The China trade shock and the European Union's employment

ABSTRACTThis paper analyzes the effect of trade with China on the European Union's industrial and regional employment. Built on a canonical multi-country Ricardian model, we identify and estimate the employment reallocation effect across fifteen EU countries with specific discussions on three channels: import penetration, direct export, and third-market competition vis-à-vis China. Data suggest that the adverse effects stemming from the import penetration and the third-market competition quantitatively dominate the positive effect from the export channel for the effect on the EU. In particular, the third-market competition channel is a key channel for understanding the impact of China trade shock on the EU market, accounting for about 46% and 36% of the total negative effect at the industry level and region level, respectively. Moreover, the third-market competition channel particularly influenced the relative employment growth of the worst-affected industries in the European market.KEYWORDS: China shockemploymentthird-market competitionJEL CLASSIFICATIONS: E24F14F16J23L60O47R12R23 AcknowledgmentsWe thank Silvio Contessi, Alberto Pozzolo, Chuliang Luo for their help during the study of the research.Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 This index is the simple average of the intra-EU trade from 2002 to 2007 from the Eurostat database (https://ec.europa.eu/eurostat/data/database).2 We do not use the initial employment share in 1996 to compute the three measures in the baseline estimations in order to include more countries in the sample. In one robustness check, we adopt the employment share in 1996 to compute the regional average import penetration, direct export and third-market competition measures, the sample reduces to five countries, however, our baseline estimation result still holds.3 Data source: http://stats.oecd.org/Index.aspx?DataSetCode=STAN08BIS#.4 Data source: http://ec.europa.eu/eurostat/data/database.Additional informationFundingThe authors are funded by National Natural Science Foundation of China [grant numbers 7167302, 71973013, 72303260, 72373012]. The views expressed in this paper are those of the authors and do not necessarily reflect the view of their organizations.