The Walmart Effect

Its Chinese imports have displaced nearly 200,000 U.S. jobs
June 26, 2007 | EPI Issue Brief #235
by Robert E. Scott

China?s entry into the World Trade Organization (WTO) was supposed to improve the U.S. trade deficit with China and create good jobs in the United States. But those promises have gone unfulfilled: the total U.S. trade deficit with China reached $235 billion in 2006. Between 2001 and 2006, this growing deficit eliminated 1.8 million U.S. jobs (Scott 2007). The world?s biggest retailer, U.S.-based Wal-Mart was responsible for $27 billion in U.S. imports from China in 2006 and 11% of the growth of the total U.S. trade deficit with China between 2001 and 2006. Wal-Mart?s trade deficit with China alone eliminated nearly 200,000 U.S. jobs in this period.

The manufacturing sector and its workers were hardest hit by the growth of Wal-Mart?s imports. Wal-Mart?s increased trade deficit with China eliminated 133,000 manufacturing jobs, 68% of those jobs lost from Wal-Mart?s imports. Jobs in the manufacturing sector pay higher wages and provide better benefits than most other industries, especially for workers with less than a college education.

China has achieved its rapidly growing trade surpluses by purchasing more than $1 trillion in U.S. Treasury bills and other government securities over the past few years in order to artificially and illegally reduce the value of its currency and thereby lower the cost of its exports to the United States and other countries. It has also repressed the labor rights of its workers and suppressed their wages, making its products artificially cheap and further subsidizing its exports. Wal-Mart has aided China?s abuse of labor rights and its violations of internally recognized norms of fair trade behavior by providing a vast and growing conduit for the distribution of artificially cheap and subsidized Chinese exports to the United States.

China trade and U.S. job loss

Exports support jobs in the United States, and imports displace them. However, an increase in exports will not support the creation of new jobs if, for example, a domestic firm exports parts that used to be shipped to a domestic auto assembly plant, and those products are used to build cars that are then sent back to the United States.1 Thus, the net effect of trade flows on employment must be based on an analysis of the trade balance. This Issue Brief calculates the employment impacts of growing trade deficits by using an input-output model that estimates the direct and indirect labor requirements of producing output in a given domestic industry. The model includes 200 U.S. industries, 86 of which are in the manufacturing sector.2

The model estimates the labor that would be required to produce a given volume of exports, and the labor that is displaced when a given volume of imports is substituted for domestic output.3 The job losses presented here represent an estimate of what total employment levels would have been in the absence of growing trade deficits.4

U.S. exports to China in 2001 supported 189,000 jobs, but U.S. imports displaced production that would have supported 1,190,000 jobs, as shown in the bottom half of Table 1. Therefore, the $84.1 billion trade deficit in 2001 displaced 1 million jobs in that year. Job displacement rose to 2,763,000 in 2006. Growth in trade deficits with China has reduced demand for goods produced in every region of the United States and has led to job displacement in all 50 states and the District of Columbia.

Source: Economic Policy Institute

Night on the Town

Original title:
Classy Facade Cracks and Shatters

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