Over the last 30 years, trade between the United States and China has been mutually beneficial for ordinary citizens in both countries. It’s important to keep this big picture in mind as the two countries approach a trade negotiation deadline on August 12.
China was just emerging as a major trading partner in the global economy 30 years ago. The United States imported only $48.5 billion in Chinese goods in 1995. Today we import $439 billion from China. This growth has enriched both countries.
Economists have understood for more than 200 years that trade flows between nations according to “comparative advantage”; each country produces what it can make relatively more efficiently. This results in a larger economic pie for both countries, which translates into better living standards for ordinary people.
Toys and furniture are two of the largest categories of consumer imports from China. Toy prices are down87.5 percent since 1995, and furniture prices are essentially unchanged. Televisions and apparel are two other popular categories of imports. Since 1995, television prices are down 98.5 percent and apparel prices are unchanged. Meanwhile, the overall consumer price index has increased by 111 percent.
The lowered cost of production associated with Chinese trade is a major reason these prices have decreased relative to inflation. That translates into a real wage increase since ordinary Americans can afford to buy more. Meanwhile, increased imports haven’t shrunk the number of jobs for Americans. Total civilian employment has grown from 132 million in 1995 to 170 million today.
International trade doesn’t change the number of jobs in the U.S. economy. It changes the mix of jobs. We tend to lose low-wage, low-productivity jobs and gain high-wage, high-productivity jobs. Trade restrictions might shift some low-wage jobs back to the United States, but does anyone really think America becomes better off by bringing back Chinese sweatshop jobs?
While we’d become poorer if we brought back sweatshop jobs, these same jobs are a step up for Chinese citizens. In my recent book, Out of Poverty: Sweatshops in the Global Economy, I investigated the wages of workers in factories deemed Chinese sweatshops. The average sweatshop worker earned nearly $14 a day between 2010 and 2019. During this time, roughly 20 percent of China’s population lived on less than $6.85 per day.
As trade with the United States increased, sweatshop wages grew and poverty rates fell. Wages in Chinese sweatshops doubled in the most recent decade compared to the late 1990s and 2000s. During this time, China’s extreme-poverty rate fell from more than 80 percent to 20 percent.
Although most trade between our countries is mutually beneficial, not all trade is. The Chinese government forces Uyghur people to work in factories in Western China. Slave labor obviously doesn’t benefit the Uyghur population, so we shouldn’t import their products. But this doesn’t require new trade restrictions. The United States passed the Uyghur Forced Labor Prevention Act in 2021, prohibiting the importation of these products.
Similarly, the United States should not allow sensitive military technologies to be exported that could be used to harm the country. This doesn’t require new trade restrictions either. The International Restrictions in Arms Regulations and Export Administration Regulations already control the export of military technologies.
Most trade between Chinese citizens and Americans is mutually beneficial. The new tariffs imposed during the trade war make it harder for people in both countries to prosper. Keeping the big picture in mind, President Trump’s negotiators should push for an agreement that lowers trade barriers in both countries.
