A Tale of Two Countries: Global Value Chains, the China Trade Shock, and Labor Markets

This study investigates the effects of imports from China and exports to the rest of the world on labor markets using the data from two major trading partners of China: Japan and the US. An analysis shows that imports of final goods from China and exports to the rest of the world have the same effects on manufacturing employment in the two countries: the former effect is negative, and the latter is positive. In contrast, imported inputs are shown to have different effects on manufacturing employment across the two countries: positive in Japan but negative in the US. We show that these contrasting effects relate to the extent to which these countries integrate into global value chains. In particular, we focus on areas specializing in more downstream sectors in the two countries and uncover that cheaper access to Chinese intermediate inputs allow Japanese input buyers to boost manufacturing employment through input-output linkages. However, the US experienced negative employment effects in those areas, suggesting that the US input buyers do not take advantage of the complementary effects of global value chains, especially with China.