Global value chain perspective of US–China trade and employment

Abstract

AbstractEmployment impact of trade is an issue of long debate. Recent literature seems to focus on partial equilibrium analysis of the jobs destruction in the US due to import competition from low‐cost countries, particularly from China. However, as noted in World Investment Report 2011 (WIR, 2012), indirect employment generated by trade can be substantial, in addition to jobs directly generated by trade, to which end a general equilibrium model is more relevant. Just as in a relay game, it makes little sense to award or punish only the last runner. In this paper, a global value chain approach is adopted to examine the effects of the US–China trade on employment. By using a recently constructed world input–output data, it is made possible to account for jobs created along the value chain process. It is found that China's exports to the US and to the world had created more job opportunities for its trade partners than any other countries in the world. Further, China's exports to the US and to the world tended to generate more employment opportunities for the US services sector, while US exports created more manufacturing jobs for the Chinese workers. Finally, in both countries’ exports the typical value chain products such as electrical and optical equipment were the most effective creators of jobs for both countries. In line with recent work of global value chains, our work sheds light on the employment effects of interconnected trade and provides an alternative interpretation for the impact of the US–China trade on employment.