Why did China have such a big impact? In their 2016 study, economists Justin Pierce and Peter Schott argue that China’s accession to the WTO in 2001—set in motion by president Bill Clinton—sparked a sharp drop in US manufacturing employment. That’s because when China joined the WTO, it extinguished the risk that the US might retaliate against the Chinese government’s mercantilist currency and protectionist industrial policies by raising tariffs. International companies that set up shop in China therefore enjoyed the benefits of cheap labor, as well as a huge competitive edge from the Chinese government’s artificial cheapening of the yuan.
The resulting appreciation of the dollar hurt US exporters—in particular, manufacturers. A 2017 study on the dollar’s appreciation in the early 2000s by economist Douglas Campbell found that the dollar strengthened sharply, in real terms, compared to low-wage trading partners including China. The subsequent increase in foreign imports and diminished demand for American exports resulted in a loss of around 1.5 million manufacturing jobs between 1995 and 2008.
There are also observable signs that automation wasn’t to blame. Consider the shuttering of some 78,000 manufacturing plants between 2000 and 2014, a 22% drop. This is odd given that robots, like humans, have to work somewhere. Then there’s the fact that there simply aren’t that many robots in US factories, compared with other advanced economies.
I recommend taking the time to read this article. It represents the best elucidation of the growing skepticism towards the benefits of globalization I have read yet and I suspect we are going to hear a lot more about what developed countries have lost from globalization going forward.
There are two main points raised. The first is that computers and chips have had a previously unmeasured effect in boosting manufacturing figures. Without this subset’s performance, the sector appears to be in terminal decline.
The second is that globalization is a much more important factor than previously measured in the decline of manufacturing. Many people have worried over the years about the role of automation in the decline of manufacturing but if we look at the most heavily automated countries, they are among the biggest manufacturers where the loss of jobs has been less reported on. The role of globalization in that metric is a heretofore undiscussed factor that goes a long way towards answered the questions people have about how the global economy is structured and how everyone fits into it.
This is a particularly relevant consideration since so much attention is now focusing on trade and what is fair. The creation of a global supply chain has definitely helped to lift hundreds of millions of people out of poverty over the last forty years but it has come at a price for the working classes of previous manufacturing heartlands. That is now having electoral consequences and change is underway. The most logical outcome is for a multipolar world.Back to top