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Snapshot for March 29, 2004.

Soaring increase in high-tech exports from China erodes U.S. employment

It is often argued that free trade benefits all countries because it allows them to specialize in goods for which they have a comparative advantage, yielding increased efficiency and productivity in each economy.  In the United States, economists and public officials frequently claim that trade will reduce production of low-tech goods such as textiles and apparel and increase production of high-tech goods in which the United States has a comparative advantage. 

For example, in a recent address in Washington, D.C., World Trade Organization (WTO) Director Supachai Panitchpakdi said that for every U.S. job threatened by imports, a growing number of high-paid, high-skilled jobs are created by exports.

The theory of comparative advantage suggests that low-wage countries such as China should specialize in low-tech goods such as textiles, apparel, toys, and furniture.  However, as shown in the figure below, China has rapidly increased the share of middle- and high-tech products in its exports during a period in which its total exports nearly tripled. 

The share of electronics, machinery, and transport equipment in China’s exports increased from 18.1% in 1994 to 42.9% in 2003, an increase of 24.8 percentage points.  Of this total, the export shares of office and data processing equipment (including computers and components) increased by 12.1 points, electric appliances by 4.8, points and telecommunications equipment by 4.7 percentage points. 

Meanwhile, the U.S. balance of trade in high-tech products has fallen from a peak of $32.3 billion in 1997 to a deficit of $27.4 billion in 2003.  The rapid growth of China’s high-tech exports is quickly eroding U.S. employment in these cutting-edge industries.

Today’s Snapshot was written by EPI senior economist  Robert Scott.