Most blockbusters have sequels. Apparently, that’s also true in economics. A new study by David Autor, David Dorn and Gordon Hanson offers another installment in their epic China Shock saga. You might call it China Shock: The Final Chapter. It may be the best one yet, with solid exposition and cutting-edge statistical effects. It kind of ties the whole thing together, offering important lessons for the political world on how to avoid another catastrophe for working-class Americans.
For those not caught up on the China Shock saga: About a decade ago, economists Autor, Dorn and Hanson began a groundbreaking research project to see what happened to the U.S. after China cannonballed into the global marketplace at the turn of the millennium. For competitors, it was like an earthquake followed by a tsunami followed by a flood. Between 1991 and 2013, China’s manufacturing exports went from only 2.3% of the world’s total to a whopping 19% of it.
Up until Autor, Dorn and Hanson began publishing about the China Shock, mainstream economists didn’t really consider trade to be a crucial part of the story of rising inequality in America. They focused more on the effects of technological change and domestic policies. And to be fair to them, Hanson says, trade wasn’t really an important part of the story before China came on the scene. “We had never seen a country that was this big and this specialized in manufacturing open itself that quickly.”
It was not a surprise to economists that China, with its endless supply of cheap labor, killed American manufacturing jobs. But most economists, like most American leaders, had believed that workers would adapt somewhat smoothly to economic change and that they would find solid places to work in other sectors. “We had this notion that the American economy is this incredibly dynamic place,” says Hanson, an economist at Harvard Kennedy School. “We create millions of jobs every year, and we destroy millions of jobs every year. We thought we could handle moving a couple of million manufacturing workers from one sector to another.”
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Autor, Dorn and Hanson’s first peer-reviewed papers from their China Shock saga were published in 2013. The economists found that between 1990 and 2007, trade with China killed about 1.5 million American manufacturing jobs, or about a quarter of all manufacturing jobs lost during that period. But what was even more startling: These losses were heavily concentrated in small- and medium-size communities dotting America’s heartland — and workers who lost their jobs in those areas struggled to find other work. The China…
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