Monday, March 26, 2018 12:20 pm
Fact check: Trump's claim that China caused 60,000 US factories to close
SALVADOR RIZZO | Washington Post
"We've lost, over a fairly short period of time, 60,000 factories in our country -- closed, shuttered, gone. Six million jobs, at least, gone." -- President Donald Trump, in remarks at the White House announcing tariffs on Chinese imports, March 22, 2018
Long before he was president, Donald Trump complained that China was "taking all our jobs." Now, with the executive branch at his command, Trump is getting even with a plan to impose $50 billion to $60 billion in tariffs on Chinese imports.
The president says China's economic boom has come at the expense of U.S. manufacturers. To illustrate this point, Trump often uses the number of U.S. factories that have closed since China joined the World Trade Organization in 2001.
"Our nation has lost over 60,000 factories since China joined the World Trade Organization -- 60,000," Trump said on March 15, 2017. He repeated the claim five days later, according to our database of Trump's sketchy statements. Then, nearly a month after that, Trump's number grew to 70,000. ("We've lost 70,000 factories since China joined the World Trade Organization," he said on April 18, 2017.)
Trump's implication is clear: These factory closures, and the manufacturing jobs lost as a result, can be traced back to China's accession to the WTO.
Is that the reason for the massive retrenchment in the U.S. manufacturing industry?
Census figures show 59,794 manufacturing establishments closed in the United States from 2001 through 2015, erasing 4.3 million jobs. Data from the Bureau of Labor Statistics show a 4.7 million job loss in the manufacturing industry over the same period.
Trump is using an accurate number for factory closures since China joined the WTO, but he's off by at least 1.3 million with his estimate for the resulting job losses.
With that squared away, we wanted to know how much of this job loss was because of China's rise.
"It's certainly not the case that all of U.S. manufacturing job loss after 2001 is due to China's WTO accession," said David H. Autor, an economist at the Massachusetts Institute of Technology. "But conservatively, 40 percent of the decline between 2001 and 2007 can be attributed to that source."
Using census figures, 40 percent of the job loss between 2001 and 2007 would round out to 1 million jobs. Looking at a longer period starting two years before China entered the WTO, Autor and several co-authors estimated "job losses from rising Chinese import competition over 1999-2011 in the range of 2.0-2.4 million."
Said Dean Baker, an economist at the left-leaning Center for Economic and Policy Research: "Trump does have a point, but his numbers are hugely exaggerated."
The U.S. manufacturing industry employed 17.18 million workers at the end of 2000, a net loss of 120,000 from 17.3 million at the end of 1970, he said. "By comparison, in December of 2007, before the start of the Great Recession, manufacturing employment was down to 13,750,000, a drop of 3,430,000 jobs in just seven years," Baker said.
"What was new was the trade deficit, with China being the biggest single factor," he added. "And the manufacturing job loss had a secondary impact on communities across the Rust Belt where it was a major employer. So blaming trade and China for this job loss is not wrong."
Setting aside the number of manufacturing jobs, their share relative to the total U.S. workforce has been in decline since the end of World War II. In January 1944, they made up 38.5 percent of U.S. non-farm employment, but in February 2018, they accounted for 8.5 percent, according to BLS data.
When countries began to lift trade barriers in the 1980s and 1990s, few predicted that China's then-sleepy economy was on its way to becoming an industrial colossus.
China's economic boom was a shock to the system that upended economists' consensus view on the effects of trade, according to "The China Shock," a 2016 study by Autor and economists at the National Bureau of Economic Research, the University of Zurich and the University of California at San Diego.
The White House confirmed that Trump was measuring factory closures and job losses since 2001, when China joined the WTO, but otherwise did not respond to our questions.
China's boom began in the 1980s and accelerated around the time it joined the WTO. "The China Shock" explains how the WTO's membership requirements influenced this growth.
"In the late 1990s and early 2000s, China idled many state-owned manufacturing enterprises, moving toward compliance with WTO provisions that sanction state subsidies for domestic industries," Autor and co-authors David Dorn and Gordon H. Hanson wrote.
"Capital and labor were then reallocated from smaller, less productive state-owned companies to privately owned manufacturing plants, raising productivity and output in the sector. . . . Joining the WTO also forced China to phase out requirements that had obligated many private establishments to export through state intermediaries. Such restrictions constitute barriers to export, which the WTO forbids expressly."
The authors cited a different study showing that, had private businesses in China not received direct trading rights, the country's manufacturing exports in the 2000s "would have been one-third smaller."
Meanwhile, technological advances brought more automation to U.S. manufacturing, which some economists say increased productivity and reduced the need for factories and workers. So it's not just China eating our lunch -- robots are eating it, too.
"Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million," according to a 2015 study by economists at Ball State University.
This is not a consensus view among economists. Baker says, "Automation is productivity growth. We've been seeing it forever, it is not a new story. If anything, the pace has slowed in the last dozen years, not sped up, so the people who place the blame on automation are being misleading."
As we noted, Autor, the MIT economist, estimated that China was the source of 40 percent of the U.S. manufacturing job losses from 2001 to 2007. What about the other 60 percent?
"Automation is certainly one factor," he said. "It was also broadly a period of slow economic growth in the U.S., and that may have depressed demand for manufacturing, among other things. In truth, aside from the China Shock, it's hard to think of what large, sudden change in the U.S. economy or global economy could otherwise account for the implosion of U.S. manufacturing employment."
It's worth mentioning that Trump's tariffs may not reverse the tide and could end up having negative effects.
A day after Trump announced his plan for tariffs, China announced retaliatory measures on 128 U.S. products, including fruit, wine and steel tubes. This represents about 2 percent of U.S. exports to China, according to Moody's Investors Service.
U.S. officials have not announced the Chinese goods they will subject to tariffs, but the idea is to cover about 10 percent of Chinese imports. This tit-for-tat could escalate and end up hurting the global economy, Moody's said.
The Pinocchio test
The economists we spoke to agree with Trump's overall argument that China's industrial rise caused millions of job losses in the United States and thousands of factory closures. The president accurately says 60,000 factories shut down since 2001, but he goes too far in claiming that 6 million jobs were lost since China joined the WTO. It's more like 4.3 million to 4.7 million.
There's no definitive estimate of how many of these jobs were lost, or how many of these factories closed, specifically because of China. The research on this question is limited, indicating that China had an outsized effect but that there were other factors at play, such as automation.
What we do know is that the president frames the discussion by exaggerating the number of U.S. manufacturing job losses and China's role in this contraction. He earns Two Pinocchios.