Lessons Learned From America’s China Shocked Towns

Social Implications of Economic Challenges

The impact China’s 2001 entry into the World Trade Organization would have on the U.S. economy was unpredictable at the time.  Giving Americans access to cheaper products seemed like a reasonable way to shake up the American economy for the sake of fostering innovation and global trade relationships all while lowering the cost of goods for consumers.  What economists knew then was that some American industries would be hurt, but they assumed negative impacts would be minimal and easily absorbed.  In essence, they believed that Americans who lost their jobs would learn a new skill or relocate to where more jobs existed. They believed the economy could withstand cheap imports.

What they didn’t predict was just how fast those goods would infiltrate American markets. The pace at which China exported everything from furniture, to shoes, to electronics is what created the shock we now refer to when we discuss the U.S., China trade relationship of the early 2000s.  By 2007, America lost 1.5 million manufacturing jobs.  What economists thought would take decades instead transpired in a few short years and, rather than absorb into a shifting economic structure, America’s working class floundered.  

Cheap Chinese Goods Ripple Through U.S. Manufacturing Towns

By 2011 manufacturing communities once thriving were reporting high unemployment rates and child poverty.  The dynamic put increased pressure on food assistance programs and extended unemployment benefits.  This group of people did not have the educational credentials to seek higher paying jobs, nor did they possess the financial flexibility to relocate for jobs or education. The skills they did possess didn’t transfer to industries becoming accessible.

What looked like a solvable problem on paper, a numbers game of balancing job availability with workforce availability, didn’t account for the social dynamics of these China shocked towns. The government provided aid, but it targeted economic development and not the individuals who’d been hurt by China’s cheap goods.  

China shocked towns have bounced back and most are doing surprisingly well just two decades after they were devastated.  But, the China shocked people haven't fared quite so well.  Assistance in the early 2000s came in the form of extended unemployment benefits for laborers who suddenly found competition high for low paying jobs, grants for new business development and existing local businesses, none of which included the manufacturing jobs that now called China home.

Government assistance did work to transform these manufacturing pockets of the nation into hubs for health care, education and technology.  But, these jobs were not claimed by manufacturing laborers.  Instead, young adults and immigrants utilized assistance programs to step into first time jobs and relocate to build new careers.  One more variable no one predicted.

Using the Past to Navigate the Future

Though new industries brought with them new communities, original residents stayed. Many of them were tied to mortgages in a depressed housing market.  Even with potential assistance for specialized career training, former manufacturing laborers saw the upgrade in skills as unaffordable.  They also seemed to favor longstanding connections to neighbors and towns, even when it meant struggling to secure wages that would accommodate increasingly higher costs of living.  It was a social dynamic economists didn’t predict and one that made it difficult to absorb a jobless workforce.

Economists argue the issue.  Some believe there is no point in mourning the loss of a single sector as long as there were jobs available to Americans that paid well.  So what if the people who lost jobs didn’t step into roles that provided equal or better pay.  Losing one industry but gaining another is a normal cycle.  Others believe it was an economic blunder where experts misgauged China’s ability to produce and deliver goods paired misplaced aid initiatives that contributed to the difficulties valuable laborers encountered when looking to contribute to economic momentum. 

Today we look at a different set of commodities caught up in the U.S., China trade relationship.  Electric vehicles, robotics technology and green industry products cost less to produce in China.  Even agricultural goods like soybeans find themselves part of the economic shift.  Are there lessons to be learned from 2007?

What transpired in the early 2000s challenged how we measure the benefits of trade, and particularly global connectivity.  Did we gain something more valuable than the 1.5 million jobs that were lost?  Ultimately, we made it difficult for low skilled laborers to secure work when we released manufacturing to the Chinese workforce, but we guaranteed that the average consumer could find affordable furniture, shoes and electronics. 

While we know that what benefits many will almost always harm a few, the social element of the China shock occurrence reminds us that American industry is made up of real individuals making the best possible choices with the information and resources they have available.  They don’t always follow a formulaic model.  There are college students studying robotics and farm families trying to sell soybeans banking on the idea that four years from now these industries will still exist in the U.S.