Discrediting popular belief that China is taking away developed countries' manufacturing jobs, a new study from the International Monetary Fund (IMF) found out that technology and the automation it brings is the driver of unemployment, not competition from China.
Other countries' trade relations with China have been mutually beneficial over many years.
However, US workers, particularly factory workers, are losing their jobs and the current US administration is looking at China's rising productivity because of the mainland's low, though rising, labor costs as the culprit for lost US jobs.
With regards to the market competition that China brings, the Washington-based IMF said that "Increases in import competition" that many associates "with the rise of China's productivity, do not have marked effects" on rich countries' regional unemployment.
It pointed out that unemployment is on the rise "for vulnerable lagging regions."
Blaming market competition for displacing jobs is wrong because the job losses that Chinese imports bring are only in the near term and its impact "quickly abates."
IMF analyst Weicheng Lian confirms that though import competition reduces the labor force after one year, this effect quickly fades and does not have any significant effects on regional unemployment on average.
The United States goods trade deficit with China reached US$419.2 billion in 2018.
When it comes to IMF's reference to "vulnerable lagging regions," the paper classified a region as lagging if its initial real gross domestic product (GDP) per capita is below the country's median in the year 2000 and the region's average growth in the years from 2000 to 2017 was below average.
The study confirmed that in the lagging regions, labor productivity is lower but employment in the agriculture sector is higher.
The need for companies to automate, which is happening in the US and many other countries, leads to a decline in machinery cost and equipment.
This feeds a cycle of rising unemployment especially obvious in lagging regions.
True, China is the second-largest economy in the world, after the US, when GDP gets measured at market prices.
Still, China is catching up from poverty that, based on the IMF data, in 1980, China's GDP per capita is just 2.5% of the US and just last year, China had reached only 15.3% GDP of the US'.
The development strategy getting done by China now was what Hong Kong, Japan, Korea, Singapore, and Taiwan did; nothing notably different.
China is just catching up and moving in the tide of the global economic system, albeit more successfully than other countries.
China basically just upgraded its technologies through foreign investments, mergers, purchases, and studies.
It abides by what successful leaders do, continuous innovation and development in whatever it does because age-old protectionism had time and again proven reliably ineffective.
