Donald Trump is Right; America Has Lost One Million Jobs to China

Donald Trump is Right About ChinaThere’s a lot of bombast in the midst of China’s stock market crash, but a nugget of truth has emerged from an unlikely source: Donald Trump. Currently the frontrunner for the Republican nomination for president, Trump’s political motivations can be questioned, but his message holds water even under closer examination.

Beginning on June 12, 2015, the Chinese stock market began an epic decline that cost the Shanghai Composite Index nearly 30%. Since then, the market has repeatedly suffered intraday falls in the excess of seven percent, eroding the monumental gains made between 2014 and 2015. To manage the crisis, the Chinese government devalued the yuan, printed more money to intervene in the asset market, and backtracked on regulatory constraints. (Source: MarketWatch, July 9, 2015.)

Mr. Trump is having none of it.

The celebrity billionaire argued that China’s devaluation is a ploy for competitive advantage against the United States. And he’s right. By depreciating the yuan, Chinese exports become more attractive and the country’s growth prospects improve significantly. (Source: Business Insider, August 24, 2015.)

Chinese Imports Cost One Million American Jobs

Moreover, a new report from the Federal Reserve Bank of St. Louis corroborates the link between China’s rise and the decline of American manufacturing. The study looked at how imports from foreign producers can affect the domestic labor market. Using state-level data on 22 industries, the researchers found that Chinese imports cost one million American jobs over a single decade. The figure represents 0.6% of all employment, but it is the first conclusive evidence of the popular narrative spouted by those on the political right. (Source: Federal Reserve Bank of St. Louis, June 8, 2015.)

However, Mr. Trump neglected to mention that the United States does the same thing. The Federal Reserve’s balance sheet has quadrupled between 2007 and 2015. What caused such a rapid expansion? Could it have been the central bank’s immense bond buying program undertaken to prop up asset prices? Did quantitative easing help fortify the U.S. dollar and keep America’s borrowing costs low? The answers are yes and yes.

To his credit, I don’t believe Mr. Trump would have any reservations about attacking the Federal Reserve about their handling of the economy. But it is important to understand that as president, he would have very little power in “bringing jobs back to American manufacturing.”

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