Aug. 30, 2001

Cornell study is first to examine impact of U.S. trade with China

Investments in China by U.S. firms have increased from $200 million in 1989 to $7.8 billion in 2000 and the country once described as a "sleeping giant" is now the United States' fourth largest trading partner, after Canada, Mexico and Japan. This dramatic growth in trade and investment with China has had a significant impact on employment and wages for workers in the United States and other countries, according to a federally funded pilot study called The Impact of U.S.-China Trade Relations on Workers, Wages and Employment .

"The findings provide strong support for those of us who have challenged the free trade paradigm that a rising tide lifts all boats," said Kate Bronfenbrenner, director of labor education research at Cornell's School of Industrial and Labor Relations and pilot-study project director. "The study suggests that trade is leading to a massive shift of jobs around the world, with a limited pool of winners and a growing mass of losers in every country, including the U.S."

Some major highlights of the study show that:

  • Based on data from media research, more than 80 U.S.-based corporations announced their intention to shift production to China between Oct. 1, 2000, and April 30, 2001, an estimate that may reflect only half of all shifts, the study's authors state. The estimated number of jobs lost as a result was as high as 34,900, compared to 26,267 jobs lost to Mexico and 9,061 lost to other Asian countries.
  • In the corporate quest for lowest production costs and higher profits, shifts to China (as well as to other countries) have led to stagnating wages, decreased employment and increased income inequality in the United States and abroad where similar production shifts have occurred. These results are contrary to the promise of rising wages and living standards that free trade and global economic integration were supposed to provide. o U.S. companies that are shutting down and moving to China and other countries tend to be large, profitable, well-established companies, primarily subsidiaries of publicly-held, U.S.-based multinationals including Mattel, International Paper, General Electric, Motorola and Rubbermaid. The study suggests that most of these companies are not targeting a Chinese market but intend to serve a United States and global market.
  • Contrary to the high expectations that China's 1.2 billion population would provide an ever-expanding market for U.S. goods, by 2000 the value of goods imported from China exceeded the value of U.S. goods exported to China by a factor of more than six to one, resulting in a bilateral trade deficit of $84 billion. Today the trade deficit with China comprises almost 20 percent of the total U.S. trade deficit and is the largest trade deficit the United States has with any single nation.

The study was commissioned in April 2001 by the U.S.-China Security Review Commission (USCSRC ), a bi-partisan group chaired by C. Richard D'Amato, a member of the Maryland House of Delegates and a 1964 alumnus of Cornell and a Cornell University Councillor. Researchers from Cornell and the University of Massachusetts at Amherst conducted the study, the first to provide data examining the nature and frequency of production shifts out of the United States into China -- and other countries -- between October 2000 and April 2001.

Prior to the formation of the commission, no government body in the United States was responsible for collecting comprehensive national data on the wage and employment effects of trade agreements and policies with China, despite congressional legislation passed in 2000 calling for such a committee. Because researchers had to backtrack to make up for the information deficit, they first designed and implemented a media-tracking system. The system monitored and analyzed media coverage of the employment and wage effects of China trade and investment by tracking all media-reported production shifts out of the United States to China, Mexico and other Asian and Latin American countries between Oct. 1, 2000, and April 30, 2001. Because of the lack of government data in this area, the media-tracking study is the first and only national database on production shifts out of the United States.

The second component of the study involved collecting and analyzing macro data on imports, exports and foreign direct investment in those industries and economic sectors that have an active trade, investment and production relationship with China. In combination, findings from the media-tracking and macroeconomic data provide further evidence that U.S.-China trade and investment policies have had, and will continue to have, a significant impact on employment and wages for workers in the United States and other countries actively involved in trade and/or investment with China. The study also lays the groundwork for future research on the economic impact of U.S-China trade relationships and demonstrates the importance of government-mandated corporate reporting requirements for all companies shifting goods, investments, or production in and out of the United States.