Trump twists impact of China
Speaking at a March 20 rally in Louisville, Ky., President Donald Trump said he wants to be like Henry Clay, a 19th-century Kentucky politician who Trump said was “a fierce advocate for manufacturing.”
From there, Trump launched into his usual critique of United States free-trade policy over the last 20 years, laying out what he’s going to do to address trade imbalances with Mexico and China, in particular.
“Since China joined — that’s another beauty — the WTO in 2001, the U.S. has lost many more than 60,000 factories,” he said.
We’ve heard Trump make this claim about the effects of China joining the World Trade Organization in a few different speeches since becoming president, so we wanted to put it on the TruthO-Meter.
We reached out to the White House for Trump’s source but didn’t hear back.
However, through our own research we found that the United States has, in fact, lost more than 60,000 factories since 2001, when China joined the WTO and became a bigger player in the world economy. And quite a few economists believe opening up trade with China has had a significant and negative effect on American manufacturing, though it’s not a universal view.
To count the number of factories, we used the U.S. Census’ annual Statistics of U.S. Businesses series, which tallies the number of manufacturing establishments. An example of how the count works: Ford Motor Co. has three U.S.-based transmission plants, two in Michigan and one in Ohio. That counts as three separate establishments.
In 2001, the year China joined the WTO, the Census counted 352,619 manufacturing establishments. In 2014, the most recent year for which data is available, it counted 292,543. That’s a drop of 60,076 over those three years.
Another Census series, its Business Dynamics Statistics, tallied 348,513 manufacturing establishments in 2001 and 274,756 in 2014 — a drop of 73,757 manufacturing establishments.
It’s not fair to assume that China’s economic rise is entirely responsible for all of these lost factories, as someone might think when they hear Trump’s statement, but it is certainly responsible for some.
Around the same time China joined the WTO, the United States gave China permanent normal trade relations status. Both of these actions removed significant barriers to trade and investment with China, basically putting them on an even playing field with the United States’ other trading partners. In the 16 years since, United States imports from China have quadrupled, in large part because production is so cheap there, making U.S.-based manufacturers less competitive.
We found three significant economic studies from the past few years that all conclude increased free trade with China has had a negative impact on American manufacturing and jobs.
A a 2014 report out of the leftleaning Economic Policy Institute found that the U.S. trade deficit with China has cost 2.4 million manufacturing jobs between 2001 and 2013. The report cites illegal Chinese policies that encourage exports and keep labor cheap, as well as a failure of the WTO agreement that endorsed China’s membership to prevent these sorts of actions. Proponents of expanding U.S.China trade also overestimated the potential market for U.S. exports in China.
Research conducted by a group of economists at the Massachusetts Institute of Technology, the University of Zurich and the University of California, San Diego, found comparable job losses due to import competition from China. They found that areas in the United States that had a large number of jobs in industries for which imports from China surged have suffered the most.
A third analysis co-authored by Justin Pierce, a member of the board of governors of the Federal Reserve Board, and Peter Schott, a Yale economist, found a causal relationship between factory closures and China’s permanent normal trade relations status. One reason for this connection is that in granting China this status, the United States agreed not to raise tariffs on Chinese imports, and that newfound stability incentivized American businesses to move operations to China.
While these analyses support Trump’s general idea that trade with China has caused some factory closures in the United States, none of them say how many.
Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute and co-author of the first study, told PolitiFact that trade with China is a leading cause of a decline in manufacturing, but there are also growing trade deficits with other parts of Asia and Europe. A smaller factor in more recent years is the Great Recession and the slow recovery that followed.
Bradford DeLong, an economic historian at the University of California, Berkeley, is less convinced that opening up trade with China had such a negative effect on U.S. manufacturing. Rather, he told PolitiFact that he estimates about onetenth of factory closures over the past decade or so have had to do with China, but that would have happened whether or not China joined the WTO. In the years leading up to 2001, U.S. imports from China were already surging.
He added that improved trade with China also might have allowed some new manufacturing establishments to open because of new opportunities to export goods and services to China.
He said significantly increased manufacturing productivity in the United States, coupled with limited demand — there’s only so many refrigerators a person wants to buy — play a bigger role in factory closures in the United States.
“Manufacturing has become too productive to remain or ever again become a major source of employment on the shop floor,” he said.
Our rating
Trump said, “Since China joined — that’s another beauty — the WTO in 2001, the U.S. has lost many more than 60,000 factories.”
According to Census data, the United States has lost more than 60,000 factories since 2001. Economic experts told us that at least some of these losses can be attributed to increased trade with China, though there is not universal agreement on the extent of that impact.
We rate Trump’s claim Mostly True.