China shock: the impact on trade and incomes

Abstract

Is US presidential candidate Donald Trump right when he claims that the Chinese are causing serious damage to American workers? Research by João Paulo Pessoa analyses the impact of the recent massive increase in China’s participation in world trade on jobs and incomes in developed economies. He finds that the effects of the ‘China shock’ on wages and unemployment vary substantially across sectors within countries. Greater trade benefits workers in services and harms workers in low-tech manufacturing. This indicates that even when developed economies face a fierce competitor like China, they also receive many benefits.