FRB: The Growth of Chinese Exports: An Examination of the Detailed Trade Data
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Board of Governors of the Federal Reserve System
International Finance Discussion Papers
Number 1033, Novemeber 2011 --- Screen Reader
The Growth of Chinese Exports: An Examination of the Detailed Trade Data
Brett Berger and Robert F. Martin
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Over the past decade, Chinese exports have
boomed, increasing far faster than GDP growth. What can account for
this explosion? Our paper uses finely detailed Chinese export data
(8-digit HS codes) combined with U.S. trade data to explore this
question. Although exchange rate policy clearly boosted the trade
surplus, and the structure of the economy, e.g. abundant cheap
labor, encouraged investment, these alone cannot account for the
changing composition and acceleration of exports. We find that the
growth in exports is most likely a product of effective Chinese
industrial policy and fortuitous timing. The detailed trade data
reveal that key &new& technology goods, such as cell phones, LCD
screens, and laptops played a critical role.
Finally, we use the data to examine the relationship between
Chinese exports and global manufacturing, in particular U.S.
manufacturing employment. We find that increased Chinese
competition in both domestic and U.S. export markets likely lowered
U.S. manufacturing employment between 2000 and 2007. Chinese policy
is not, however, wholly responsible. Some job losses, such as in
textile production, were no doubt the result of China's natural
comparative advantages, while other U.S. job losses are
attributable to relatively low investment and slow GDP growth in
the United States following the 2001 recession.
Keywords: China, trade, manufacturing
JEL classification: F12, F40, E65
Introduction
Between 2000 and 2007, the value of Chinese exports more than
quadrupled and rose from 20&percent to 35&percent of GDP
(Figure 1). Imports failed to keep pace and the Chinese economy
became more dependen the current account
surplus, mirroring the trade surplus, ballooned from less than 2
percent of GDP to a peak of 10&percent.
Figure 1: Chinese Export Boom
Data for Figure 1
TimeExports Quarterly, Billion $
Data for Figure 1 cont'd
YearPercent of GDP
Although other economies have had success utilizing an
export-led growth strategy, such success in a country of China's
size is unprecedented. In 2009, China became the largest global
exporter and in 2010 passed Japan as the second largest economy in
the world. How was China able to accomplish this
goal? In this paper, we use finely detailed trade data to
differentiate amongst the various reasons given for China's rapid
growth of exports. The reasons for China's success also shed light
on the effects China's export boom have had on the manufacturing
sectors of other countries.
The data make clear that no one story, such as an undervalued
exchange rate, can explain the surge in growth, as the growth was
concentrated in specific sectors--textiles/apparel/furniture,
metals (steel), and machinery--and within the machinery sector,
growth was highly concentrated in specific products. Thus to answer
the question of why exports boomed, one must answer why these
particular sectors and products experienced outsized growth
relative to others.
Textile and apparel producers benefited from the expiration of
restrictive trade agreements, and these sectors along with
furniture producers were also disproportionately aided by China's
entry into the World Trade Organization, which allowed the country
to take greater advantage of its vast pool of low-skill labor.
Heavy industry, such as steel production, benefited from energy and
capital subsidies, as well as from reform of
state-owned-enterprises (SOEs), whose new profitability translated
into a rapid expansion of capacity.
A key contribution of this paper is to shed some light on
machinery exports. Aggregate trade data show that machinery exports
accounted for almost half of Chinese export growth between 2000 and
2007. This has been cited by some as evidence of Chinese
mercantilism, under the assumption that a developing country is
unlikely to be an exporter of capital goods without official
support. However, the highly disaggregated Chinese trade data,
compiled by hand for this paper, show that the growth of Chinese
machinery exports was concentrated in a few specific high-tech
goods--cell phones, LCD displays, laptops, and integrated
electronic circuits--not the prototypical examples of capital
Although, we attribute some of the success of Chinese high-tech
exports to industry-specific supports, such as the establishment of
science parks, China's export boom likely would not have been
achievable without a healthy dose of good luck in terms of timing.
Global demand skyrocketed over this period for products based on
these technologies, and Chinese producers were particularly well
placed to take advantage: China's own domestic market became a key
labor costs in neighboring high-tech producers
and, investment in the West, particularly in the
high-tech sector, was severely impaired from the 2001
recession.
As Chinese exports surged, we find that China's gains in global
manufacturing came primarily at the expense of advanced economies,
with the U.S. share falling the most. As part of our examination of
the effect on the United States, we look at manufacturing
employment and conclude that the rise in Chinese exports led to
some employment losses in certain sectors, but subpar GDP growth
and investment were the principal factors behind the lack of a
rebound in manufacturing employment following the 2001
recession.
The welfare implications for the United States of the increase
in Chinese exports is beyond the scope of this paper, but it is
important to note that it is not at all clear that the costs
outweighed the benefits. The cost in loss of jobs is obvious, but
the benefits included lower prices, more rapid adoption of new
technology, and efficiency gains from the removal of trade barriers
and through increased competition.
The paper is organized in 4 sections. Section 1 gives some
background on the evolution of the Chinese economy and the factors
that led to the boom in exports. This section examines Chinese
exports at the readily-available 2-digit level of the Harmonized
Commodity Description and Coding System (HS), which has been
adopted by most countries. Section 2 uses 8-digit HS codes to delve
further into the details of Chinese trade. Section 3 examines other
countries' manufacturing sectors over the period, with a focus on
the United States. Section 4 speculates on the implications of our
research for the prospects of future Chinese export growth
following the 2009 financial crisis. Section 5 concludes.
Section 1:&&The Growth of Chinese Exports: An Initial Look
In the three decades since economic reforms were enacted in the
late 1970s, China has experienced a remarkable period of
consistently robust economic growth, with real GDP increasing
23-fold since 1977. The composition of growth, however, has evolved
away from consumption over this period. Household consumption fell
from an already low 50 percent of GDP in the early 1980s to around
35 percent by the mid-2000s as investment soared and the economy
became more export-oriented. This process accelerated significantly
at the start of the new millennium. In 2000, China's exports,
measured in dollars, were a third of those of the United States and
around half of those of Japan and Germany. By 2009, China had
become the largest exporter in the world.
Figure 2 sets the stage by showing, even at a fairly aggregated
level, that Chinese exports growth was relatively concentrated in a
few sectors. This growth was dominated first and foremost by
machinery exports (HS categories 84 and 85), which accounted for
about 45 percent of export growth. Textiles/furniture and metals
accounted for 15&percent and 11 percent, respectively. The
rest of this section examines each of the major categories of
Chinese export growth.
Figure 2: China's Export Growth is Concentrated in a Few
Data for Figure 2
Classes of GoodsShare of total export growth
Machinery Exports
Textiles, Apparel, and Furniture
Metals including Iron and Steel
Textile, Apparel, and Furniture Exports
These categories of exports grew 220 percent from 2001 through
2007. No doubt, trade policy was a primary cause. Prior to China's
entry into the World Trade Organization (WTO) in December 2001,
China faced prohibitive tariffs and constraining quotas in
textile/apparel and furniture markets. The production of these
goods is intensive in low-skilled labor, an area in which China has
an obvious natural comparative advantage.
Until 2005, Chinese exports of apparel and textiles were limited
by a series of gradually less constraining multilateral
agreements--the Multifiber Arrangement (MFA, through 1995) and
subsequently the Agreement on Textiles and Clothing (ATC). Without
these agreements, China's enormous supply of cheap labor likely
would have led to a much larger share of the global market earlier.
Indeed, Brambilla et al. (2009) found that China was constrained
more than any other nation by these agreements. Consequently, when
the MFA expired, textile and apparel export growth from China rose
rapidly, and surged further with the expiration of the ATC. As
China gained market share, exports from most other regions
Figure 3: U.S. Furniture Imports (HS 94)
Data for Figure 3
YearChinaTaiwanCanadaMexicoOther
19962.3947811.2596513.0935681.7785853.484692
19972.9943611.2052443.6999932.2379113.944428
19983.9469581.2335364.3335742.6982364.54293
19995.5471661.2770874.7276283.3358135.483141
20007.2019211.2777965.3130943.8207276.21266
20017.4920340.941684.9144053.9138415.955039
20029.9207310.9731964.9470114.5431676.319155
200311.818320.9240085.0854645.0580326.774231
200414.417450.9297745.6112965.1466217.601129
200517.044630.8715825.794025.2632438.219429
200619.350520.8258525.7725215.4859318.315633
200720.403980.8163325.306735.6698078.780581
200819.472370.8218884.5860115.0422928.413911
200916.04190.611362.9594853.8529346.598356
201019.935360.7763053.5029665.6414437.88546
Chinese furniture exports (HS&94), began to increase
rapidly back in the early 1990s and accelerated in the 2000s. Some
of this production was shifted from Taiwan, which accounted for a
large share of global furniture exports in the early 1990s. By
2007, Taiwan's share of U.S. furniture imports had fallen to
2&percent and China was by far the largest source.
By 2000, China was already the largest producer of steel, but
output was only 25&percent higher than either Japan or the
United States (Figure 4). But by 2009, China was producing
6½&times more steel than second place Japan and almost
10 times more than the United States, each of whom have experienced
large declines in steel production since the beginning of
decade. Overall, Chinese metals exports grew
630 percent from 2001 through 2007. Why would a developing country
with an enormous supply of labor experience some of its greatest
export growth in a capital and energy intensive industry?
Figure 4: Global Steel Production
Data for Figure 4
YearUSChinaJapanRussiaGermanyOtherSouth KoreaIndiaBrazilUkraineItalyOther
2000101.803128.5106.44459.13646.376406.67543.10726.92427.86531.76726.759250.253
200190.104151.634102.86658.9744.803402.69643.85227.29126.71733.10826.545245.183
200291.587182.366107.74559.7774.515458.1845.3928.81429.6043.452.666348.256
200393.677222.336110.51161.4544.809437.13246.3131.77931.14736.9322.758288.206
200499.681282.911112.71865.58346.374464.24147.52132.62632.90938.73828.604283.843
200594.897353.24112.47166.14644.524472.81347.8245.7821.6138.64129.35289.612
200698.557419.149116.22670.8347.224495.19248.45549.4530.90140.89131.624293.871
200798.102489.288120.20372.38748.55517.651.51753.46833.78242.8331.553304.45
200891.35500.312118.73968.5145.833504.27753.62557.79133.71637.27930.59291.276
200958.196567.84287.53460.01132.67417.77148.57262.83826.50629.85519.848284.152
First, energy prices were heavily managed by the government and
significantly subsidized. As the 2006 U.S. Manufacturing Energy
Consumption survey confirms, steel and aluminum production are
among the largest industrial energy consumers in terms of energy
per dollar of value added. Second, the cost of capital for SOEs,
which dominate China's heavy industry, was extremely low. SOEs had
ready access to bank borrowing at low interest rates because of
implicit government backing. Third, the SOEs made substantial
strides in improving efficiency and lowering costs. Hsieh and
Klenow (2009) estimate that improvements in resource allocation
account for about 2&percentage points per year of Chinese
total factor productivity growth between 1998 and 2005.
Reform of the SOEs began in the mid-1990s and dismantled the
&iron rice bowl,& the system of housing, pensions, and health
care that accompanied SOE employment. As a result, the SOEs, which
were money-losers in the decades prior to reform, began earning
substantial profits for the first time. Since SOEs did not pay
dividends to the government, they piled up retained earnings and
generally had few options but to reinvest the earnings in expanding
capacity. This fed a circle in which profits led to greater
capacity and still greater profits. From 1995 to 2000, China's
steel industry averaged $400 million in annual operating profits
and crude steel production rose at an average pace of
6&percent per year. Beginning in 2000, profits and production
began to rise rapidly in tandem--profits climbed from $2 billion in
2001 to more than $21 billion in 2007, and crude steel production
rose at an average annual rate of 25&percent. Given the
incentive structure, i.e. subsidized inputs and political approval
of output growth, this reinvestment was optimal from the
perspective of Chinese steel producers. Domestic demand could not
absorb this massive production growth and China went from being a
net importer of steel, as late as 2004, to the largest net exporter
in the world.
This category of exports grew 520 percent from 2001 through 2007
and, as noted earlier, accounted for roughly 45 percent of China's
total export growth. A wide range of economists have attributed
much of these gains to China's most visible trade policy, its
exchange rate regime. For much of the decade, the renminbi was
pegged to the U.S. dollar, and, as evidenced by China's massive
accumulation of foreign exchange reserves, authorities have
intervened heavily to keep it from appreciating. But the detailed
trade data, discussed in the next section, indicate that this was
likely not the primary factor in the growth of China's machinery
exports as growth was concentrated in a few select products,
whereas the exchange rate would be expected to have a broader
effect by lowering the prices of Chinese goods generally.
Section 2:&&Machinery Exports: The Devil in the
In order to understand the growth of Chinese machinery exports,
we now turn to the detailed trade data. Figure 5 shows exports of
the machinery categories and the optical category (HS&90) at
the 4- on the left is data for 2002 and on the right is
data for 2007. As the figure illustrates, growth in the machinery
categories was highly concentrated in high-tech goods. Digging even
deeper, the 8-digit categories, shown in Figure 6, reveal that the
growth of machinery exports was dominated by four products--cell
phones, liquid crystal displays (LCDs), integrated electronic
circuits, and laptops--which together accounted for more than a
third of the growth.
This concentration of export growth argues against China's
exchange rate regime playing the major role. The exchange rate
should have a more-or-less even handed influence across China's
export industries, as all goods are made relatively cheaper, and
therefore it is not a plausible explanation for the outsized growth
of particular categories. Instead, the influence of the exchange
rate can perhaps best be seen in the wide range of smaller bars in
Figure 4. Most subcategories of machinery exports increased
significantly over the period, but their growth was dwarfed by a
few categories for which we have special stories. For this reason,
we believe papers that explain Chinese trade using more aggregated
data, such as Ahmed (2010), Marquez and Schindler (2007), and
Thorbecke and Smith (2010) likely overestimate the importance of
the exchange rate. But even using the relatively high elasticities
common in the literature, the exchange rate would still account for only a minority of machinery export
growth over the period. For example, assuming the renminbi became
30 percentage points more undervalued from 2001 to 2007 and the
elasticity of Chinese exports was 1½, then the exchange rate
would have accounted for less than 10 percent of machinery export
For laptops, cell phones, LCDs, and integrated electronic
circuits, China became the dominant global manufacturer and
exporter because these products share characteristics that turned
out to favor China. First, they are by-and-large &new& products.
Though laptops and cell phones have been around for more than
twenty years, each succeeding generation incorporates new
technologies and production methods. Hence, there was an
opportunity for new participants to enter the market and the need
for established participants to open new facilities. Second, these
products require large capital investments which were likely a
barrier to entry for many firms. In particular, high-tech firms in
the United States, reeling from the dot-com bust and a capital
overhang, were not well positioned to invest. In contrast,
Chinese firms and other Asian firms, several years removed from the
Asian financial crisis, were better positioned. Third, existing
production of related technologies was dominated by Japan and
China's newly industrialized neighbors, such as Taiwan and Korea,
which had historically dominated China's foreign direct investment
and where labor costs were rising. Fourth, there was an explosion
in global demand for these products which came to dominate their
broader market categories--computers, phones, televisions and
computer monitors. Fifth, the leader in the booming global demand
for these products was China's own domestic market, where urban
disposable income more than doubled between 2001 and 2007.
Figure 5: Within 4 and 8 Digit HS Categories Exports are even
more Concentrated
Figure 6: A Glance at the 8-Digit Data
Reactors, Boilers, Machinery and Appliances (HS 84)
Returning to Figure 5, the top two panels show the 4-digit
subcategories of HS 84 in 2002 and 2007, respectively. The top-left
panel looks empty using the scale needed to show the 2007 data,
shown to the right. Growth in computers (HS 8471) and associated
parts (HS&8473) dominate, accounting for 52 percent of the
total growth in HS 84.
These two categories were the largest in 2002 as well, but the
composition of the computers making up the categories changed
drastically over the period. Portable computers (i.e. laptops) made
rapid gains in market share, relative to the traditional desktop
computer, over the past decade. In 2002, laptops accounted for 7
percent of HS&8471 exports. By 2007, its share had surged to
42&percent. As shown in the upper left panel of Figure 6,
portable computers (HS ) were by far the largest
subcategory of HS&8471. Similarly, parts and accessories for
HS 8471 (HS&8473090) were the largest subcategory of HS 8473
(top right panel).
Figure 7: U.S. Imports of Laptops
Data for Figure 7
Country2000200120022003200420052006200720082009
China0.0110620.0225080.6321624.1582537.71579610.6703312.8277117.0018319.2354122.90866
Malaysia0.0493541.089382.9117013.8513585.1484996.5807717.6317197.7676816.4089132.46151
Taiwan3.7960623.0684833.407822.1656751.2432890.3719990.2302430.1866170.0967890.102735
Other3.2623.2583.493.011.9271.7982.0622.0941.8621.452
From 2000 to 2007, during China's export boom, global shipments
of personal computers grew 105&percent, with laptops
accounting for 47&percentage points of the growth. In 2009,
portable computers were estimated to have accounted for the
majority of computer shipments for the first time. At the
same time, China became the largest producer of laptops, surpassing
Taiwan, which had accounted for 64&percent of global laptop
production in 2002.
The surge in Chinese exports of laptops was not primarily a case
of mainland production displacing other producers, but this was
part of the story. Figure 7 shows U.S. imports of laptops by
country of origin and reflects the move away from Taiwanese
production of laptops to the mainland. In 2000, Taiwan accounted
for more than 50&percent of U.S. laptop imports, whereas China
accounted for less than ¼&percent. By 2007, China
accounted for 63&percent of U.S. imports of laptops, and by
2009 it accounted for 85&percent. Indeed, since 2007, Malaysia
and China have accounted for more than 90&percent of U.S.
imports of laptops. Nevertheless, through 2007, the value of
non-Chinese imports actually increased as the overall market for
laptops expanded more rapidly than Chinese imports. Given the price
declines in portable computers over this period, real shipments
grew much faster still. According to China's National Bureau of
Statistics (NBS), Chinese production of microcomputers increased
from 7&million units in 2000 to 143 million units in 2007.
Government polices helped nurture domestic capabilities in
consumer electronics and other advanced areas that would most
likely not have developed in their absence (Rodrick (2006)).
China's laptop industry, for example, was aided by the creation of
&science parks,& the development of which have been instrumental
in the surge of Chinese high-tech exports generally. Although these
parks were originally formed to promote indigenous innovation, they
evolved to depend more on foreign investment and technology
transfer. As noted in Sutherland (2005), in 2000, the Ministry of
Science and Technology and Ministry of Foreign Trade approved a
trial for about a third of the parks to become &high-technology
export bases.& Now, all of the parks have a bias toward this type
of production. Foreign investment is drawn to these parks in
particular by preferential tax policies. In addition, cheaper labor
was a draw for high-tech investment, as in the case for Taiwanese
laptop producers. As shown in Figure 8, between 1995 and 2000,
Taiwanese labor costs in computer, electronic, and optical
manufacturing rose by more than a third. As high-tech production
moved to the mainland, wage growth in Taiwan slowed. Foreign firms
were also drawn to China because of the potentially huge domestic
market. The Chinese market soared from 21&million personal
computers in use at the end of 2000 to 86 million in 2007, second
to only the United States.
Chinese laptop exports illustrate one of the primary points of
Amiti and Freund&(2010), the only other paper we are aware of
that used detailed Chinese Customs statistics. Using 6 and 8-digit
HS codes, they concluded that Chinese export growth was mainly
accounted for by growth in trade of existing products. Laptops were
an existing product, with the first laptop computers manufactured
in the early 1980s. However, new technology for producing LCD
screens, new integrated electronic circuits, along with the
widespread adoption of wireless technology, moved the laptop from a
business-only luxury to a household consumable. In this sense,
laptops were a new good in the 2000s.
Figure 8: Rising Wages in Taiwan Led Production to Shift to
Data for Figure 8
YearEarning Index
199574.20448
199675.58524
199779.43853
199884.43927
199989.42567
200092.83054
200191.29733
200293.16378
200395.44944
200494.09004
200597.04502
2007101.8078
Electrical Machinery (HS 85)
Electrical machinery exports (HS 85, the middle panels of Figure
5) also grew as the result of new goods. The growth is not quite as
concentrated as in HS 84, but it is still dominated by three
product categories, phones (HS 8517), monitors and televisions
(HS&8528), and integrated electronic circuits (HS 8542).
Moreover, the 8-digit data (bottom panels of Figure 6) show that
the growth in these categories was also almost wholly accounted for
by cell phones, liquid crystal displays (LCDs), and microprocessors
and memory. LCD technology also accounted for the majority of the
surge in the optical apparatus (HS&90) category (the bottom
panels of Figure 5). As was the case with laptops transforming the
computer market, cell phones and LCDs revolutionized the telephone,
television, and computer monitor markets.
Cell Phones
Like for laptops, soaring global and domestic demand fueled
China's rise in cell phone production and exports. Global cell
phone users rose from about 750 million in 2000 to roughly 4
billion in 2008. Chinese mobile phone subscriptions
rose from 85&million in 2000 to around 550 million in 2007 and
750 million in 2009, the largest market in the world. Led by
Motorola, all of the major multinational cell phone manufacturers
transferred at least some, and in some cases all, of their handset
production to China. Although initially dominated by
these firms, Chinese companies are gaining market share both at
home and abroad. U.S. trade data reflects the growth of the global
market and China's market share. U.S. imports of telephone sets
rose from $12 billion in 2001 to $55 billion in 2007, with China's
share rising from 12 percent to 38 percent (Figure 9). Of this 2007
total, $28 billion were imports of cell phones with China
accounting for half of these.
Figure 9: U.S. Imports of Phones
Data for Figure 9
Country2000200120022003200420052006200720082009
China2.7261982.9568914.2861955.4634978.92083713.5264716.9993622.530123.1627121.88311
Japan3.292922.0234411.41081.1212821.2681141.4609831.1806021.2576971.238250.978805
Malaysia1.8182441.8506312.228843.4061743.6870257.3847367.6355944.699154.4242953.453447
Taiwan0.8917950.806410.6507280.5938520.6223081.0894852.1076012.0344312.30772.723109
Other20.3739316.954116.7208517.6183621.1914621.995721.2378524.5114429.5592728.50757
Liquid Crystal Displays (LCDs)
The market for televisions and computer monitors experienced a
technical revolution over the past decade. In 2000, cathode ray
tube (CRT) technology dominated the two markets. By 2004, LCDs and
CRTs each had about half of the global market for computer
monitors, but CRTs still accounted for around 90 percent of the
television market. However, by 2008, LCDs accounted for more than
50&percent of the television market and, in 2009, around 70
percent. China's NBS estimates that
production of color televisions in China doubled from 42 million
units in 2001 to 84&million in 2007. China accounted for only
3 percent of the $8 billion in U.S. imports of televisions in 2001.
By 2007, 39 percent of the $39 billion in U.S. imports came from
China (Figure&10).
Figure 10: U.S. Imports of Televisions and Monitors (HS
Data for Figure 10
Country20002001200220032004200520062007200820092010
China0.170.250.811.452.284.887.6115.0517.114.515.06
Japan0.661.231.582.112.722.281.61.160.920.610.84
Korea0.130.210.320.780.970.720.40.540.440.440.51
Taiwan0.130.130.210.511.121.681.761.971.510.911.09
Mexico4.554.714.795.297.49.6314.1218.6718.3215.0615.68
Other1.471.492.21.971.972.282.21.471.611.642.24
Integrated Electronic Circuits
Although microprocessors and memory have been a part of personal
computers since their introduction in the late 1970s, the rapid
turnover of the technology in these products, with new
manufacturing processes required for each successive generation,
makes them similar to &new& products every few years. For
example, between 2000 and 2008, there were 4 different production
processes, characterized by ever smaller etching technology,
utilized by the main semiconductor manufacturers. Because of the
ever-changing technology and highly specialized processes, the
capital requirements can be enormous. For example, a new
semiconductor fabrication plant can cost as much as $5&billion
dollars, with the equipment and necessary inventory holdings
costing billions more. To be profitable, the plants need to
run at high volumes. According to the NBS, Chinese production of
semiconductor integrated circuits increased from less than
6&billion pieces in 2000 to 42 billion pieces in 2007.
Unlike for the other categories of exports discussed, the United
States is not one of the primary markets for Chinese exports of
integrated circuits. U.S. imports of integrated circuits have
remained relatively flat since 2002 at around $22 billion, with
China accounting for only $1.4 billion in 2007. This is likely
because integrated circuits are an intermediate good, with China
primarily exporting them to other countries as a step in the
the United States, however, may well be the
primary market for the final product.
Section 3:&&The Effect of the Rise in Chinese Exports on
Global Manufacturing
From 2000 to 2007, the value added of Chinese manufacturing
output more than doubled in real terms, and its share of world
manufacturing rose from less than 9 percent to 14½ percent
(Figure 11). This nearly 6 percentage point
increase in China's share of global manufacuring came mainly at the
expense of advanced economies. The U.S. share of world
manufacturing fell 2½ percentage points (from 23 percent to
20½ percent), Japan's fell 1¼, percentage points,
Italy's and the United Kingdom's fell about 1&percentage
point, and the shares of Germany, Canada, and France each fell a
little more than ½&percentage point. Besides China, the
only countries to gain at least ½ percentage point were
South Korea and India.
Figure 11: Change in Global Manufacturing Share,
Data for Figure 11
The loss of manufacturing shares by the advanced economies was
not because manufacturing output fell, but because it did not grow
as fast as in emerging market economies. Nevertheless, increases in
productivity, owing in part to heightened competition from China,
led to declines in manufacturing employment in most advanced
economies. The United States and the United Kingdom led the
declines with manufacturing employment falling by more than 20
percent in the United States and 27&percent in the United
Kingdom, despite the fact that manufacturing value added grew
14&percent in the United States and was flat in the United
Kingdom. To gain a bettter understanding of the effect of the rise
in Chinese exports on the manufacturing sectors of the advanced
economies, we examine more closely the impact on manufacturing
employment in the United States.
United States
The manufacturing sector has been shrinking as a share of the
U.S. economy since the early 1970s, but through 2000 real
manufacturing production continued to climb and employment in the
manufacturing sector remained stable except for fluctuations
correlated with the business cycle (Figure 12). However, between
January 2000 and December 2007, manufacturing employment in the
United States fell by 3.6&million, nearly 21&percent, to
13.7 million.
Figure 12: U.S. Manufacturing Employment
Data for Figure 12
Year-MonthMillions of Jobs
1970 - Jan18424
1970 - Feb18361
1970 - Mar18360
1970 - Apr18207
1970 - May18029
1970 - Jun17930
1970 - Jul17877
1970 - Aug17779
1970 - Sep17692
1970 - Oct17173
1970 - Nov17024
1970 - Dec17309
1971 - Jan17280
1971 - Feb17216
1971 - Mar17154
1971 - Apr17149
1971 - May17225
1971 - Jun17139
1971 - Jul17126
1971 - Aug17115
1971 - Sep17154
1971 - Oct17126
1971 - Nov17166
1971 - Dec17202
1972 - Jan17283
1972 - Feb17361
1972 - Mar17447
1972 - Apr17508
1972 - May17602
1972 - Jun17641
1972 - Jul17556
1972 - Aug17741
1972 - Sep17774
1972 - Oct17893
1972 - Nov18005
1972 - Dec18158
1973 - Jan18276
1973 - Feb18410
1973 - Mar18493
1973 - Apr18530
1973 - May18564
1973 - Jun18606
1973 - Jul18598
1973 - Aug18629
1973 - Sep18609
1973 - Oct18702
1973 - Nov18773
1973 - Dec18820
1974 - Jan18788
1974 - Feb18727
1974 - Mar18700
1974 - Apr18702
1974 - May18688
1974 - Jun18690
1974 - Jul18656
1974 - Aug18570
1974 - Sep18492
1974 - Oct18364
1974 - Nov18077
1974 - Dec17693
1975 - Jan17344
1975 - Feb17004
1975 - Mar16853
1975 - Apr16759
1975 - May16746
1975 - Jun16690
1975 - Jul16678
1975 - Aug16824
1975 - Sep16904
1975 - Oct16984
1975 - Nov17025
1975 - Dec17140
1976 - Jan17287
1976 - Feb17384
1976 - Mar17470
1976 - Apr17541
1976 - May17513
1976 - Jun17521
1976 - Jul17524
1976 - Aug17596
1976 - Sep17665
1976 - Oct17548
1976 - Nov17682
1976 - Dec17719
1977 - Jan17803
1977 - Feb17843
1977 - Mar17941
1977 - Apr18024
1977 - May18107
1977 - Jun18192
1977 - Jul18259
1977 - Aug18276
1977 - Sep18334
1977 - Oct18356
1977 - Nov18419
1977 - Dec18531
1978 - Jan18593
1978 - Feb18639
1978 - Mar18699
1978 - Apr18772
1978 - May18848
1978 - Jun18919
1978 - Jul18951
1978 - Aug19006
1978 - Sep19068
1978 - Oct19142
1978 - Nov19257
1978 - Dec19334
1979 - Jan19388
1979 - Feb19409
1979 - Mar19453
1979 - Apr19450
1979 - May19509
1979 - Jun19553
1979 - Jul19531
1979 - Aug19406
1979 - Sep19442
1979 - Oct19390
1979 - Nov19299
1979 - Dec19301
1980 - Jan19282
1980 - Feb19219
1980 - Mar19217
1980 - Apr18973
1980 - May18726
1980 - Jun18490
1980 - Jul18276
1980 - Aug18414
1980 - Sep18445
1980 - Oct18506
1980 - Nov18601
1980 - Dec18640
1981 - Jan18639
1981 - Feb18613
1981 - Mar18647
1981 - Apr18711
1981 - May18766
1981 - Jun18789
1981 - Jul18785
1981 - Aug18748
1981 - Sep18712
1981 - Oct18566
1981 - Nov18409
1981 - Dec18223
1982 - Jan18047
1982 - Feb17981
1982 - Mar17857
1982 - Apr17683
1982 - May17588
1982 - Jun17430
1982 - Jul17278
1982 - Aug17160
1982 - Sep17074
1982 - Oct16853
1982 - Nov16722
1982 - Dec16690
1983 - Jan16705
1983 - Feb16706
1983 - Mar16711
1983 - Apr16794
1983 - May16885
1983 - Jun16960
1983 - Jul17059
1983 - Aug17118
1983 - Sep17255
1983 - Oct17367
1983 - Nov17479
1983 - Dec17551
1984 - Jan17630
1984 - Feb17728
1984 - Mar17806
1984 - Apr17872
1984 - May17916
1984 - Jun17967
1984 - Jul18013
1984 - Aug18034
1984 - Sep18019
1984 - Oct18024
1984 - Nov18016
1984 - Dec18023
1985 - Jan18009
1985 - Feb17966
1985 - Mar17939
1985 - Apr17886
1985 - May17855
1985 - Jun17819
1985 - Jul17776
1985 - Aug17756
1985 - Sep17718
1985 - Oct17708
1985 - Nov17697
1985 - Dec17693
1986 - Jan17686
1986 - Feb17663
1986 - Mar17624
1986 - Apr17616
1986 - May17593
1986 - Jun17530
1986 - Jul17497
1986 - Aug17489
1986 - Sep17498
1986 - Oct17477
1986 - Nov17472
1986 - Dec17478
1987 - Jan17465
1987 - Feb17499
1987 - Mar17507
1987 - Apr17525
1987 - May17542
1987 - Jun17537
1987 - Jul17593
1987 - Aug17630
1987 - Sep17691
1987 - Oct17729
1987 - Nov17775
1987 - Dec17809
1988 - Jan17790
1988 - Feb17823
1988 - Mar17844
1988 - Apr17874
1988 - May17892
1988 - Jun17916
1988 - Jul17926
1988 - Aug17891
1988 - Sep17914
1988 - Oct17966
1988 - Nov18003
1988 - Dec18025
1989 - Jan18057
1989 - Feb18055
1989 - Mar18060
1989 - Apr18055
1989 - May18040
1989 - Jun18013
1989 - Jul17980
1989 - Aug17964
1989 - Sep17922
1989 - Oct17895
1989 - Nov17886
1989 - Dec17881
1990 - Jan17799
1990 - Feb17896
1990 - Mar17870
1990 - Apr17847
1990 - May17796
1990 - Jun17775
1990 - Jul17703
1990 - Aug17648
1990 - Sep17610
1990 - Oct17575
1990 - Nov17428
1990 - Dec17394
1991 - Jan17331
1991 - Feb17214
1991 - Mar17141
1991 - Apr17095
1991 - May17069
1991 - Jun17042
1991 - Jul17016
1991 - Aug17025
1991 - Sep17011
1991 - Oct16998
1991 - Nov16960
1991 - Dec16916
1992 - Jan16840
1992 - Feb16831
1992 - Mar16805
1992 - Apr16830
1992 - May16834
1992 - Jun16825
1992 - Jul16820
1992 - Aug16783
1992 - Sep16761
1992 - Oct16750
1992 - Nov16758
1992 - Dec16767
1993 - Jan16791
1993 - Feb16806
1993 - Mar16795
1993 - Apr16771
1993 - May16766
1993 - Jun16742
1993 - Jul16740
1993 - Aug16741
1993 - Sep16769
1993 - Oct16777
1993 - Nov16800
1993 - Dec16815
1994 - Jan16854
1994 - Feb16863
1994 - Mar16896
1994 - Apr16932
1994 - May16961
1994 - Jun17011
1994 - Jul17026
1994 - Aug17082
1994 - Sep17113
1994 - Oct17143
1994 - Nov17187
1994 - Dec17218
1995 - Jan17261
1995 - Feb17265
1995 - Mar17262
1995 - Apr17278
1995 - May17259
1995 - Jun17249
1995 - Jul17218
1995 - Aug17239
1995 - Sep17246
1995 - Oct17215
1995 - Nov17207
1995 - Dec17229
1996 - Jan17208
1996 - Feb17230
1996 - Mar17192
1996 - Apr17204
1996 - May17222
1996 - Jun17227
1996 - Jul17222
1996 - Aug17255
1996 - Sep17252
1996 - Oct17268
1996 - Nov17276
1996 - Dec17283
1997 - Jan17299
1997 - Feb17317
1997 - Mar17339
1997 - Apr17351
1997 - May17363
1997 - Jun17388
1997 - Jul17388
1997 - Aug17451
1997 - Sep17465
1997 - Oct17513
1997 - Nov17556
1997 - Dec17587
1998 - Jan17623
1998 - Feb17627
1998 - Mar17637
1998 - Apr17635
1998 - May17623
1998 - Jun17609
1998 - Jul17421
1998 - Aug17563
1998 - Sep17557
1998 - Oct17511
1998 - Nov17465
1998 - Dec17447
1999 - Jan17432
1999 - Feb17395
1999 - Mar17368
1999 - Apr17343
1999 - May17333
1999 - Jun17296
1999 - Jul17308
1999 - Aug17286
1999 - Sep17279
1999 - Oct17273
1999 - Nov17281
1999 - Dec17277
2000 - Jan17292
2000 - Feb17284
2000 - Mar17302
2000 - Apr17298
2000 - May17279
2000 - Jun17298
2000 - Jul17321
2000 - Aug17286
2000 - Sep17226
2000 - Oct17215
2000 - Nov17202
2000 - Dec17178
2001 - Jan17114
2001 - Feb17029
2001 - Mar16939
2001 - Apr16803
2001 - May16662
2001 - Jun16516
2001 - Jul16378
2001 - Aug16225
2001 - Sep16113
2001 - Oct15971
2001 - Nov15825
2001 - Dec15710
2002 - Jan15598
2002 - Feb15518
2002 - Mar15446
2002 - Apr15394
2002 - May15338
2002 - Jun15297
2002 - Jul15250
2002 - Aug15164
2002 - Sep15115
2002 - Oct15059
2002 - Nov14992
2002 - Dec14910
2003 - Jan14867
2003 - Feb14780
2003 - Mar14722
2003 - Apr14608
2003 - May14556
2003 - Jun14493
2003 - Jul14401
2003 - Aug14378
2003 - Sep14347
2003 - Oct14334
2003 - Nov14315
2003 - Dec14300
2004 - Jan14292
2004 - Feb14277
2004 - Mar14288
2004 - Apr14316
2004 - May14342
2004 - Jun14331
2004 - Jul14333
2004 - Aug14343
2004 - Sep14330
2004 - Oct14334
2004 - Nov14305
2004 - Dec14285
2005 - Jan14261
2005 - Feb14274
2005 - Mar14271
2005 - Apr14253
2005 - May14258
2005 - Jun14227
2005 - Jul14223
2005 - Aug14201
2005 - Sep14174
2005 - Oct14191
2005 - Nov14181
2005 - Dec14189
2006 - Jan14210
2006 - Feb14215
2006 - Mar14220
2006 - Apr14232
2006 - May14209
2006 - Jun14217
2006 - Jul14190
2006 - Aug14159
2006 - Sep14125
2006 - Oct14070
2006 - Nov14030
2006 - Dec14001
2007 - Jan14007
2007 - Feb13998
2007 - Mar13973
2007 - Apr13949
2007 - May13939
2007 - Jun13916
2007 - Jul13898
2007 - Aug13833
2007 - Sep13788
2007 - Oct13753
2007 - Nov13745
2007 - Dec13726
2008 - Jan13721
2008 - Feb13691
2008 - Mar13654
2008 - Apr13604
2008 - May13577
2008 - Jun13528
2008 - Jul13456
2008 - Aug13363
2008 - Sep13270
2008 - Oct13129
2008 - Nov12999
2008 - Dec12822
2009 - Jan12543
2009 - Feb12377
2009 - Mar12212
2009 - Apr12063
2009 - May11911
2009 - Jun11782
2009 - Jul11739
2009 - Aug11682
2009 - Sep11634
2009 - Oct11577
2009 - Nov11552
2009 - Dec11534
2010 - Jan11556
2010 - Feb11572
2010 - Mar11591
2010 - Apr11629
2010 - May11668
2010 - Jun11681
2010 - Jul11717
No doubt some of these losses were attributable to the 2001
recession. But as shown in Figure 13, overall manufacturing job
losses during the 2001 recession were not unusual by
historical U.S. standards. The panel plots manufacturing employment
in the months centered around recession troughs (as designated by
the NBER), indicated by the vertical line. The blue line
corresponds to the average experience over the post-war recessions
prior to the 2001 recession, which is plotted as the red line. The
pattern of manufacturing employment was very typical prior to the
recession and through its trough, but atypical from that point
onward. In the past, manufacturing employment began to rebound
within 6 months of the trough, but following the 2001 recession,
manufacturing employment contined to fall for 2 years and then only
flattened out rather than recover.
Figure 13: U.S. Recessions and Manufacturing
Employment
Data for Figure 13
Months around
recession trough (0)Median Manufacturing Employment Pre-2000
RecessionsManufacturing Employment 2000 Recession
-36104.8731247110.3633
-35105.0781154110.2496
-34105.2061788110.1548
-33105.3630037109.921
-32105.3531538109.7504
-31105.8858381109.5924
-30106.1570283109.5292
-29106.6216883109.2954
-28107.0626434109.3712
-27107.4842612109.2322
-26107.8284732109.188
-25108.2872732109.1501
-24108.7186837109.2006
-23108.8515041109.1754
-22108.7162014109.2701
-21107.6567997109.2196
-20109.2861845109.3333
-19109.1710309109.3081
-18109.5259568109.188
-17109.6062985109.3081
-16109.7534934109.4534
-15110.1654312109.2322
-14109.8301996108.8531
-13109.795853108.7836
-12109.6088317108.7014
-11109.0593564108.5498
-10108.7164902108.1453
-9107.7123961107.6082
-8107.317605107.0395
-7106.2359551106.1801
-6105.3416466105.2891
-5104.6968578104.3665
-4104.1677672103.4945
-3103.2165244102.5276
-2102.2836285101.8199
-1100.829317100.9226
199.99.2733
2100.030244498.56556
3100.394696598.06003
4100.029152597.60506
5100.599370397.27646
6101.077724996.92259
7101.633611596.66351
8102.022646996.36651
9102.374154295.82306
10102.934264895.51343
11103.335403495.15956
12103.891206294.73618
13104.236977294.21801
14104.579440193.94629
15104.759323393.39652
16104.716357493.03002
17104.99341392.30964
18104.827822191.98104
19105.327839791.58294
20105.626341391.00158
21105.624571390.85624
22105.673437990.66035
23106.059240890.5782
24106.296564390.45814
25106.80475190.36335
26106.986137390.3128
27106.845943390.21801
28106.607397590.28752
29106.696018690.46445
30106.533204890.62875
31106.562466190.55924
32106.477301690.57188
33106.510995590.63507
34106.483398390.55292
35106.413393990.5782
36106.374378290.39494
To better quantify the different forces affecting U.S.
employment, we regress the log difference of quarterly
manufacturing employment on a constant, and the log differences of
U.S. GDP, foreign GDP (weighted by U.S. exports), and investment in
equipment and software (E&S). The right-hand side variables
were estimated using third degree polynomials of four lags. We also
include a first-order autoregressive error term, AR(1). The results
are reported in Table&1, with the statistics for the sum of
the lags reported for the economic variables. We estimated the
equation through 1999:Q4 in order to allow for out-of-sample
forecasts from 2000 forward, our period of interest.
Table 1. Dependent Variable: Log-difference Manufacturing Employment
VariableCoefficientStd. Errort-Statistic
The coefficients on the GDP variables are of the expected sign
and statistically significant at the 5 percent confidence level.
The coefficient on investment falls just short of signficance at
the 10 percent level. The inclusion of the autoregressive term has
little impact on the coefficients and significance of the other
variables as its relatively low value would suggest. In Figure 14,
we show dynamic forecasts of the model through the 1980 and 1990
recessions. The model does a very good job of capturing both the
contours and levels of employment, despite the very different
characteristics of the two recessions.
Figure 14: Model Fit of the 1980 and 1990 Recessions
Data for Figure 14
Year/QuarterManufacturing Employment&Fundamentals ModelFundamentals - 1& S.E.Fundamentals + 1& S.E.
1980Q119.261448119.23919.19.
1980Q218.18.7318.18.
1980Q318.18.37818.18.
1980Q418.18.58218.18.
1981Q118.18.63318.410437718.8555623
1981Q218.18.75518.18.
1981Q318.18.74818.19.
1981Q418.18.39918.18.
1982Q117.17.96217.18.
1982Q217.17.56717.17.
1982Q317.17.17116.17.
1982Q416.16.75516.17.
1983Q116.16.70716.17.
1983Q216.16.8816.17.
1983Q316.17.14416.17.
1983Q417.17.46617.17.
1984Q117.17.72117.335642518.1063575
1984Q217.17.91817.18.
1984Q317.18.02217.18.
1984Q417.18.02117.18.
1985Q117.17.97117.18.
1985Q217.17.85317.18.
1985Q317.17.7517.18.
1985Q417.17.69917.18.
1986Q117.17.65817.18.
1986Q217.17.5817.18.
1986Q317.17.49517.17.
1986Q417.17.47616.17.
1987Q117.17.4916.17.
1987Q217.17.53517.18.
1987Q317.17.63817.18.
1987Q417.17.77117.18.
1990Q117.17.85517.17.
1990Q217.17.80617.17.
1990Q317.17.65417.17.
1990Q417.17.46617.17.
1991Q117.17.22917.17.
1991Q216.17.06916.17.
1991Q316.17.01716.17.
1991Q416.16.95816.17.
1992Q116.16.82516.17.
1992Q216.16.8316.17.
1992Q316.16.78816.17.
1992Q416.16.75816.17.
1993Q116.820334316.79716.17.
1993Q216.777277816.7616.17.
1993Q316.16.7516.17.
1993Q416.16.79716.17.
1994Q116.16.87116.17.
1994Q216.16.96816.17.
1994Q316.17.07416.17.
1994Q417.17.18316.17.
1995Q117.17.26316.17.
1995Q217.17.26216.835540717.6884593
1995Q316.17.23416.17.
1995Q416.17.21716.17.
1996Q116.17.2116.17.
1996Q216.17.21816.17.
1996Q316.17.24316.17.
1996Q417.17.27616.17.
1997Q117.17.31816.17.
1997Q217.17.36716.17.
1997Q317.17.43516.17.
1997Q417.17.55217.18.
Figure 15 shows our out-of-sample forecast for manufacturing
employment from 2000 through the fourth quarter of 2007. The model
matches the general shape of employment through this period but
significantly underestimates the job losses from the trough of the
recession in the fourth quarter of 2001 through the end of
2003. It is important to note that the
model shows that even after the recession's trough, U.S. GDP and
investment growth were not sufficiently robust to prevent a further
decline in employment over the next two years or a substantive
rebound thereafter. We could not find a domestic macro variable
capable of explaining the gap between the model fit and the
Figure 15: Out-of-Sample Forecast of 2001 Recession
Data for Figure 15
Year/Quarter
Manufacturing Employment&
Fundamentals Model
Fundamentals - 1 S.E.
Fundamentals + 1 S.E.
16.5227438
16.2093398
15.4205122
15.8002426
15.9101301
16.2145285
Chinese exports, competing with U.S.-produced goods in the
domestic and foreign markets, likely account for part of this
unusual pattern. U.S. job losses were concentrated in those sectors
where Chinese exports grew most rapidly--more than half of the
losses were in the apparel and textiles, furniture, metals, and
computer industries (Figure 16).
Figure 16: U.S. Employment Losses by Industry,
Data for Figure 16
Textiles and
ApparelComputersMetals and MineralsTransportationPrint & PaperPlas. & Chem.FurnitureMachineryElectricalMisc.Food & Bev.
An Examination Industry-by-Industry
To quantify the effect of Chinese competition on U.S.
manufacturing employment, we regress the log change in employment
on the log change in Chinese import penetration, the log change in
import penetration excluding China, and the log change in U.S.
industrial production. Import penetration is defined as the ratio
of imports to domestic demand, and demand is calculated as
industrial production minus the change in inventories and net
exports. The first two columns of the table quantifies the
estimated impact of import pentration on jobs. The number takes the
coeficient on the relevant variable and multiplies it by the change
in that variable between 2001 and 2007. The next four columns give
the results of the regressions for the import pentration variables.
Numbers highlighted in bold are statistically significant. The
first line of the table shows the results of a panel regression
with industry fixed effects (at the 3-digit NAICS level). A one
percent increase in Chinese import penetration reduces employment
across these manufacturing sectors by almost 3 percent. In
contrast, the same increase in imports from other countries boosts
employment by over 8 percent. Both coeficients are highly
statistically significant. Moving down the table, regressions are
conducted one industry at a time. The estimated job losses are
concentrated in three industries. Fabricated metal, machinery, and
computers. These three industries have relatively large
coefficients and were large employers in 2001.
The panel regression coefficient implies that domestic
competition from Chinese exports can account for approximately
¾&million of the 3½ million manufacturing jobs
lost. This regression may underestimate the effect on U.S.
employment of Chinese exports by not fully capturing the effect of
Chinese competition with U.S. exports in foreign markets.
Table 2. Cummulative Impact of Import Penetration on Jobs*
&Chinese Jobs Impact World Jobs
ImpactChinese
ImportsT-StatWorld Imports
ex ChinaT-Stat
Panel Estimate -788464-2.89-2.68.394.3
Industry Estimates: 311 Food 12-261.140.27.03-0.9
Industry Estimates: 312 Bev. and Tobacco 0-64.151.7-8.99-0.6
Industry Estimates: 313 Textiles 843.450.77.820.5
Industry Estimates: 314 Txtl. Mill Products -469-34.85-2.615.371.0
Industry Estimates: 315 Apparel -251-8.30-1.30.700.1
Industry Estimates: 316 Leather -134-50.31-1.719.900.7
Industry Estimates: 321 Wood 32610.851.419.547.6
Industry Estimates: 322 Paper -293-8.07-1.45.340.7
Industry Estimates: 323 Printed Matter -80-2.14-0.30.020.0
Industry Estimates: 324 Petroleum 000.220.2-2.08-0.4
Industry Estimates: 325 Chemicals -88-1.66-0.94.620.9
Industry Estimates: 326 Plastics 38-138.840.6-7.03-0.3
Industry Estimates: 327 NonMetal Mineral -1619-13.60-1.842.876.7
Industry Estimates: 331 Primary Metal -118-0.28-0.18.281.3
Industry Estimates: 332 Fabricated Metal -242155-29.04-3.541.983.9
Industry Estimates: 333 Machinery -12371-16.16-2.530.023.6
Industry Estimates: 334 Computers -14939-13.41-0.516.830.8
Industry Estimates: 335 Electrical Equip. -2647-11.25-0.630.061.5
Industry Estimates: 336 Transportation 24162.281.017.171.5
Industry Estimates: 337 Furniture -613-2.24-0.217.731.0
Industry Estimates: 339 Misc. -1819-9.23-2.99.832.0
We attempt to illustrate this competition in Figure 17. Each
point of the scatter plot represents the value of U.S. exports in
2000 (horizontal axis) and 2007 (vertical axis). The points are
drawn from the 100&largest 4-digit HS categories in 2007. We
shaded a point red if that category was also one of the top 50
categories of Chinese export growth measured in dollars. The red
dots primarily fall below the trend line (dashed-red). Moreover,
the red-shaded points that fall below the 45 degree line,
indicating that those categories fell in dollar value between 2000
and 2007, are all high-tech goods.
As these high-tech goods evolved rapidly in the 2000s, the
United States did not make the capital investment necessary to
maintain its competitive position because of the bursting of the
tech bubble and ensuing recession. In 2002 and 2003, the stock of
private fixed assets in the computer and electronics industry fell
for the first time in the postwar era. In contrast, Chinese
investment in high-tech was soaring. Chinese fixed asset investment
in communications, computer, and other electronics industries
doubled between 2004, the first year of available data, and 2007.
Of course, it is difficult to determine whether U.S. investment was
lacking because of Chinese competition or whether the lack of
investment opened the door to said competition. But regardless of
the cause, with U.S. manufacturing capacity stagnant, there was an
opportunity for Chinese producers to gain market share, both of the
U.S. import market and the global market.
Figure 17: Chinese Competition with U.S. Exports
Data for Figure 17
HS Code20002007
854254.0980841.58776
870830.9946134.57804
847130.9292924.30857
880225.325253.50371
847324.6487715.65774
870317.2336944.79258
988015.7068526.91253
841115.6075327.15228
880315.2391421.95535
851712.8910418.3539
847912.278596.314796
90189.10066617.25416
85257.7115694.626867
84317.35382815.87453
90307.1652296.257367
27107.10675226.73326
85366.8205828.091127
87046.60810113.70651
84076.513296.870782
30046.50008916.48099
85415.9108178.170474
85445.8748387.04294
12015.31270510.01622
71085.29262811.79211
85295.1607155.055722
10054.71394410.0999
84094.5915435.094469
39264.3855034.530331
71024.23837711.91136
85044.2339164.369901
84143.766835.323414
84213.7552586.094264
84813.5028236.281801
90273.421976.082227
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84133.2700535.54887
39073.0504325.152346
39202.9438713.804439
94012.9391053.297619
90012.7987142.76355
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47032.6958683.621009
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85432.6705143.708941
73262.6392443.071137
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31002.4854443.741922
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84182.2554672.755958
30022.2154888.752614
29332.1921014.169998
76062.1577623.210091
49012.148142.634647
94032.0921482.556966
85382.0453932.918966
27012.0444774.161278
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The welfare implications for the United States of the increase
in Chinese exports is beyond the scope of this paper, but it is
important to note that it is not at all clear that the costs
outweighed the benefits. Although the loss of manufacturing jobs is
obviously costly to those individuals, the benefits to society
included lower prices, more rapid adoption of new technology, and
efficiency gains from the removal of trade barriers and through
increased competition. Kamin et al (2006) estimated that for every
percentage point increase in China's import share, U.S. import
price inflation was reduced by about 1&percentage point.
According to this estimate, the increase in China's import share
between 2000 and 2007 reduced the 2007 level of import prices by
about 8&percent. The United States also appears to have
efficiently reallocated its labor resources, with economy-wide job
growth sufficient to push the unemployment rate in 2007 down to
well below its average of the 1990s and within
½&percentage point of its all-time low in early 2000,
even as the manufacturing sector shed workers.
Section 4:&&Implications for the Future
In the aftermath of the global financial crisis, U.S. investment
has been lackluster. Like in the early part of the 2000s, the stock
of high-tech fixed capital fell in 2009 and 2010. This
may once again open the door for new technologies to be dominated
by foreign producers. The IMF and others project China's trade
surplus will again surge. For example, in its 2011 Article&IV
for China, the IMF projected that Chinese exports will more than
double from $1.6 trillion in 2010 to $4.2 trillion in 2016. But
which sectors will generate this growth and to whom will these
For apparel, furniture, and steel, it is unlikely that China
will be able to repeat the massive surge in exports experienced
earlier this decade. China now has a high market share in these
categories and the categories themselves are unlikely to experience
tremendous global growth.For high-tech products, China may be able
to repeat its success, but it will be difficult. For example, China
already produces most of the world's laptops. For some of the
products discussed in this paper, there may be some room for China
to increase market share further, but China's ability to gain
additional market share in these now more mature markets, with more
established players, is far from certain. Although China retains
the draw of its huge domestic market, recent increases in wages
have likely eroded, at least to a degree, its cost advantage
relative to its neighboring emerging market economies. When the
next product comes along that is adopted quickly and globally, such
as the cell phone, it is not clear that China will be the country
best positioned to dominate the market.
A final point is that, no matter the sector, there must be an
importer on the other side of China's exports. If Chinese exports
increase by $2.6 trillion, then the rest of the world's imports
must also increase by that sum. This notion often gets swept under
the carpet. For example, the IMF's April 2011 WEO projects the
current account surplus of the emerging and developing economies
will increase by more than $520&billion between 2010 and 2016
but that the deficit in the advanced economies will increase by
only $200&billion--the majority of the burgeoning surplus in
the emerging markets is added to the statistical discrepancy.
Section 5:&&Conclusion
This paper examines the underlying causes of China's rapid
growth of exports over the past decade. An undervalued exchange
rate likely contributed to a degree, but export growth was
relatively concentrated in select industries when one would expect
the exchange rate to have a broader impact. Labor-intensive
industries such as apparel, textiles, and furniture, benefited from
China's WTO ascension. The apparel and textile industries saw
massive gains following the expiration of multilateral agreements
which had limited China's exports. Capital and energy-intensive
industries, particularly iron and steel, benefited from government
subsidies. These industries also benefited from Chinese reforms
that led to state-owned enterprises becoming increasingly
profitable. These profits, retained by the SOEs, resulted in an
expansion of capacity and production beyond the domestic market's
ability to absorb it.
These explanations, however, can take one only so far, as nearly
half of Chinese export growth occurred in the &machinery&
categories. It is only by examining more detailed Chinese trade
data that one can see that this growth was heavily concentrated in
a few specific high-tech products--cell phones, laptops, liquid
crystal displays, and integrated electronic circuits. China was
able to rapidly increase its exports of these products because of:
industrial policy, such as science parks, that specifically
encouraged th an explosion in global demand
for these products, with Chinese domestic de
and, finally, a sharp fall in U.S. high-tech fixed investment,
which contributed to China's ability to dominate these new
technologies.
Further, this expansion of Chinese exports led to a decline in
manufacturing share of the advanced economies, and in many cases a
decline in manufacturing employment. We show that Chinese exports
can help account for a significant portion of U.S. job losses at
the industry level, but that macroeconomic fundamentals explain the
majority of the fall in U.S. manufacturing employment between 2000
and 2007. Also, as we have noted earlier, quite a number of the
jobs lost over this period, particularly in the textile, apparel,
and furniture industries, would have moved to China earlier, owing
to its natural comparative advantage in labor-intensive production,
if not for protective tariffs and trade agreements. Chinese
industrial policy aided the country's exports of high-tech goods,
but China was also able to gain a competitive position in key
products because it invested heavily at a time of burgeoning global
demand for these products and diminished U.S. investment.
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