Working Paper: NBER ID: w24886
Authors: Zhi Wang; Shangjin Wei; Xinding Yu; Kunfu Zhu
Abstract: The United States imports intermediate inputs from China, helping downstream US firms to expand employment. Using a cross-regional reduced-form specification but differing from the existing literature, this paper (a) incorporates a supply chain perspective, (b) uses intermediate input imports rather than total imports in computing the downstream exposure, and (c) uses exporter-specific information to allocate imported inputs across US sectors. We find robust evidence that the total impact of trading with China is a positive boost to local employment and real wages. The most important factor is employment stimulation outside the manufacturing sector through the downstream channel. This overturns the received wisdom from the reduced-form literature and provides statistical support for a key mechanism hypothesized in general equilibrium spatial models.
Keywords: trade; labor market; supply chain; employment; real wages
JEL Codes: F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trading with China (F10) | local employment (J68) |
| trading with China (F10) | real wages (J31) |
| greater exposure to Chinese imports (F69) | job losses in manufacturing sector (O14) |
| upstream exposure (L95) | decline in employment in service sectors (O14) |
| downstream channel (Q25) | boost employment in non-manufacturing sectors (E69) |
| direct competition channel + upstream channel (L14) | job losses (J63) |
| downstream channel + direct competition channel + upstream channel (L19) | net job gain (J23) |