Testing the “China Shock” Was Normalizing Trade with China a Mistake?



Scott Lincicome | Cato Institute

There is an emerging consensus among American politicians and many citi- zens that trade and globalization have undermined America’s working class, resulting in a rise in U.S. populism. This

view frequently targets the 2000 U.S. law that granted China “permanent normal trade relations” (PNTR) and China’s 2001 entry into the World Trade Organization (WTO) as key drivers of the country’s rise and the now-famous “China Shock”—the period between 1999 and 2011 during which a sizeable increase in Chinese imports supposedly produced the loss of approximately 2.4 million U.S. jobs.

However, the view that PNTR was an erroneous policy choice that disproportionately bene ted political elites and corporations, directly drove the China Shock, and, combined with other allegedly “laissez-faire” poli- cies, permanently scarred America’s working class su ers

Scott Lincicome is a senior fellow in economic studies at the Cato Institute and a Senior Visiting Lecturer at Duke University Law School. Previously he spent two decades practicing international trade law.

from several aws that collectively prove fatal for the anti-PNTR thesis.

As we approach the 20th anniversary of PNTR, criti- cism of the law and of the WTO more broadly will surely intensify, but a proper accounting of the relevant eco- nomics and history reveals most critics to be misguided. Labor market and cultural disruptions in the United States are real and important, as is China’s current and unfortunate turn toward illiberalism and imperialism. But it is a mistake to pretend that there was a better trade poli- cy choice in 2000 than PNTR and engagement with China more broadly. It assumes too much, ignores too much, and demands too much. Worse, it could lead to truly bad governance: increasing U.S. protectionism; forgiving the real and important failures of our policymakers, CEOs, and unions over the past two decades; and preventing a political consensus for real policy solutions. Indeed, these are happening now.


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