in the long run when there are job losses caused by creative destruction.

 Today, I want to share some real-world data to confirm that assertion.

Here’s a chart showing the 10 metropolitan areas that reportedly suffered the most (the “China Shock”) when China became part of the world trading system.

As you can see, both low-income and average-income residents in these cities now have higher wages than they did before trade with China supposedly wreaked havoc.

The chart comes from an article by Jeremy Horpedahl.

Here are some excerpts.

 

Much has been made of the “China Shock,” or the impact on US manufacturing from two related trade policy changes: the US granting China permanent normal trade relations in 2000, and China’s accession to the WTO in 2001. … 

David Autor and co-authors have been some of the primary contributors to academic research on the China Shock, showing its negative impact on certain people living in various parts of the US. …we can identify 10 metropolitan statistical areas (MSAs) that are the most affected by Chinese imports… 

What happened to those “most affected” MSAs? Here’s a shocking fact: all of the MSAs hit hard by the China Shock still managed to have significant and positive real wage growth across the distribution since 2001… Wage gains in several of these places, in fact, are better than the national trends. …the 10th percentile workers saw larger gains than the median worker.

It’s also worth looking at employment data. The next chart shows that these communities have enjoyed as much job growth – on average – as the rest of the United States.

The conclusion is that protectionism is not the right way of responding to trade.

…the lesson of the China Shock isn’t that we need more tariffs and industrial subsidies. Instead, it’s that the way to help Americans and US regions that are hurt by foreign trade (or any other economic shock) is to allow them to transition to a different, more modern industrial structure and allow their service sectors to flourish. …To emphasize one more time, … 

I have focused on the MSAs that were most affected by the China Shock—in other words, the worst-case scenarios. Yet even these worst cases show that the US economy is more than able to adapt to employment changes brought on by international trade, even as we enjoy all of its other benefits.

Amen.

None of this means that there are not victims from trade. But as I’ve explained before, there are far more victims from internal trade than there are from international trade.

What’s important is making sure there is a good economic environment so that job gains are greater than job losses. And so long as government doesn’t interfere too much, that will lead to rising incomes over time for everyone.