Benefits and costs international trade increases

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Benefits and costs International trade increases economic productivity, reallocating jobs to more efficient indus- tries. 21 In the case of U.S.-China trade, there has been job creation in some areas of the U.S. economy such as agriculture and services, and job destruction in some sectors—particularly low wage manufacturing. For instance, between 1995-2001, U.S. exports overall are estimated to have created 6.6 million jobs 22 and recent data shows U.S. exports to China support around 1.8 million jobs in sectors such as services, agriculture, and capital goods. 23 U.S. consumers have also gained from trade with China. 24 From 2000 to 2007, the impact of lower-priced imports from China produced an economic gain of $202 billion for the U.S.—equivalent to $101,250 per job lost in manufacturing during this period. 25 Yet, trade with China has led to job losses in the U.S. manufacturing sector. From 1999 to 2011, 560,000 manufacturing jobs were lost due to direct competition with imports from China. 26 Taking into account upstream effects—job losses in industries that supplied to those industries facing direct competition from China—there were 2 million job losses in the manufac- turing and non-manufacturing sectors. 27,28 This data, however, likely overstates the job losses as it fails to account for the extent to which U.S. imports from China include U.S. value add. China remains a locus of significant amounts of “processing trade” critical to global value chains, whereby low value-added product assembly using inputs from the U.S. and elsewhere are then exported to the U.S. and globally, while high-value inputs such as research and development, design, distribution, retail, and so on remain outside China. For instance, each iPhone imported into the U.S. from China is recorded as a $240 import, but China’s value add to the iPhone is only around $8.50 or 3.6 percent of the total, while the imported U.S. value added in the iPhone is worth around $70. 29 As this example demonstrates, a proper accounting of U.S. trade with China would better take into account U.S. value embedded in imports from China and reduce the impact of imports from China on U.S. manufacturing jobs by over 32 percent. 30 Moreover, the initial China shock to the U.S. economy is largely complete and trade with China is having fewer negative effects on U.S. manufacturing. 31 Evidence of firm reorganization and innovation shows that U.S. business has been more adept at competing with imports from China. 32 In fact, since 2010, the U.S. has added over 1.2 million manufacturing jobs. 33 21 Krauss, Melvyn. How Nations Grow Rich: The case for free trade. Oxford University Press, 1997. 22 Feenstra, Robert C. and Akira Sasahara. “The ‘China shock,’ Exports and U.S. employment: A Global Input-output Analysis,” Special Issue Paper, Review International Economics, 6(5) (November 2018): 1053-1083.
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