Year: 2025
Type: dissertation
Abstract: Since 1990s, the rise of China as a world’s biggest manufacturing hub and exporter has marked an epochal shift in world trade. While the traditional view of international economics has usually pictured the effects of voluntary trade between countries as benign, the unique nature of Chinese import competition combined with recent labor market developments in high-income countries have made researchers reassess whether this view is generalizable to all cases. In this paper, I review the literature studying “the China shock”, focusing on studies that assess the labor market impacts of trade with China from the perspective of high-income countries. I find that in labor markets of both the US and Europe, the increased Chinese import competition has had a substantial disruptive effect, causing a decline in employment and earnings in regions most exposed to imports from China. Most of the evidence suggests that instead of being resolved by labor market mechanisms, the negative effects tend to spill from affected to unaffected sectors through general equilibrium channels, at least in the short- and medium-run. The long-run evidence is more mixed. Reduced-form strategies suggest that the adjustment of labor markets at the regional and national level is imperfect even at the longer time horizons, but studies utilizing more structural approaches imply less rigid adjustment. The adverse effects of Chinese import shocks are not distributed symmetrically across firms and workers. On the worker level, the negative employment and wage effects concentrate heavily on low-skill workers, while high-skill workers are both less affected and better able to adjust. On the firm level, exposure to Chinese import competition seems to encourage technology and skill upgrading which might be some of the drivers for different effects across skill groups. Within sectors, adverse effects of China shock seem to concentrate among low-productivity firms.
Source: Aaltodoc (Aalto University)
Author: Pasanen, Johannes
Institution: Aalto University
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W6992159857