However, mounting evidence suggests that the gains from free trade are not shared equally. A body of research on the American economy shows that import competition from poor countries can depress the incomes of the low skilled, at least in the short run, says John Van Reenen of the London School of Economics (LSE). One paper concluded that competition from Chinese imports explains 44% of the decline in employment in manufacturing in America between 1990 and 2007. Britain's economy is about twice as exposed to foreign trade as America's. After averaging around 1% of GDP for half a century, Britain's trade deficit in goods soared from the year 2000 and is now about 7% of GDP. China's accession to the World Trade Organisation in 2001 played an important part in this. Britain's growing appetite for imported goods coincided with a collapse in manufacturing employment. Formal studies back up the circumstantial evidence. Joao Paulo Pessoa of the LSE looked at the period 2000-07 and found that British workers in industries that suffered from high levels of import exposure to Chinese products earned less and spent more time out of employment than those in other industries. As people fare badly in the labour market, social problems arise: another study found that a one standard-deviation increase in import competition worsened rates of mental illness by 1.2 percentage points.
This article was published in The Economist on July 30, 2016
Link to article here
Related publications
China shock: the impact on trade and incomes, Joao Paulo Pessoa. Article in CentrePiece Volume 21, Issue 1, Summer 2016
International Competition and Labor Market Adjustment, Joao Paulo Pessoa, Centre for Economic Performance Discussion Paper No. 1411, March 2016
Related links
Joao Paulo Pessoa webpage
John Van Reenen webpage
Growth Programme webpage
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