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In the debate about global trade imbalances, we often hear it said that because Americans produce nothing that China exports to the US, any move to restrict Chinese imports to the US would have no employment effect on Americans. A forced contraction in Chinese exports would simply result in an equivalent increase in the exports of some other country, let’s call it Mexico. Mexico would benefit from US trade action, but the US wouldn’t. There are many reason for opposing trade war between the two countries – the two most important being, in my opinion, that trade war will result in slower global growth than a negotiated settlement, and that the importance of the US-China relationship involves a lot more than economic issues. A troubled relationship between the two spells potentially bad outcomes for issues such as the environment, global terrorism, and nuclear proliferation. But the argument that China trade has no impact on US employment is I think a very weak one. In the first place, China doesn’t simply produce slippers, lighters and toys to sell to the US. Chinese growth is heavily capital intensive, and China produces many things that Americans produce or used to...
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