The Impact of Chinese Trade on U.S. Employment: The Good, the Bad, and the Apocryphal

Using establishment-level micro data from the U.S. Census Bureau, this paper studies the impact of Chinese import penetration on firm reorganization and relocation across local labor markets. We find three main results. First, the negative effect of Chinese import penetration on local manufacturing employment documented in the existing literature is driven primarily by large, importing firms that simultaneously expand employment in non-manufacturing. A third of this negative manufacturing effect is accounted for by establishments switching their reported industry affiliation to non-manufacturing. Second, the reorganization of firm activity occurs mainly away from production of machinery, electronics, and transportation equipment towards wholesale, professional services (including R&D), and management. Together, the results are indicative of a “Silicone Valley” story of offshoring according to which firms focus U.S. activities on research, design, and distribution but produce the actual goods abroad. Third, the reorganization of firm activity occurs unevenly across local labor markets. The negative employment effects in manufacturing are concentrated in areas with below human capital (mainly the South and Mid-West) whereas most of the positive employment effects in non-manufacturing occur in areas with above average human capital (mainly the West and East coasts). This suggests one reason why the China shock polarizes politics.