How much does US-China trade hurt American workers? Slowly, a clearer picture.

A study published earlier this year suggests that imports in US-China trade have had a significant negative impact not just on factory workers but also on their communities.

Jason Reed/REUTERS
US Treasury Secretary Tim Geithner listens to closing statements at the US-China Strategic and Economic Dialogue at the Interior Department in Washington Tuesday.

As top economic officials from the US and China meet in Washington this week, old concerns still linger: Are China's trade policies stealing jobs from American workers? Should the US take a tougher, more retaliatory line in its own trade policies?

It's a debate that raged even in under President Clinton in the 1990s, when Chinese exports to the US were much smaller and the US economy was much healthier.

In two-day bilateral talks this week, Treasury Secretary Tim Geithner pressed China to do more to protect intellectual property rights for global companies like Microsoft, and to allow its currency to move in foreign-exchange markets with greater flexibility. Some lawmakers in the US Congress have proposed a stronger-armed approach, slapping on trade penalties if Beijing fails to act along those lines.

The dialogue – and the threats of pressure from Congress – come as recent research by economists may be bringing the ripple effects of US-China trade into clearer focus. The upshot of the research isn't that trade with China is harming the US economy, but it does suggest that the negative effects on many US workers have been considerable.

Study's findings

In a study published earlier this year, three academic economists examined the effects of rising imports from China on the US job market since 1990. They sought what could be called the "China effect" by looking at local labor markets, including some that were heavily affected by Chinese imports and some that were less affected.

What they found were sizable negative effects in the form of lost jobs, lower wages, and lower labor-force participation. Although the job losses were concentrated in factories – accounting for one-third of the decline in US manufacturing jobs between 1990 and 2007 – the effects on wages spread throughout local economies, concluded researchers David Autor of the Massachusetts Institute of Technology, David Dorn of the Center for Monetary and Financial Studies in Madrid, and Gordon Hanson of the University of California in San Diego.

"There is nothing in our results to show that US trade with China overall is negative" in its impacts, Mr. Hanson says. For one thing, their study makes no effort to account for positive impacts on the economy from US exports to China.

But Mr. Hanson says the magnitude of the negative impacts, as found in their research, surprised him despite his years of studying the economics of trade.

As people are pushed out of jobs by Chinese imports, the research found a substantial increase in government transfer payments to individuals in the form of things like unemployment insurance and disability benefits.

The potential offset is that US consumers (including families affected by job losses) reap benefits from access to lower-cost goods from China.

An important conclusion of the new research, however, is that the economic losses to the US may be roughly equal in size to those gains for consumers.

The government "transfers fall far short of offsetting the large decline in average household incomes found in local labor markets that are most heavily exposed to China trade," write Hanson and his colleagues. And as the use of public benefits goes up, "our estimates imply that the losses in economic efficiency ... are, in the medium run, of the same order of magnitude as US consumer gains from trade with China."

What can US do?

This is just one study on a complex topic. But these researchers are respected in their field.

As Mr. Hanson sees it, the overall impact of trade among nations, including with China, is positive. But the new research sheds light, he says, on "just how bad conditions are for low-skilled workers in the US," who have been most affected by trade with low-wage nations.

With the US still running a large trade deficit with China, thanks to those fast-growing imports, what are the implications for the Obama administration and Congress?

Some economists say it's a signal that a tougher approach in the dialogue with China is warranted, including efforts to confront China for alleged violations of World Trade Organization agreements.

Beyond that, though, US policymakers may want to improve programs designed to help displaced workers retrain for new careers and to make sure that the next generation of workers will be well trained for jobs that can withstand competition from lower-wage nations.

Although this week's meeting's produced no major breakthroughs in US-China policy, the US Treasury said Tuesday that China agreed "to take actions that will provide greater market access" for US firms and to continue moving toward greater exchange-rate flexibility.

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