The latest threat from the rise of Chinese manufacturing

The findings a decade ago were, well, shocking. Mainstream economists had long argued that free trade was overall a good thing; though there might be some winners and losers, it would generally bring lower prices and widespread prosperity. Then, in 2013, a trio of academic researchers showed convincing evidence that increased trade with China beginning in the early 2000s and the resulting flood of cheap imports had been an unmitigated disaster for many US communities, destroying their manufacturing lifeblood.

The results of what in 2016 they called the “China shock” were gut-wrenching: the loss of 1 million US manufacturing jobs and 2.4 million jobs in total by 2011. Worse, these losses were heavily concentrated in what the economists called “trade-exposed” towns and cities (think furniture makers in North Carolina).

If in retrospect all that seems obvious, it’s only because the research by David Autor, an MIT labor economist, and his colleagues has become an accepted, albeit often distorted, political narrative these days: China destroyed all our manufacturing jobs! Though the nuances of the research are often ignored, the results help explain at least some of today’s political unrest. It’s reflected in rising calls for US protectionism, President Trump’s broad tariffs on imported goods, and nostalgia for the lost days of domestic manufacturing glory.

The impacts of the original China shock still scar much of the country. But Autor is now concerned about what he considers a far more urgent problem—what some are calling China shock 2.0. The US, he warns, is in danger of losing the next great manufacturing battle, this time over advanced technologies to make cars and planes as well as those enabling AI, quantum computing, and fusion energy.

Recently, I asked Autor about the lingering impacts of the China shock and the lessons it holds for today’s manufacturing challenges.

How are the impacts of the China shock still playing out?

I have a recent paper looking at 20 years of data, from 2000 to 2019. We tried to ask two related questions. One, if you looked at the places that were most exposed, how have they adjusted? And then if you look to the people who are most exposed, how have they adjusted? And how do those two things relate to one anothe

It turns out you get two very different answers. If you look at places that were most exposed, they have been substantially transformed. Manufacturing, once it starts going down, never comes back. But after 2010, these trade-impacted local labor markets staged something of an employment recovery, such that employment has grown faster after 2010 in trade-exposed places than non-trade-exposed places because a lot of people have come in. But these are jobs mostly in low-wage sectors. They’re in K–12 education and non-traded health services. They’re in warehousing and logistics. They’re in hospitality and lodging and recreation, and so they’re lower-wage, non-manufacturing jobs. And they’re done by a really different set of people.

The growth in employment is among women, among native-born Hispanics, among foreign-born adults and a lot of young people. The recovery is staged by a very different group from the white and black men, but especially white men, who were most represented in manufacturing. They have not really participated in this renaissance.

Employment is growing, but are these areas prospering?

They have a lower wage structure: fewer high-wage jobs, more low-wage jobs. So they’re not, if your definition of prospering is rapidly rising incomes. But there’s a lot of employment growth. They’re not like ghost towns. But then if you look at the people who were most concentrated in manufacturing—mostly white, non-college, native-born men—they have not prospered. Most of them have not transitioned from manufacturing to non-manufacturing.

One of the great surprises is everyone had believed that people would pull up stakes and move on. In fact, we find the opposite. People in the most adversely exposed places become less likely to leave. They have become less mobile. The presumption was that they would just relocate to find higher ground. And that is not at all what occurred.

What happened to the total number of manufacturing jobs?

There’s been no rebound. Once they go, they just keep going. If there is going to be new manufacturing, it won’t be in the sectors that were lost to China. Those were basically labor-intensive jobs, the kind of low-tech sectors that we will not be getting back. You know—commodity furniture and assembly of things, shoes, construction material. The US wasn’t going to keep them forever, and once they’re gone, it’s very unlikely to get them back.

I know you’ve written about this, but it’s not hard to draw a connection between the dynamics you’re describing—white-male manufacturing jobs going away and new jobs going to immigrants—and today’s political turmoil.

We have a paper about that called “Importing Political Polarization?”

How big a factor would you say it is in today’s political unrest?

I don’t want to say it’s the factor. The China trade shock was a catalyst, but there were lots of other things that were happening. It would be a vast oversimplification to say that it was the sole cause.

But most people don’t work in manufacturing anymore. Aren’t these impacts that you’re talking about, including the political unrest, disproportionate to the actual number of jobs lost?

These are jobs in places where manufacturing is the anchor activity. Manufacturing is very unevenly distributed. It’s not like grocery stores and hospitals that you find in every county. The impact of the China trade shock on these places was like dropping an economic bomb in the middle of downtown. If the China trade shock cost us a few million jobs, and these were all—you know—people in groceries and retail and gas stations, in hospitality and in trucking, you wouldn’t really notice it that much. We lost lots of clerical workers over the last couple of decades. Nobody talks about a clerical shock. Why not? Well, there was never a clerical capital of America. Clerical workers are everywhere. If they decline, it doesn’t wipe out the entire basis of a place.

So it goes beyond the jobs. These places lost their identity.

Maybe. But it’s also the jobs. Manufacturing offered relatively high pay to non-college workers, especially non-college men. It was an anchor of a way of life.

And we’re still seeing the damage.

Yeah, absolutely. It’s been 20 years. What’s amazing is the degree of stasis among the people who are most exposed—not the places, but the people. Though it’s been 20 years, we’re still feeling the pain and the political impacts from this transition.

Clearly, it has now entered the national psyche. Even if it weren’t true, everyone now believes it to have been a really big deal, and they’re responding to it. It continues to drive policy, political resentments, maybe even out of proportion to its economic significance. It certainly has become mythological.

What worries you now?

We’re in the midst of a totally different competition with China now that’s much, much more important. Now we’re not talking about commodity furniture and tube socks. We’re talking about semiconductors and drones and aviation, electric vehicles, shipping, fusion power, quantum, AI, robotics. These are the sectors where the US still maintains competitiveness, but they’re extremely threatened. China’s capacity for high-tech, low-cost, incredibly fast, innovative manufacturing is just unbelievable. And the Trump administration is basically fighting the war of 20 years ago. The loss of those jobs, you know, was devastating to those places. It was not devastating to the US economy as a whole. If we lose Boeing, GM, and Apple and Intel—and that’s quite possible—then that will be economically devastating.

I think some people are calling it China shock 2.0.

Yeah. And it’s well underway.

When we think about advanced manufacturing and why it’s important, it’s not so much about the number of jobs anymore, is it? Is it more about coming up with the next technologies?

It does create good jobs, but it’s about economic leadership. It’s about innovation. It’s about political leadership, and even standard setting for how the rest of the world works.

Should we just accept that manufacturing as a big source of jobs is in the past and move on?

No. It’s still 12 million jobs, right? Instead of the fantasy that we’re going to go back to 18 million or whatever—we had, what, 17.7 million manufacturing jobs in 1999—we should be worried about the fact that we’re going to end up at 6 million, that we’re going to lose 50% in the next decade. And that’s quite possible. And the Trump administration is doing a lot to help that process of loss along.

We have a labor market of over 160 million people, so it’s like 8% of employment. It’s not zero. So you should not think of it as too small to worry about it. It’s a lot of people; it’s a lot of jobs. But more important, it’s a lot of what has helped this country be a leader. So much innovation happens here, and so many of the things in which other countries are now innovating started here. It’s always been the case that the US tends to innovate in sectors and then lose them after a while and move on to the next thing. But at this point, it’s not clear that we’ll be in the frontier of a lot of these sectors for much longer.

So we want to revive manufacturing, but the right kind—advanced manufacturing?

The notion that we should be assembling iPhones in the United States, which Trump wants, is insane. Nobody wants to do that work. It’s horrible, tedious work. It pays very, very little. And if we actually did it here, it would make the iPhones 20% more expensive or more. Apple may very well decide to pay a 25% tariff rather than make the phones here. If Foxconn started doing iPhone assembly here, people would not be lining up for that job.

But at the same time, we do need new people coming into manufacturing.

But not that manufacturing. Not tedious, mind-numbing, eyestrain-inducing assembly.

We need them to do high-tech work. Manufacturing is a skilled activity. We need to build airplanes better. That takes a ton of expertise. Assembling iPhones does not.

What are your top priorities to head off China shock 2.0?

I would choose sectors that are important, and I would invest in them. I don’t think that tariffs are never justified, or industrial policies are never justified. I just don’t think protecting phone assembly is smart industrial policy. We really need to improve our ability to make semiconductors. I think that’s important. We need to remain competitive in the automobile sector—that’s important. We need to improve aviation and drones. That’s important. We need to invest in fusion power. That’s important. We need to adopt robotics at scale and improve in that sector. That’s important. I could come up with 15 things where I think public money is justified, and I would be willing to tolerate protections for those sectors.

What are the lasting lessons of the China shock and the opening up of global trade in the 2000s?

We did it too fast. We didn’t do enough to support people, and we pretended it wasn’t going on.

When we started the China shock research back around 2011, we really didn’t know what we’d find, and so we were as surprised as anyone. But the work has changed our own way of thinking and, I think, has been constructive—not because it has caused everyone to do the right thing, but it at least caused people to start asking the right questions.

What do the findings tell us about China shock 2.0?

I think the US is handling that challenge badly. The problem is much more serious this time around. The truth is, we have a sense of what the threats are. And yet we’re not seemingly responding in a very constructive way. Although we now know how seriously we should take this, the problem is that it doesn’t seem to be generating very serious policy responses. We’re generating a lot of policy responses—they’re just not serious ones.