Finance and Economics Discussion Series

The Surprisingly Swift Decline of U.S. Manufacturing Employment

Justin R. Pierce and Peter K. Schott
2014-04

Abstract: This paper finds a link between the sharp drop in U.S. manufacturing employment beginning in 2001 and a change in U.S. trade policy that eliminated potential tariff increases on Chinese imports. Industries where the threat of tariff hikes declines the most experience more severe employment losses along with larger increases in the value of imports from China and the number of firms engaged in China-U.S. trade. These results are robust to other potential explanations of the employment loss, and we show that the U.S. employment trends differ from those in the E.U., where there was no change in policy.

Keywords: Manufacturing, trade policy, uncertainty, offshoring, China, World Trade Organization, supply chains