When Congress voted to normalize trade relations with China at the beginning of this century, U.S. manufacturers braced for a stream of cheap goods to begin flowing into U.S. ports.
Instead, they got a flood. Imports from China nearly tripled from 1999 to 2005, and American factories, with their higher wages and stricter safety standards, couldn’t compete. The “China shock,” as it has come to be known, wiped out millions of jobs in the years that followed, leaving lasting scars on communities from Michigan to Mississippi.
To President Trump and his supporters, those job losses are an object lesson in the damage caused by decades of U.S. trade policy — damage he promises that his tariffs will now help to reverse. On Wednesday, he further raised duties on imports from China, well beyond 100 percent, even as he suspended steep tariffs he had imposed on other trading partners.
Few economists endorse the idea that the United States should try to bring back manufacturing jobs en masse. Even fewer believe that tariffs would be an effective tool for doing so.
But economists who have studied the issue also argue that Mr. Trump misunderstands the nature of the China shock. The real lesson of the episode wasn’t about trade at all, they say — it was about the toll that rapid economic changes can take on workers and communities — and by failing to understand that, Mr. Trump risks repeating the mistakes he claims he has vowed to correct.
“For the last 20 years we’ve been hearing about the China shock and how brutal it was and how people can’t adjust,” said Scott Lincicome, a trade economist at the Cato Institute, a libertarian research organization. “And finally, after most places have moved on, now we’re shocking them again.”
A Legacy Reconsidered
The first thing to understand about the China shock is that nearly every part of the narrative at the start of this article is an oversimplification.
Factory jobs were declining as a share of employment for decades before China joined the World Trade Organization in 2001. Those losses did accelerate starting around 2000, particularly in labor-intensive industries like clothing and furniture manufacturing, but not all of that decline can be attributed to competition from China, or U.S. trade policy more generally.
Technology also played a major role by allowing factories to make more goods with fewer workers. And while economists disagree about exactly how much of the decline to attribute to various factors, hardly anyone thinks the United States would still employ half a million apparel makers, as it did in 2000, if China had been kept out of the W.T.O. Even the 2016 paper that coined the phrase “China shock” found that Chinese imports accounted for only a fraction of the five million manufacturing jobs lost in the 12-year period the researchers studied.
What set the China shock apart wasn’t that it was uniquely costly — the idea that trade has winners and losers was recognized by the economist David Ricardo in the early 19th century. Rather, it was the speed and concentration of those losses.
Communities that relied heavily on labor-intensive manufacturing industries saw those jobs evaporate in just a few years. In 2000, the furniture industry in Hickory, N.C., employed more than 32,000 people, a fifth of the area’s private-sector workers. Within a decade, that number had been cut by nearly 60 percent — a devastating blow that was repeated in communities in many regions.
Standard economic theory held that the people and places hit by those losses should have adapted relatively quickly. Investors should have snapped up the abandoned factories and mills on the cheap and found more productive uses for them. Laid-off workers should have learned new skills and switched to faster-growing industries — and if no such jobs were available nearby, they should have found work elsewhere.
None of that happened. New, higher-paying industries did spring up, but not in the places hit hardest by the manufacturing job losses. Laid-off workers wouldn’t or couldn’t move in search of opportunities, and they struggled to compete for the few good jobs that remained in their communities, many of which required a college degree.
Instead, they found work in service jobs that paid a fraction of their former factory wages, or they left the labor force. Employment rates among men plummeted; rates of addiction and premature death soared.
This, then, is the central insight of the China shock literature: Change is hard. Rapid change is harder.
When economic shifts take place over decades, it gives workers and communities a chance to adjust. Local leaders can recruit businesses in new industries. Parents can push their children to pursue different lines of work. Those gradual adaptations don’t work when entire industries shut down in short time.
“Labor markets adjust over the course of generations,” said David Autor, an M.I.T. economist who was a co-author of the original China shock paper and has continued to study it. “It doesn’t happen within careers.”
Still, the China shock played out over years. Mr. Trump is trying to reverse it in a matter of months.
The tariffs he announced this month would have hit nearly every product imported from nearly every U.S. trading partner. And while he delayed many of those duties after investors rebelled, those he has kept in place still amount to the biggest change in U.S. trade policy in generations.
Such a vast disruption could have devastating consequences, including for the industries that Mr. Trump says he wants to help. Companies including Stellantis, the auto manufacturer, and Whirlpool, the appliance maker, have begun announcing thousands of layoffs. (Whirlpool attributed its move to weak demand, not tariffs, but surveys show that uncertainty over tariffs and their impact has chilled consumer spending.) More cuts are likely to follow if Mr. Trump sticks to his policies, said Mark Muro, a Brookings Institution economist who has studied how the decline of manufacturing has affected local economies.
“It could have China-shock-like impact, maybe even more grave,” he said.
The shock would look different this time. The losers in the China import boom were highly concentrated; the winners — all American consumers, essentially — were diffuse. This time, the opposite would be true. A few industries, such as steel making, would benefit, while the economy as a whole would suffer.
Retailers, large and small, would be squeezed by higher import prices on the one side and inflation-weary consumers on the other. Farmers and other exporters are likely to be a target of retaliatory tariffs from U.S. trading partners. Automakers, tech companies and other manufacturers with complex global supply chains will have a particularly hard time adjusting to a rapidly shifting and uncertain trading system.
Nearly all U.S. manufacturers of any scale rely on imports to some degree, whether for parts or raw materials or for the equipment they use in their factories. In theory, with the right mix of tariffs, subsidies and other incentives, the government might be able to push companies to shift more of their supply chains back to the United States.
But that would take time. Companies would have to build new factories and seek out new suppliers, which in turn would need to expand to meet new demand. For parts and equipment that aren’t made domestically at all anymore, companies would have to rebuild supply chains from scratch. And the U.S. labor force already has a shortage of workers in many skilled manufacturing occupations — training a new generation of welders, CNC mechanics and CAD technicians would take years.
“Things like factories, supply chains, industrial clusters, work force specializations just take time to develop,” Mr. Muro said. “It’s not very plausible to think that you could turn off one economic order and turn on another.”
Even supporters of Mr. Trump’s trade policies say it would be better to phase in tariffs to give companies time to adjust. Oren Cass, a conservative policy expert who has been one of the most prominent advocates of tariffs, wrote in The New York Times this month that the all-at-once approach was “unnecessary and unwise.”
“Throwing supply chains into maximal disarray and imposing the highest burdens faster than companies could possibly move to avoid them leads to excessive costs with few attendant benefits,” Mr. Cass wrote.
Signs of Recovery
Mr. Trump’s attempt to wind back the clock on trade is coming just as the scars of the China shock seem to be fading.
Cities whose industrial bases were hollowed out by competition from China, or from earlier waves of industrial decline, have begun to attract new industries and workers. Job growth in recent years has actually been stronger in these distressed counties than in the high-tech hubs that were the winners in the earlier phases of globalization, according to one recent study by economists at the Upjohn Institute in Kalamazoo, Mich.
Places have made those gains not as a result of broad national policies like tariffs but through long-term strategies that were tailored to communities’ individual strengths, said Timothy J. Bartik, who was one of the study’s authors. Grand Rapids, Mich., has developed a specialty in medical device manufacturing. The Lehigh Valley in Pennsylvania took advantage of its location to become a logistics hub.
“To really revitalize communities takes a prolonged investment in a strategy that takes account of local characteristics,” Mr. Bartik said. “One size does not fit all. You need a different strategy for each local community.”
Hickory, the North Carolina community devastated by the loss of the furniture industry, found itself with a surplus of cheap hydroelectric power after the factories and textile mills left town. That allowed it to attract an Apple data center, the seed of what has become a miniature high-tech hub. The community also invested in amenities to make itself attractive to younger workers: Today, old mill buildings have been redeveloped as restaurants, breweries and loft-style offices.
“Suddenly you’ve got cool companies, cool opportunities to work and a changing vibe within the city itself,” said Scott Millar, president of the Catawba County Economic Development Corporation. The local unemployment rate, which was higher than the national rate for more than a decade after the China shock, is now consistently at or below that mark.
Still, Mr. Millar says the experience of the early 2000s showed how vulnerable a community can be to rapid economic changes. Many local businesses might be open to Mr. Trump’s argument that the economy needs to endure short-term pain to achieve long-run revitalization. But, Mr. Millar said, “I can also see some people asking, does the change have to happen this quickly?”
Communities like Hickory have spent more than two decades recovering from the last big trade shock. Could Mr. Trump’s disruptions force them to go through it again?
“I think there could be parallels,” Mr. Millar said. “It took a long time to pull out of that hole.”
