Previous research has shown that China's entry into the WTO in 2001 has had a profound impact on jobs and wages of low-skilled workers in the US in sectors exposed to Chinese imports. The same is not true for Germany. This column argues this is because the import-side trade adjustment to low-cost competition had already happened before the rise of China, because the rise of Eastern Europe offered new export opportunities for German firms, and because China’s love for product quality found a perfect match in German products.
Research has shown that China's entry into the WTO in 2001 has had a profound impact on jobs and wages of low-skilled workers in the US in sectors exposed to Chinese imports (Autor et al. 2013). Workers who lost their jobs did not find a new job in another sector, and those who were employed suffered a major drop in their wages. A similar study for Germany (Dauth et al. 2014) does not find any negative impact on the German labour market from China’s rise. This raises the question as to why workers in Germany did not experience the same fate. This is puzzling since China's entry to the world economy did not only affect the US but must have affected other countries as well.HT: Marginal Revolution
The China exposure
I recently started to look at data on the China exposure of major developed countries. The numbers suggest that all developed countries faced a stark increase in their exposure to Chinese import competition, but China's rise mattered most for the US. Between 2000 and 2010, the share of Chinese imports in total imports in industries exposed to Chinese competition in the US increased by 25 percentage points. In the UK and the Netherlands, the same share increased by about 16 percentage points during the same period. Spain, Italy, and Germany faced less of an exposure to China (with an increase in the import share of 14 percentage points), while France and Sweden were least exposed (with a 13 percentage points increase in the import share). Thus, Germany's China exposure was less stark compared to the US to begin with which might already explain part of the mystery.
But several other factors contributed to why Germany did not suffer from Chinese import competition as did the US. First, as Dauth et al. (2014) show, Germany tended to import goods (like textiles) from China that it has imported previously from other low-cost locations like Greece, Italy, and Turkey. China's rise led to a redirection of import flows, which caused job losses in these countries, but not in Germany....MORE
