Week 7 core readings + seminars

Question 1

Which emerging economies are potential successors to China’s?

Answer 1

Vietnam, Bangladesh, Cambodia, and other Southeast Asian and South Asian countries. Although they lack the infrastructure, scale and investment needed to replicate China’s manufacturing success

Question 2

What was the primary driver of China’s export boom starting in 1992?

Answer 2

China’s export boom was driven by export-led reforms, Special Economic Zones (SEZ) (which are designated areas within a country where business and trade laws differ from the rest of the country and therefore attract foreign investment and promote export-led economic growth) and foreign investment

Question 3

What role did WTO accession play in China’s export growth?

Answer 3

WTO accession reduced trade uncertainty, secured global market access, and removed restrictions on textile and apparel exports

Question 4

Why did China’s comparative advantage in labour-intensive industries decline after 2010?

Answer 4

Rising wages, a shrinking labour force, improved educational levels, and a shift towards high-tech industries

Question 5

What are the three main adjustment mecanisms discussed for China’s manufacturing transition?

Answer 5

• Relocation to the emerging economies (more in-land which is supported by an investment in their railway system)
• Technological innovation
• Internal relocation within China’s population

Question 6

Why has technological innovation been slow in labour-intensive industries

Answer 6

Labour-intensive industries, such as textiles and apparel, are difficult to automate due to the pliable nature of materials

Question 7

What challenges does China’s internal relocation of manufacturing face?

Answer 7

1. High costs in coastal cities:
   - The coastal cities of China have become incredibly expensive in terms of labour wages, land prices, and operating costs
   - Inland regions are cheaper, but they lack the same level of industrial infrastructure, skilled labour pools, and logistical connectivity found in coastal regions
   - Hence, many factories find it economically inefficient to dismantle their established networks in the coastal areas and rebuild inland
2. Coordination problems & agglomeration effects:
   - The problem is that industries cluster in regions where they benefit from agglomeration economies - suppliers, skilled workers, and logistics networks are all concentrated in one plce
   - Moving inland disrupts these established networks. No single factory wants to be the first to relocate because they fear losing access to suppliers, skilled labour and efficient ports
   - A factory moving inland might face delays and increased costs if its suppliers remain on the coast
3. Uneven Development and Infrastructure gaps:
   The problem: While China has invested heavily in road, rail, and logistics infrastructure inland, these regions still lag behind coastal cities in terms of:
   - Transportation efficiency
   - Access to global supply chains
   - Technology hubs and innovation clusters
4. Skills and labour shortages
   The problem: Inland regions often lack a workforce skilled in advanced manufacturing processes
   - Coastal cities have built decades of expertise in specific industries, and relocating inland would require retraining workers and transferring knowledge, which is both expensive and time-consuming
5. Resistance from Established Coastal Industries:
   The problem: established coastal industries have significant political and economic influence and resist relocation policies
   Why it matters: Local governments in coastal regions often lobby against inland relocation to protect jobs and revenue streams.

Question 8

How did the China Shock Impact the US manufacturing sector?

Answer 8

US manufacturing faced job losses, wage stagnation and regional economic shocks, due to import competition from China

Question 9

What industries were central to China’s initial labour-intensive export boom?

Answer 9

Textiles, apparel, footwear, toys, furniture and home goods.

Question 10

What policy shift under ‘Made in China 2025’ marked China’s transition towards high-tech industries?

Answer 10

‘Made in China 2025’ emphasised innovation, high-techn manufacturing, and technological self-reliance.

Question 11

What infrastructure developments have supported China’s internal manufacturing relocation?

Answer 11

Expansion of road and rail networks to connect interior regions to coastal export hubs

Question 12

What is the central focus of ‘The China Shock’ study?

Answer 12

The study examines the large-scale impact of China’s rise as a global manufacturing power on labour markets, particularly in the US

Question 13

How does the China Shock Challenge traditional views of trade impacts on labour markets?

Answer 13

Traditional View
- Economics believed that trade impacts would be evenly spread across a country’s labour market rather than concentrated in specific areas or industries
- it was assumed that workers could easily relocate or switch industries to adjust to trade shocks

What the China Shock Revealed:
- The impacts of trade shocks were highly concentrated in specific regions and industries (e.g., manufacturing-heavy towns in the US Midwest)
- Job losses and wage stagnation persisted for over a decade in these regions, challenging the assumption that labour markets adjust quickly

Adjustment friction (mentioned in article)
- Adjustment friction refers to the slow and incomplete relocation of labour and resources in response to trade shocks

Question 14

Why was the adjustment to the China Shock slow in the US?

Answer 14

Adjustment was slow due to labour immobility, skill mismatches, limited geographic relocation, and dependence on localised industries

Question 15

What are the key factors preventing US workers from relocating in response to trade shocks?:

Answer 15

High costs of relocation, social ties, limited job availability in other regions, and lack of transferable skills

Question 16

What is the role of ‘Input-Output Linkages’ in the transmission of trade shocks? (article spoke about this)

Answer 16

Industries linked through supply chains also felt the impact of Chinese imports, amplifying job losses and economic downturns.

Question 17

How did the China Shock affect wage inequality in the US?

Answer 17

Wage inequality widened as low-skilled workers suffered job losses and wage stagnation, while high-skilled workers remained relatively unaffected.

Question 18

What role did technological advancements play in the labor market response to trade shocks?

Answer 18

Technological changes reinforced the impacts of trade shocks by increasing demand for high-skilled workers and reducing demand for low-skilled labor.

Question 19

What evidence supports the long-term economic costs of trade shocks on regional labor markets?

Answer 19

Studies show long-term depressed wages, elevated unemployment, and slower recovery in trade-exposed regions even after a decade.

Question 20

How do trade imbalances affect labor market adjustments to the China Shock?

Answer 20

Trade imbalances delayed adjustments, as rising Chinese exports were not matched by proportional increases in US exports.

Question 21

What does ‘The Persisentence of the China Shock’ analyse in terms of timeline and impacts?

Answer 21

The study evaluates the long-term impacts of the China trade shock on employment, income, migration, and social outcomes from 2000 to 2019.

Question 22

How long did the negative impacts of the China Shock persist in affected regions?

Answer 22

Adverse impacts on manufacturing employment, employment-population ratios, and income per capita persisted out to 2019, nearly a decade after the shock plateaued.

Question 23

What is ‘Adjustment Friction’ in the context of trade shocks?

Answer 23

Adjustment friction refers to the difficulty and slowness of labor and economic adjustment to trade shocks, including job relocation and reemployment.

Question 24

What demographic trends were observed in regions heavily affected by the China Shock?

Answer 24

Regions affected by the China Shock saw modest net out-migration, primarily among younger native-born adults (25–39) and foreign-born workers.

Question 25

Why was out-migration limited in response to the China Shock?

Answer 25

Out-migration was limited due to high relocation costs, social ties, skill mismatches, and lack of job opportunities in other regions.

Question 26

Which demographic groups were most likely to migrate out of trade-affected regions?

Answer 26

Foreign-born workers and native-born workers aged 25–39 were the most likely to leave trade-affected regions.

Question 27

How did government transfers play a role in mitigating the China Shock’s impact?

Answer 27

Government transfers, primarily Social Security and Medicare, increased modestly in affected regions but were insufficient to offset income losses.

Question 28

What factors made recovery from the China Shock difficult for certain regions?

Answer 28

Low levels of college education, industrial specialization, and lack of economic diversity made recovery slower and less effective.

Question 29

What similarities exist between the impacts of the China Shock and the decline of coal industry employment?

Answer 29

Both the China Shock and the decline of coal employment had regionally concentrated and long-lasting negative impacts on employment and income.

Question 30

What role did the level of college-educated workers play in regional resilience to the China Shock?

Answer 30

Regions with fewer college-educated workers were less resilient and struggled more with economic adjustment.

Question 31

How did specialization in a narrow set of industries exacerbate the China Shock’s impacts?

Answer 31

Regions heavily specialized in specific industries faced self-reinforcing cycles of decline after the initial shock.

Question 32

What long-term income trends emerged in trade-exposed regions following the China Shock?

Answer 32

Average real incomes in trade-affected regions declined significantly, and these income losses persisted for years after the shock plateaued.

Question 33

Manufacturing in America video: What are the main criticism addressed by the presenter and interviewees towards globalisation and international trade?

Answer 33

• Some people have the belief that it doesn’t matter if you are producing globally food or technology products an fthis belief is bad
• With the creation of WTO and the accession of China, America lost a lot of jobs and communities were hit hard
• Globalisation has made some US citizens lose their factory jobs to factories who have moved to china
• This has let to lower life expectancy for the middle class blue collar communities in America
• It has also led to a hollowing out of rural areas and an influx into cities

Question 34

Manufacturing in America video: Why are some American companies spectic about the extent to which global trade is “free”

Answer 34

• Former US trade representative states that free trade is about price optimisation and production. He says the important aspect is production as this leads to job creation
• Some people state that free trade was never really free as it did not account for the lower labour and the environmental standards that allowed companies to produce products so quicky

Question 35

Manufacturing in America video: How are some American firms achieving competitiveness?

Answer 35

• By building meaningful relationships with their customers (personal relationships)
• Investing in technology in the supply chain to improve the efficiency and product quality of their products
• Developing a skilled workforce

Question 36

Manufacturing in America video: What are the advantages of more localised supply chains?

Answer 36

-You can monitor your supply chain more effectively and you know exactly what is happening in your supply chain
- They can increase their productivity with nimble and lean supply chain
- Decreased dependence on international suppliers mitigates risk from global disruptions

Question 37

Manufacturing in America video: What are the arguments for a national industrial policy?

Answer 37

• Creates quality jobs
• Promotes innovations as it invests in research and development to drive technological advancements

Question 38

Peru’s china shock podcast: Which Peruvian sectors were negatively effected by the China shock?

Answer 38

Apparel, footwear and toys were heavily affected by the influx of Chinese imports

Question 39

Peru’s china shock podcast: Which sectors experienced growth in the period after 2001 (marking the entry of China into the WTO)?

Answer 39

Commodities such as copper and gold (minerals)

Question 40

Peru’s china shock podcast: What were the overall effects of the China shock on workers in Peru?

Answer 40

• The china shock led to job losses and company closures
• It also led to a shift for some firms towards producing higher-quality goods (using a higher quality cotton only found in Peru)

Question 41

Peru’s china shock podcast: What were the effects of the China shock on male workers and female workers?

Answer 41

Men were predominantly working in mining sectors therefore they experienced fewer negative impacts

Women were disproportionately affected as they made up the majority of the apparel and footwear workforce

Question 42

Peru’s china shock podcast: What are the reasons for the differences between men and women? (China shock on Peru)

Answer 42

• Women were more likely to be employed in industries like apparel and footwear
• Women faced greater barriers to reemployment

Question 43

Peru’s china shock podcast: Do these findings confirm with the predictions of theoretical models on the impact of trade liberalisation on workers?

Answer 43

Yes these findings align with theoretical models

Question 44

Peru’s china shock podcast: What are the main policy lessons from this study?

Answer 44

There should be support for affected workers and there should be a promotion of diversifaction within industries to protect the economy from high levels of unemployment