The day this article goes up, April 2, has been pegged by President Donald Trump as “Liberation Day”: the day his suite of tariffs will go into effect and thus, in some unspecified sense, liberate the United States.
The pre-history of this disastrous set of policies, which will only make America poorer and alienate it from its closest allies, is as long and weird as you’d expect from Trump. Part of the story seems to involve him losing an auction in 1988 for a piano used in Casablanca to a Japanese collector, thus confirming that Japan was an economic threat. Sure, fine, that seems par for the course with this guy.
But if you want to understand why not only Trump but now large parts of both parties have reoriented themselves to support tariffs, I think the key text is not Casablanca but a 2013 paper by David Autor, David Dorn, and Gordon Hanson that’s almost as famous (among economists, at least). If you follow economic research at all, you know this as the “China shock” paper.
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The authors found that the surge of US manufacturing imports from China between 1991 and 2007 led to large job losses in the US manufacturing sector, losses that were concentrated in a few particular geographic locations. Areas affected saw wages fall for a surprisingly long time, and uptake of government benefit programs like unemployment and disability insurance.
The DC think tank world’s understanding of this finding was sweeping: Free trade didn’t work. Bipartisan advocates like Bill Clinton and George W. Bush had promised that deals like permanent normal trade relations or NAFTA would be win-win propositions, when in reality they hollowed out American manufacturing.
After Trump won in 2016 on a fiercely anti-trade platform, aided by support in China shock-affected states like Wisconsin and Michigan, many Democrats saw the implication as obvious: It was time to turn their backs on trade, as a matter of political survival if nothing else.
If you actually read the China shock literature you will notice that the authors do not come to any conclusions remotely this broad. The conclusions they do reach, though, can help us understand why Trump’s particular policy response will be so damaging.
It’s the “shock” — not the “China”
Reading the original China shock paper and its follow-upssomething that sticks out is how little the literature is about trade policy per se. Autor, Dorn, and Hanson are clear that the shock came not just from changing US policy toward China, but from China’s massive increase in manufacturing productivity during this period.
That means the employment losses in certain areas weren’t solely due to the US loosening barriers, but also to changes within China that US policy couldn’t alter.
The authors are equally clear that trade wasn’t the sole driver of declining manufacturing employment. They estimate that the China shock was responsible for about a quarter of the decline in manufacturing jobs over the period they study.
That’s significant, for sure, but also underlines how much other factors — like labor-saving technologies in the sector, or consumers shifting demand toward services — were behind the hollowing-out of old factory towns. Even if China had stayed poor and not become a major exporter, the US still would have rapidly lost manufacturing jobs, just not quite as many.
I’d be remiss if I didn’t mention that many researchers have found that Chinese imports have, overallmade Americans better off. That includes Autor, Dorn, and Hansonwho concluded that the gains to consumers from cheaper goods were somewhat larger than the employment losses.
That doesn’t mean the concentrated hurt from the China shock was okay. Clearly the US should have done a better job of helping affected regions transition to a more competitive economy.
But simply not doing the China shock, even if that had been possible, would not have made the US better off as a whole. Nor would adding tariffs now, some 15 years after the China shock endeddo any good. Follow-up work by the team on the Trump tariffs during his first term found that they reduced US employment overall by inviting foreign retaliation.
Rather than a jeremiad against free trade, it’s better to understand the China shock literature as explaining what happens when a specific region takes a big economic hit — whether due to imports or something else.
Autor has compared it to the losses West Virginia suffered as the US transitioned away from coal. “The forward-looking lesson is not about how we contend with manufacturing competition,” Autor told an interviewer in 2021. “It is not even (only) about trade per se, but about adjustment for unemployed workers and hard-hit areas. How costly it is, how slow it is, and how we can make it work better.”
It’s not the “China” part that’s crucial: It’s the “shock.”
Maybe don’t do another shock for no reason?
Trump’s suite of tariffs are, obviously, not going to bring manufacturing back to the US in any meaningful way. But they’re certainly shocking.
They’ve introduced massive uncertainty to international trade and to supply chains that cross borders, like the deeply integrated Michigan-Ontario auto sector. They’ve forced manufacturers and retailers that depend on imports as inputs or sales items to scramble to adjust.
This exact dynamic, this kind of massive economic shift imposed with little time to prepare or adjust, is what made the China shock so painful for certain regions. The tariff shock, far from undoing the effects of the China shock, could simply replicate its worst aspects, just without the corresponding benefit in terms of economic growth and cheaper goods.
The Trump team, as Paul Krugman observed during the first trade war, is acting like “a motorist who runs over a pedestrian, then tries to fix the damage by backing up — and runs over the victim a second time.”
It’s not yet clear if the damage will be as economically concentrated as the China shock was. Large-scale government layoffs and contract cancellations are threatening a localized DC recessionand tariffs on Canada and Mexico would disproportionately hurt border statesbut the damage of higher prices and job losses from tariffs will be felt broadly across the whole country.
Since part of the reason the China shock garnered so much attention was its concentration in presidential swing states, this might make the tariff shock less politically motivating.
But in just about every aspect, the tariff shock is worse than the China shock. The China shock made prices cheaper for most Americans — all those cheap appliances and toys — but the tariff shock will raise prices. The China shock was concentrated in the manufacturing sector, and manufacturing-heavy regions; the tariff shock will affect many sectors.
Perhaps worst of all, where the China shock was largely unavoidable, the tariff shock is entirely self-inflicted. It’s being chosen by US policymakers, against the interests of their constituents and allied nations. They could just as easily not do it at all. It’s an act of economic national suicide the likes of which the US hasn’t seen in decades.
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