China's technological emergence and the loss of skilled jobs in the United States: missing link found?

Author:Liang, Yan

The increasing net imports of advanced technology products (ATP) from China instigate some anxiety and anger in the United States these days. Some claim that China is eroding the United States' leadership in technological innovation (Preeg 2004). Others lament that the surge of ATP imports from China has caused job displacement in high-tech industries (Scott 2005). According to the latter view, China's technological leapfrogging is at least partly responsible for the withering U.S. middle class. China not only directly displaces high-tech jobs that sustain the working middle class, but also intensifies the threat effect whereby undermining workers' bargaining power for wage increases. This argument further states that China's manipulation of its currency, its exploitation of cheap, skilled workers and its lax protection of intellectual property rights contribute to its competitive advantage in high-tech trade. The immediate policy recommendation would be to overhaul U.S. trade policy with China to address the bilateral trade imbalance in general, and the high-tech trade imbalance in particular. China must be pressured to revamp its current unfair and unjust practices.

Such diagnoses and policy prescriptions are problematic, however. First, no robust evidence verifies that the increase in high-tech exports by China is a manifestation of its rising technological capacities. Quite the contrary, most high-tech production is not performed by Chinese workers. Second, the increase in China's high-tech exports emanates from the evolution of the international integration of production (IIP). Simply targeting China has at best, marginal effects. At worst, this diverts policy attention in the wrong direction and forgoes the real opportunity to make a change.

To account for China's high-tech exports and the implications thereof, this paper is structured as follows. The next section documents the oft-cited linkage between China's high-tech exports and the loss of high-paying, skilled manufacturing jobs in the United States. Section three examines high-tech production in China and shows why the increase in China's high-tech exports may be a delusive indicator of China's technological prowess. Dwindling high-paying manufacturing jobs in the United States may be due to the evolution of global production and/or domestic factors rather than competition between American and Chinese workers. Based on these analyses, the fourth section suggests alternative policy options aimed at creating jobs and enhancing workers' conditions. The final section presents conclusions.

China Trade and U.S. Job Losses: A Common Tale

The United States ran a merchandise trade deficit of $766.6 billion or 6.2 percent of GDP in 2005, up from less than 2 percent in the early 1990s. The ever-rising trade deficit seems to engender many perverse consequences, job losses being the most important one. It is frequently cited that the United Stated has lost around 3 million manufacturing jobs due to net imports since 1998. (1) The United States consistently runs trade deficits with China. For example, 41 percent of the U.S. manufacturing trade deficit in 2005 was accounted for by China. Therefore, China bears the major blame for manufacturing job losses. Based on employment requirement data for 183 industries, Robert Scott (2005) estimates that trade deficits with China cost 1.5 million U.S. jobs from 1998 to 2003. Similar findings abound. The International Trade Commission claims that up to 973,000 manufacturing jobs were displaced. The U.S.-China Economic and Security Review Commission conclude that 70,000-100,000 jobs are "moved" each year from the United States to China.

Responding to the stunning number of trade-induced job losses, some economists argue that although job losses are deleterious for specific industries and individual workers in the short run, Trade Adjustment Assistance and policies alike could effectively assist replaced workers and mitigate the pain of the short-lived adjustment. In the long run, the efficiency gain from free trade would catalyze industrial upgrading and hence, more and better jobs would be forthcoming. (2) This argument is vehemently criticized, however, in light of China's technological emergence and the ensuing rise of high-tech exports.

Indeed, China's manufacturing production and exports grew by an astounding 422.7 and 384.2 percent, respectively, over the 1990s. Furthermore, as illustrated in Figure 1, China has steadily increased its share of ATP exports to the United States. Scott (2005) contends that the incidence of job loss due to China trade no longer fell predominantly on low-end manufacturing industries but shifted to such skill-intensive industries as electrical and electronic machinery. It appears that the enhanced skills and capacities enable Chinese workers to export high-tech products to the United States and hence displace high-paying jobs in skill-intensive industries. The repercussions are far-reaching. It is argued that if the United States is forced to retreat from not only low-end but also high-end manufacturing production, its competitive advantage, namely, the technological know-how and innovatability will simply vanish (Shenkar 2006). For the working middle class, this means job losses, job precariousness, weakening union power, repressed wages, falling living standards, and many other social and individual woes.



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