Why economists got free trade with China so wrong

What It Covers

MIT economist David Autor explains how his China Shock research revealed devastating impacts of free trade: over one million manufacturing jobs lost, concentrated regionally, with workers struggling to adapt and communities experiencing miniature depressions.

Key Questions Answered

• •Trade Impact Measurement: Economists failed to detect NAFTA's significant employment effects for decades because they focused on aggregate prices rather than regional labor markets and employment rates, missing concentrated job losses in specific communities.
• •Recovery Paradox: Communities hit by China trade shock recovered employment by 2019, but through lower-wage service jobs in retail, warehousing, and food services taken by immigrants, young college graduates, and women—not displaced manufacturing workers who aged in place.
• •Worker Immobility Reality: Displaced manufacturing workers became less likely to relocate despite job losses because they lacked resources, saw no better opportunities elsewhere, and rationally stayed in industries matching their specialized skills even as sectors contracted through reduced hiring.
• •Policy Failure Analysis: The US lacked adjustment policies because economists believed trade caused no harm. Effective interventions require wage insurance programs helping workers transition quickly, gradual implementation timelines spanning generations rather than years, and strategic sector support.