‘China’s rise’ cannot be blamed for regional job losses in developed countries, IMF finds

Karen Yeung

Automation, rather than market competition from China, can be blamed for regional job losses suffered in developed countries, including American rust belt states, according to new research by the International Monetary Fund released on Wednesday.

“Increases in import competition in external markets associated with the rise of China’s productivity do not have marked effects on regional unemployment,” the Washington-based fund said in an academic paper. “Only technology shocks tend to have lasting effects, with even larger unemployment rises for vulnerable lagging regions.”

The paper, which looked at regional disparities within advanced countries, undermines a key argument pushed by US President Donald Trump in the ongoing trade war between Washington and Beijing - that China has been stealing American technology and jobs.

Although the research did not mention Trump, the International Monetary Fund (IMF) said the argument that market competition displaced jobs was flawed as imports from China could only cause job losses in the near term and such impact “quickly abates”.

Only technology shocks tend to have lasting effects, with even larger unemployment rises for vulnerable lagging regions.

IMF report

The US goods trade deficit with China hit a record US$419.2 billion in 2018, which the Trump administration has blamed for a decline in US manufacturing jobs.

In the paper, the IMF classified a region as “lagging” if two conditions were met - initial real gross domestic product (GDP) per capita was below the country’s median in 2000, and the region’s average growth between 2000 to 2017 was below average.

Labour productivity tended to be lower and employment in the agriculture sector higher in lagging regions, the IMF said. Within the United States, per capita GDP in the state of New York is 100 per cent higher than in Mississippi, parts of which are considered within the rust belt.

While increases in import competition tended to reduce labour force participation after one year, this impact faded quickly and did not have significant effects on regional unemployment on average, IMF analyst Weicheng Lian said.

The impact of technology was more far-reaching, however, with researchers pinpointing it as the main driver of rising unemployment in lagging regions.

Automation pressures translate into a decline in the cost of machinery and equipment, leading to more persistent rises in unemployment and declines in labour force participation in lagging regions, compared with less vulnerable regions, the study said.

Lian said that poorer regions tend to specialise in agriculture and manufacturing industries, rather than high productivity service sectors such as information technology, communications and finance.

“We find that a negative technology shock … raises unemployment in all regions that are more vulnerable to automation, but lagging regions are particularly hurt,” she said.

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