Identifying Chinese Supply Shocks - Effects of Trade on Labor Markets

In a seminal paper, Autor et al. (2013) estimate the effect of Chinese exports on U.S. labor markets. To establish causality, they instrument Chinese exports to the United States with Chinese exports to other advanced economies, assuming that demand shocks to advanced economies are uncorrelated. Our paper documents robust empirical patterns that are inconsistent with this identifying assumption. Based on a parsimonious structural model, we identify the part of sectoral Chinese export growth that is driven by China-specific supply shocks. An identification strategy based on our approach essentially preserves the estimates from the reduced form regression in Autor et al. (2013). However, in a general equilibrium model from Caliendo et al. (2019), our identification of the China shock implies more pronounced and more dispersed manufacturing employment losses and welfare gains. Finally, our identification realigns the sectoral employment losses with standard Heckscher-Ohlin theory.