The “China Shock” Demystified: Its Origins, Effects, and Lessons for Today

However, most skeptics misunderstand or misstate what the China Shock papers say and the historical events leading up to the period, and they ignore other analyses of US-China trade that provide essential—and more optimistic—information and context. Thus, while there is little doubt that China’s size, economy, and location make it an influential and potentially disruptive force in the global economy and that China’s state capitalist model, growing authoritarianism, and bellicose foreign policy raise challenges for the US government, a comprehensive accounting of the China Shock refutes globalization critics’ caricatures thereof. This essay provides just such an accounting.

The China Shock refers to both a 12-year surge of Chinese imports into the United States and the first series of academic papers that analyzed it. The shock coincided with two important events: the 2000 passage of US law granting China PNTR status, which cemented for Chinese imports the lower tariffs that the United States applied to imports of almost all other nations, and China’s official accession to the WTO in 2001, which required the approval of all 142 WTO members, including the United States. In the decade that followed, Chinese imports into the United States accelerated—thus it has been called the China Shock.

Shortly after the end of this period, in 2013, economists David H. Autor, David Dorn, and Gordon H. Hanson published “The China Syndrome,” which examines the Chinese import surge’s effect on employment in US localities. They concluded that the increase in imports from China accounted for around 55 percent of the decline in US manufacturing employment between 2000 and 2007 (translating to a reduction of 982,000 manufacturing jobs) and led to increased unemployment and lower wages for both manufacturing and nonmanufacturing workers—especially those without college degrees—in the regions most affected. Three years later, Autor, Dorn, and Hanson published their seminal work on the issue, “The China Shock.” They found that roughly 2 million jobs were lost in national industries in the United States between 1997 and 2011 either directly or indirectly due to increased imports from China, including 985,000 manufacturing jobs. The most affected subsectors included industries with low-skilled workers, such as apparel, textiles, footwear, and computer/​electronic parts. When including local employment as well, the authors estimated job losses of up to 2.4 million positions between 1999 and 2011.

Since then, Autor, Dorn, and Hanson have examined the China Shock’s negative effects on other issues, such as marriage and drug addiction. Their papers have been joined by others producing similar employment results, such as one by economists Justin Pierce and Peter Schott focused on PNTR, and the collection of papers has supported still other economics research employing various methodologies and data—and often finding statistically significant harms to American workers and their communities. Combined, these papers form the academic backbone of arguments against free trade and globalization, of the current political narrative surrounding past US-China trade policy, and of concrete protectionist actions targeting Chinese and other imports.

Unfortunately, advocates of such arguments and actions routinely misstate or misunderstand the China Shock research and the origins of the shock itself, and they ignore a library of other China-related work that offsets—if not outright refutes—the China Shock papers’ conclusions.

Critics of US-China trade policy routinely assert that PNTR and China’s WTO entry, both US policy choices, single-handedly drove the China Shock. However, leaving aside whether—considering the surrounding events and realistic alternatives—US officials really had much of a choice for either policy (itself an open question), history and academic research show that neither PNTR nor China’s WTO accession were the primary drivers of China’s improved export competitiveness (and thus the China Shock) in the 2000s.

First, PNTR did not actually open the United States to Chinese imports: China had previously held most-favored-nation trade status, renewed on an annual basis, since 1980, meaning the country faced no greater trade barriers than most other (favored) US trading partners. Most-favored-nation status was even renewed right after the Chinese government’s violent response to the Tiananmen Square protests and after the presidential election of Bill Clinton, who ran against China’s most-favored-nation status, which was subsequently renamed “normal trade relations.” Only once between 1990 and 2001 was China’s normal-trade-relations status truly in doubt: in 1992, when a presidential veto was needed to maintain it. As a result, Chinese imports to the United States increased more than sixfold in the decade preceding PNTR, and by the late 1990s the rational expectation of most US importers was more of the same. Indeed, a 1998 Congressional Research Service analysis of congressional votes and the broader annual debate over the renewal of China’s normal-trade-relations status concluded that, by the late 1990s, that status was “a largely settled issue” in Congress.

Nevertheless, there is evidence that the certainty of permanent trade relations may have accelerated the growth of Chinese imports into the United States. Most notably, Pierce and Schott found that PNTR increased Chinese imports, which caused US job losses. Other experts, however, question the magnitude of PNTR’s effect on Chinese imports into the United States. For example, George Alessandria and colleagues found little effect from PNTR because, consistent with the aforementioned anecdotal evidence, the uncertainty surrounding Congress’s annual normal-trade-relations votes had evaporated by the late 1990s.

Furthermore, economists have found that other factors—not PNTR or China’s WTO accession—were the main drivers of the China Shock. Kyle Handley and Nuno Limão, for example, found that PNTR’s reduction in trade policy uncertainty accounted for only about one‐​third of the growth in Chinese exports to the United States between 2000 and 2005. Mary Amiti and colleagues found similar results, attributing approximately two‐​thirds of the effect of China’s WTO entry on US manufacturing not to PNTR but to China’s own tariff reductions. (Numerous studies have found, perhaps counterintuitively, a strong general connection between increased imports and increased exports.) Indeed, preliminary results from Chad P. Bown and other economists suggest that China reduced domestic tariffs by a greater amount than was expected for nations joining the WTO (and, again, that these tariff cuts were a big driver of Chinese exports to the United States). Autor, Dorn, and Hanson’s China Shock papers themselves emphasize that China’s internal reforms—on privatization, trading rights, and (again) import liberalization—were major contributors to China’s export competitiveness in the late 1990s and 2000s.

In short, PNTR probably accelerated Chinese exports to the United States, but China’s own market-based reforms—policies beyond US officials’ control and ones China critics should cheer—were likely the China Shock’s biggest drivers.

Autor, Dorn, and Hanson’s China Shock papers are frequently characterized as not merely supporting but advocating US government restrictions on Chinese imports due to the China Shock’s damage to the US economy writ large and especially to American manufacturing employment. None of this, however, is accurate.

For starters, their papers strictly focus on job losses incurred by specific local labor markets due to the China Shock and the failure of those markets (workers) to adjust in the following years. On the former issue, the figure of 2.4 million lost jobs during 1999 and 2011 was the authors’ maximum estimate and came amid an economy-wide gain of approximately 2.2 million jobs (even as the labor market effects of the Great Recession persisted beyond 2011). The China Shock’s 1 million lost manufacturing jobs, meanwhile, accounted for less than 20 percent of the total manufacturing job losses over the same time frame—and a fraction of the tens of millions of job separations that occur in the United States each year. Thus, even the China Shock papers themselves confirm that dislocations caused by Chinese import competition, while of course important to the workers and communities implicated, were at best a plausible contributor to—not the main driver of—US workforce trends during the 2000s.

The adjustment issue, meanwhile, was the authors’ major and novel contribution to the economics literature—not the trade findings. In particular, Autor, Dorn, and Hanson’s China Shock papers found that displaced manufacturing workers did not, as economists expected, quickly move to other regions or industries but instead became unemployed or exited the labor force. This effect was more pronounced for workers without a college education and for low-earning workers. In their 2021 paper, Autor, Dorn, and Hanson assert that the negative effects of the China Shock persisted through 2019, with localities more exposed to Chinese import competition experiencing “more plant closures; larger declines in manufacturing employment, employment-population ratios, earnings for low-wage workers, housing prices, and tax revenues; and larger increases in childhood and adult poverty, single parenthood, and mortality related to drug and alcohol abuse, as well as greater uptake of government transfers.”

However, the authors have repeatedly qualified these conclusions with several cautionary points: First, their findings relate to any significant economic disruption (e.g., technological change), not merely Chinese import competition. Second, their work does not challenge the overall benefits of free trade for the US economy; as the New York Times reported in 2016, for example, “Mr. Autor, like most economists, is still persuaded of the long-established benefits that global trade confers on the economy as a whole.” Third, Autor, Dorn, and Hanson emphasize that policies addressing the problems identified in their papers should focus on helping workers adjust to trade or other disruptions, not stopping the disruptions from occurring (e.g., with tariffs or other forms of protectionism). As Hanson writes in a 2021 article, “The China trade shock hurt many US workers and their communities. But so, too, have automation, the Great Recession, and the COVID-19 pandemic. And because the scarring effects of job losses are the same whether imports, robots, or a virus is responsible, responses to the damage should not depend on the identity of the culprit.”

Those using the China Shock to advocate new US protectionism have missed these important points.

Just as important, many other studies rebut the somewhat bleak picture of a post-globalized America described by Autor, Dorn, and Hanson’s papers—one with persistent job losses for the poorest and most uneducated workers, increased geographical disparities, and familial life filled with challenges. In particular, while most experts agree that Chinese import competition caused some American manufacturing workers to lose their jobs during the 1990s and 2000s, the debate rages among economists as to the scale of this disruption and the overall effects on the US workforce. By contrast, experts—including Autor, Dorn, and Hanson—uniformly agree that while the China Shock produced “winners” and “losers” in the United States, the winners outnumbered the losers and thus the net economic benefit for the nation was positive.

Several studies have found that Chinese import competition was directly responsible for fewer US manufacturing job losses than the totals calculated in the China Shock papers. For example, a model created by Lorenzo Caliendo and others attributed only 15 percent of job losses between 2000 and 2007 to the China Shock. Other researchers found offsetting job gains or smaller losses when considering factors such as value-added trade flows or the US housing market, leading to estimates of net job loss as low as 0.22 percent of nonfarm employment. More recently, Clément de Chaisemartin and Ziteng Lei identified a significant methodological flaw in Autor, Dorn, and Hanson’s original 2013 paper and found that a more robust assessment of the same data would prevent one from concluding that Chinese imports caused a substantial decline in US manufacturing employment.

Economists Alan Reynolds and Philip Levy, along with former US diplomat Charles Freeman, go even further, arguing that the China Shock likely caused only a small decline in US manufacturing employment after accounting for other trends—especially non-Chinese imports. These and other scholars note that the manufacturing sector’s share of the US workforce declined steadily before and during the shock period (see Figure 1) due to trade, technology, American workers’ increasing skill levels, and the economy’s natural transition to services.

These experts add that, during the China Shock period, Chinese imports primarily replaced imports from other Asian countries, not US production: the overall portion of imports into the United States from Pacific Rim countries remained constant between 1990 and 2017 with only China’s share of those imports increasing substantially (see Figure 2), and Americans’ import consumption remained stable during the China Shock period. Research has found, moreover, that most of the US jobs and companies affected by the China Shock were in “late stage” industries already facing intense import competition and would therefore have eventually moved offshore regardless of the China Shock.

Recent events seem to corroborate at least some of the critics’ points. Between 2010 and 2023, for example, the US economy gained more than 1.5 million manufacturing jobs—even as imported goods from China increased substantially (accounting for inflation). Manufacturing productivity, on the other hand, stagnated over the same period—indicating (superficially at least) that it, not imports, has been the primary driver of US industrial employment gains and losses. Furthermore, recent US tariffs on Chinese imports, imposed by President Donald Trump and continued by the Biden administration, have caused Chinese imports to plateau, while imports from alternative countries, such as Mexico, Vietnam, and India, have surged, supporting the notion that Chinese imports more directly compete with goods from other developing nations, not from the United States.

A crucial question left unanswered by Autor, Dorn, and Hanson’s China Shock papers is whether imports from China boosted jobs in the nation overall. Several other economists have explored this issue in depth, finding mostly positive results. Nicholas Bloom and colleagues, for example, concur with Autor, Dorn, and Hanson that the China Shock caused manufacturing job losses, especially for those without college degrees, but they add that the losses were offset by gains in service jobs in other regions. Several other studies (see this Caliendo and Fernando Parro paper for a review of the literature) have similarly found that a decline in US manufacturing jobs during the China Shock period was accompanied by increases in American service-sector jobs. The results from Zhi Wang and colleagues were even more positive: they found that, after accounting for the effects of Chinese imports throughout the supply chain, specific jobs were indeed lost, but overall employment and wages increased, even in regions that experienced large manufacturing employment declines (contra Autor, Dorn, and Hanson).

The original China Shock papers by Autor, Dorn, and Hanson also did not examine the consumer and aggregate economic effects of trade with China for the United States. Other economists have filled this gap, again with mostly positive results. Xavier Jaravel and Erick Sager, for example, found that for each percentage point increase in Chinese imports, consumer prices fell by nearly 2 percentage points, with savings from both imports and domestically produced goods (thanks to heightened competition). They estimate that, overall, American consumers saved an estimated $411,000 for every US manufacturing job lost from Chinese import competition. Notably, middle- and low-income households enjoyed a disproportionate amount of these benefits, as the most affected products were those often sold at big-box retailers, such as Target and Walmart. Other studies have found Chinese imports to have provided similar reductions in consumer prices as well as significant benefits for American manufacturers that consume imported inputs.

Autor, Dorn, and Hanson have recently acknowledged these consumer benefits, which their earlier work had excluded. In particular, their 2021 reassessment of the China Shock found that once Chinese imports’ consumer benefits were considered (using Jaravel and Sager’s estimates), only 6.3 percent of the US population—or 82 of the 722 US localities (commuting zones) examined—experienced net losses from that same import competition. This represents a far smaller share of China Shock “losers” than that found in the authors’ original estimates, though they still view the losses as significant.

The China Shock’s overall impact on US living standards (referred to here as welfare) has also been found to have been positive—in line with previous research on trade liberalization. Caliendo and Parro, in particular, find that between 1995 and 2011 the United States experienced an aggregate welfare gain of 3.4 percent due to trade with China. Other research also found gains in overall welfare, with sizable majorities of Americans (though of course not all) benefiting from this bilateral trade. Summarizing this research, Caliendo and Parro state that “[a]ggregate gains from trade are widely agreed upon by trade economists, and the increased trade integration between the United States and China over the past 20 years has allowed researchers to confirm this view.” And Autor, Dorn, and Hanson agree in their 2021 paper.

Experts also agree that the China Shock, regardless of its effects, has been over for at least a decade and will not be repeated by any other emerging economy. As Autor, Dorn, and Hanson explain in their 2021 paper, “It is now clear that the China trade shock as we understand it appears to have stopped intensifying a decade ago” because it “was about China’s one-time transition to a market economy.” The only other developing country of China’s size, India, is already a market economy and WTO member; Vietnam is arguably not a market economy but is much smaller than China and acceded to the WTO in 2007; and all other nations still awaiting these moves are much too small to have a major economic impact.

Similar consensus exists with respect to whether the China Shock justifies tariffs or other trade restrictions today. For example, Adam Jakubik and Victor Stolzenburg note that “the literature on the local labour market effects of Chinese import competition has been cited extensively as an argument for limiting trade with China despite the fact that the results do not support this conclusion.” They then add that “there is no case for limiting trade with China” because “US local labour market adjustment to the China Shock has largely concluded.”

Much of economists’ opposition to new protectionism stems not from supposed free trade fundamentalism but recent US experience following extensive tariffs on Chinese imports applied during the Trump administration. In particular, Caliendo and Parro have found that the tariffs—and China’s inevitable retaliation—reduced consumption, wages, manufacturing exports, and aggregate welfare. The net welfare losses from the trade war stand in stark contrast to the China Shock’s net gains.

Economists have also found that the tariffs did not reverse US manufacturing job losses and, in fact, cost factory jobs on net. Of the few industries and states that did see manufacturing employment growth during the trade war, the gains were very modest. Autor, Dorn, and Hanson thus summarize the expert consensus:

This consensus, unfortunately, has been lost on many of today’s tariff advocates.

Although the rapid increase in Chinese imports during the 2000s created significant disruptions in certain local US labor markets, the common narrative of broad, China-caused economic destruction is mistaken. And while Autor, Dorn, and Hanson’s China Shock papers are an important contribution to any discussion of US-China trade since the 1990s, they remain simply one part of a large and growing library of published academic research on the China Shock. Other research, in fact, disagrees with their findings, identifies concerns with their methodologies, or provides critical context and insights on other aspects of the US-China relationship since the 1990s. The weight of this economics literature reveals significant overall economic benefits from heightened Chinese import competition during and after China’s accession to the WTO. Overall, one may reasonably conclude that US trade with China likely did eliminate certain American manufacturing jobs and that it disproportionately affected certain communities, but the depth and breadth of these losses remains subject to intense scholarly debate—especially after considering preexisting economic trends, gains in American service jobs, benefits for consumers (families and companies), and increased US exports.

Yet, even accepting Autor, Dorn, and Hanson’s findings as gospel, few (if any) mainstream economists would say that they justify new protectionism today. The China Shock story is primarily about workers’ adjustment to major economic disruptions, regardless of whether those disruptions arise from trade, technology, or anything else. Responsible policies addressing the China Shock findings would therefore focus not on protectionism—which has been repeatedly found to impose real economic costs without helping vulnerable workers or remedying past disruptions—but on helping workers endure and adapt to future disruptions, whatever their source.