Rising Chinese Imports and its Impact on the Canadian Economy · Note: Other advanced economies...

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Myeongwan Kim (Economist at CSLS) CSLS Seminar Series May 27 th 2019 Rising Chinese Imports and its Impact on the Canadian Economy 1

Transcript of Rising Chinese Imports and its Impact on the Canadian Economy · Note: Other advanced economies...

Page 1: Rising Chinese Imports and its Impact on the Canadian Economy · Note: Other advanced economies include Australia, Denmark, Finland, Germany, Japan, New Zealand, Spain and Switzerland.

Myeongwan Kim(EconomistatCSLS)

CSLSSeminarSeriesMay27th 2019

RisingChineseImportsanditsImpactontheCanadianEconomy

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Outline

I. Tradeshock?II. RisingChineseexportstoadvancedeconomiesIII. SomeKeydevelopmentsinCanadianmanufacturingIV. Non-technicalSummaryofCSLSresearchonChina• Manufacturingemployment• Consumergoodsprices• Innovationandproductivityinmanufacturing

V. Conclusion

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I.Tradeshock?

• Multi-dimensional impact

Source:Shu andSteinwender (2018)

• CSLSresearchmainlyfocusesonimportcompetitionintheoutputmarketbutwhenpossible, alsoontheinputmarkets(increasingcompetitionandaccesstoimported intermediates).

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II.RisingChineseexportstoadvancedeconomies

Note:OtheradvancedeconomiesincludeAustralia,Denmark,Finland,Germany,Japan,NewZealand,SpainandSwitzerland.Source:Kim(2019a)

Chart 1: Share of imports from China in total imports by country, 1991-2017

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China’saccessiontoWTO

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EpisodeofrisingChineseexports

• It’slike a“natural experiment”ØChanges intradepolicyinonecountryisoftenaffected,ifnotdictated,bythebehaviourofitstradingpartners(e.g. NAFTA)

ØGrowthinChinese exportswasdrivenbyrisingcompetitivenessofChinesemanufacturingandlowertradecostsduetofactorsinternaltoChinave.g.)rapidurbanization,accessiontoWTO,openingtoforeigninvestmentthroughreformssuchasSpecialEconomicZones(SEZs)

• Asuddenandunexpectedrisesincetheearly2000s

• Tradewithlow-wagecountrieslikeChina:thedistributionaleffectoftradetendstobemorepronounced

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Twolow-wagecountriesamongthetoptenexporterstoCanada:ChinaandMexico

Chinain2000=2.0%

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Mexicoin2000=2.0%

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Chart 2: Import penetration ratio in Canadian manufacturing, Low-wage countries: China and Mexico, 1992-2015, manufacturing

Source:Kim(2019b)

China’saccessiontoWTONAFTA

Note:Importpenetration ratioisdefinedastheratioofimportstodomesticabsorption(totalindustryshipmentlessexportplusimport).

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III.KeyobservationsinCanadianmanufacturingsincetheearly2000s

1. Manufacturingemployment fell(bothinlevels/asashareoftotal)

2. Consumerpricesforsome manufacturedgoods (electronics,furniture,clothing,andtextile) either fellor didnotincreaseasmuch

3. RealR&Dexpenditurefell(inlevels/asashareofoutput)

4. Totalfactorproductivitygrowthstagnated

Ø StudieslinkingtheseobservationsinCanadatorisingChineseimportcompetitionarerare

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IV.CSLSResearchonChina

1. Impactonmanufacturingemployment(censusdata)

• Aggregate(Murray, 2017)• Byoccupationgroup– skill level/type(Kim,2018a)• Bygender(Kim,2018b)

2. Impactonconsumergoodsprices(Kim,2019a)

• CPIdatamappedtocommodity-leveltradedata• ProductlevelexposuretoChinese imports

3. Impactoninnovationandproductivityinmanufacturing(Kim,2019b)

• Firm-leveldataat CDER,StatisticsCanada• R&Dexpenditure• Totalfactorproductivity

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1.Non-technicalSummary:ManufacturingEmployment

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Source:Murray(2017)

Chart 3: Employment and Chinese Import Penetration, Canada

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1.Non-technicalSummary:ManufacturingEmployment

•Weestimatetheimpactonemploymentintwodimensions:

Ø Directeffectonmanufacturingemployment inCanadaØ Effectwithinlocallabourmarkets: thenet effect oflabourreallocationand

demandspilloversoperatingwithinlocalities

• Analysisinmanufacturingattheaggregatelevel

• Anydifferentialeffectby occupation grouporby gender?e.g.Isn’ttheaggregateeffectsimplydrivenbylow-skilled/productionworkers?

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ExposuretorisingChineseimportpenetration

Table1:Annualpercentage-pointchangeinChinese importpenetrationratio,Selected4-digitNACISinmanufacturing,2001-2011

Fivelargest: %ptNAICS3341- ComputerandPeripheralEquipmentManufacturing 7.0NAICS3169- OtherLeatherandAlliedProductManufacturing 6.6NAICS3343- AudioandVideoEquipmentManufacturing 5.4NAICS3151- ClothingKnittingMills 5.2NAICS3342- CommunicationsEquipmentManufacturing 4.9

Fivesmallest:NAICS3274- LimeandGypsumProductManufacturing 0.0NAICS3311- IronandSteelMillsandFerro-AlloyManufacturing 0.0NAICS3131- Fibre,YarnandThreadMills -0.1NAICS3333- CommercialandService IndustryMachinery

Manufacturing-0.1

NAICS3132- FabricMills -0.1

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Chart4:EmploymentGrowthandtheChangeinChineseImportExposure,4-DigitNAICSManufacturingIndustries,2001-2011

Source:Murray(2017)Source:Murray(2017)

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Locallabour markets(CMA/CAs)

Source:Murray(2017)

Table2:Annualpercentage-pointchange inChineseimportpenetrationratio,2001-2011:Tenlargest:CMA/CA450- Granby,Quebec 0.32CMA/CA440- Victoriaville,Quebec 0.32CMA/CA454- Sorel-Tracy,Quebec 0.29CMA/CA428- Saint-Georges,Quebec 0.28CMA/CA541- Kitchener- Cambridge - Waterloo,Ontario 0.27CMA/CA553- Stratford,Ontario 0.27CMA/CA512- Brockville,Ontario 0.26CMA/CA550- Guelph,Ontario 0.25CMA/CA465- Salaberry-de-Valleyfield,Quebec 0.25CMA/CA452- Saint-Hyacinthe,Quebec 0.24

Tensmallest:CMA/CA320- Fredericton,NewBrunswick 0.02CMA/CA010- GrandFalls-Windsor,NewfoundlandandLabrador 0.02CMA/CA850- GrandePrairie,Alberta 0.02CMA/CA598- Kenora,Ontario 0.02CMA/CA977- FortSt.John,BritishColumbia 0.02CMA/CA745- PrinceAlbert,Saskatchewan 0.02CMA/CA411- Dolbeau-Mistassini,Quebec 0.02CMA/CA965- Terrace,BritishColumbia 0.01CMA/CA845- ColdLake,Alberta 0.01CMA/CA860- WoodBuffalo,Alberta 0.01

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Occupations

Source:Kim(2018a)

Table 3: Annualized percentage point change in Occupation-Specific Chinese Import Penetration Ratio for Selected 3-digit NOC-S 2006, Manufacturing, 2001-2011Five largestC07 Computer and Information Systems Professionals 2.25J16 Machine operators and related workers in fabric, fur and leather products manufacturing 2.20H51 Upholsterers, tailors, shoe repairers, jewellers and related occupations 2.12G98 Other elemental service occupations 2.09C18 Technical occupations in computer and information systems 1.96Five smallestI12 Supervisors, Mining, Oil and Gas 0.17I14 Mine Service Workers and Operators in Oil and Gas Drilling 0.13I11 Supervisors, Logging and Forestry 0.12G73 Other Occupations in Travel, Accommodation, Amusement and Recreation 0.12I15 Logging Machinery Operators 0.10

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Impliedemploymenteffectinmanufacturing

Table 4: Implied employment changes induced by rising Chinese import competition, in thousand, Canadian manufacturing, 2001-2011

Occupation GroupActual Change in

EmploymentImplied Employment

Effect (1) Aggregate -505.9 -113.5*(2) By Skill Level

High-skilled -36.5 -6.6Mid-skilled -135.8 -2.7Low-skilled* -333.6 -89.8*

(3) By Skill TypeManagement -30.4 15.2Professional 0.1 3.4Technical/Paraprofessional* -20.2 -12.1*Other services* -66.3 -57.6*Trades/Construction/Transportation -82.1 -12.0Production* -307.0 -51.8*

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Labourreallocationanddemandspillovers

• Thetotaldeclineintheemploymentinimport-competingsectorsispartiallyoffsetbytheincreaseinunaffectedsectors

ØThelabourreallocationeffectmorethanoffsetsthenegativedemandspilloverseffect

• Weakevidenceoflabourreallocationforproduction occupations

• Labourreallocationacrosslocalitiescouldbeatwork (e.g.BC-AB),whichisnotcapturedhere

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ResultsbyGender

ØActualdeclineinthemanufacturingemploymentforfemaleswassmallervfemaleshadaproportionallylargerloss(21.3%vs.16.8%formales)

ØRelativelyhighfemaleemploymentsharesinsectorswithlargeincreasesinimportpenetration

Table5:ImpliedemploymenteffectofrisingChineseimportcompetition,inthousand, Canadianmanufacturing,2001-2011

Male Female

Counterfactualchange -280.7 -133.2Actualchange -337.5 -169.3

ChangeduetoChina -56.8 -36.1%explainedbyChina 16.8% 21.3%

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ResultsbyGenderTable 6: 2001 Employment level (thousand), share in three-digit NAICS manufacturing sectors, annual % pt change in import penetration at three-digit NAICS industry level over 2001-2011, male and female, Canada

Male share (%)

Female share (%)

Annual Δ in import penetration (% pt)

Total manufacturing 71 29 1.1311: Food Manufacturing 60 40 0.1312: Beverage and Tobacco Product Manufacturing 75 25 0.0313: Textile Mills 62 39 0.0314: Textile Product Mills 50 50 1.8315: Clothing Manufacturing 25 75 2.6316: Leather and Allied Product Manufacturing 43 57 3.0321: Wood Product Manufacturing Wood Product Manufacturing 86 14 0.4322: Paper Manufacturing 83 17 0.2323: Printing and Related Support Activities 63 37 0.2324: Petroleum and Coal Product Manufacturing Petroleum and Coal Product Manufacturing 80 20 0.0325: Chemical Manufacturing Chemical Manufacturing 64 36 0.2326: Plastics and Rubber Products Manufacturing Plastics and Rubber Products Manufacturing 68 32 0.9327: Non-Metallic Mineral Product Manufacturing 80 20 0.6331: Primary Metal Manufacturing 89 11 0.7332: Fabricated Metal Product Manufacturing 82 18 0.9333: Machinery Manufacturing Machinery Manufacturing 83 17 0.9334: Computer and Electronic Product Manufacturing 64 36 3.8335: Electrical Equipment, Appliance and Component Manufacturing Electrical Equipment, Appliance and Component Manufacturing 67 33 1.9336: Transportation Equipment Manufacturing 79 21 0.3337: Furniture and Related Product Manufacturing Furniture and Related Product Manufacturing 75 25 2.1339: Miscellaneous Manufacturing 59 41 2.1Source: Kim (2018b)

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2.Non-technicalSummary:ConsumerPrices

Table 7: Domestically-produced and imported consumer goods, Canada, 2001-2017Panel A: Domestically-produced and imported consumer goods, in million of 2002 CAD

(1) Household expenditure on domestically-produced consumer

goods (2) Total imported consumer goods(3) Imported consumer goods from

China2001 296,228 58,983 7,4372006 344,956 69,331 14,0782011 380,554 76,696 16,5792017 445,843 93,191 17,588

Panel B: Shares, %Share of imports in total consumer

goods: (2) / (1) + (2)Share of imports from China in total imported consumer goods: (3) / (2)

Share of imports from China in total consumer goods: (3) / (1) + (2)

2001 16.6 12.6 2.12006 16.7 20.3 3.42011 16.8 21.6 3.62017 17.3 18.9 3.3

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Source: Kim (2019a)

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2.Non-technicalSummary:ConsumerPrices

Chart5:ChineseshareintotalimportsbyproductcategoryinCPI,Canada,%,1991-2017

• TheremainingCPIproductcategoriesare:alcoholicbeveragesandtobaccoproducts,food,healthandpersonalcare,transportation,andshelter(mostlyservices)

ØChinesesharesremainedbelow5%,ifnot0%,overthe1991-2017period19

Source: Kim (2019a)

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2.Non-technicalSummary:ConsumerPrices

Chart6:ShareofimportsfromChinaintotalimportsbydetailedproductcategoryinCPI,Canada,%,1991-2017

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Source: Kim (2019a) Source: Kim (2019a)

PanelA:Recreationandreading PanelB:Householdoperations,furnishings,andequipment

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Product-levelExposuretoChinaandtheirPriceChanges:SomeexamplesTable 8: Average annual percentage-point change in the Chinese share in total imports and average annual inflation (per cent), 2001-2011Ten largest ΔChinese share (% pt) ΔPrice (%)

Digital computing equipment and devices 3.87 -14.98Bedding and other household textiles 3.32 -0.55Upholstered furniture 3.18 -0.83Video equipment 2.88 -8.62Non-electric kitchen utensils, tableware and cookware 2.74 -1.80Window coverings 2.69 2.37Clothing 2.54 -1.71Audio equipment 2.37 -4.83Other personal care supplies and equipment 2.11 0.53Footwear 2.08 -0.77

Ten Smallest ΔChinese share (% pt) ΔPrice (%)Medicinal and pharmaceutical products -0.29 3.24Beer purchased from stores -0.27 7.47Other fresh fruit -0.18 1.30Ham and bacon -0.16 2.51Cigarettes -0.05 5.68Gasoline -0.01 7.21Nuts -0.01 1.09Oranges -0.004 0.31Fuel oil and other fuels -0.004 1.51Sugar and syrup -0.002 0.51

Source: Kim (2019a) 21

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Why?

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• Consumerpricesonelectronics,furniture,clothing,andtextilefellordidnotincreaseasmuch

Ø Technologicalprogress(especiallyforelectronics)Ø Expansionof“superstores”(e.g.Wal-Mart)

o High-volumeandlow-marginsales

Ø ImportedmanufacturedgoodsfromChinao Comparativeadvantageinmanufacturingthesegoodso CheaperChinesegoodsreplacedomestically-producedgoodso Domesticproducersreducemark-ups/improveproductivity

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ImpliedpriceeffectbyCPIproduct:someexamples

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Table 9: Trade-induced annual price changes, %, Selected CPI products, 2001-2011, Canada

Top ten product categories in Table 8Trade-

induced Actual Counterfactual

Expenditure share

Digital computing equipment and devices -4.82 -14.98 -10.16 1.90Bedding and other household textiles -4.13 -0.55 3.58 0.50Upholstered furniture -3.95 -0.83 3.12 1.20Video equipment -3.58 -8.62 -5.04 1.09Non-electric kitchen utensils, tableware and cookware -3.40 -1.80 1.60 0.36Window coverings -3.34 2.37 5.72 0.29Clothing -3.16 -1.71 1.46 9.09Audio equipment -2.95 -4.83 -1.89 0.52Other personal care supplies and equipment -2.62 0.53 3.15 0.57Footwear -2.58 -0.77 1.81 2.13

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ImpliedgainsforCanadians(holdingotherfactorsconstant)

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Table 10: Implied effects of Chinese imports, Cumulative over 2001-2011Panel A: Cumulative inflation on all consumer goods in CPI

Actual cumulative inflation 17.60%Counterfactual cumulative inflation 20.01%Counterfactual - Actual 2.41% pt.

Panel B: Implied gain from trade with China, in 2002 CADTotal gain $8.74 billion CAD# of manufacturing job loss due to China 113,500Gain per job loss $76,996

• Theaverageannualearningforworkersinmanufacturingwas$42,868CAD(in2002dollars)for2001-2011

• Theexpectedcompletedurationofunemploymentinmanufacturingwasabout12.0 weeks for2001-2011

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3.Non-technicalSummary:InnovationandProductivity

Chart 6: Real Business Expenditure on R&D (BERD) in Canadian manufacturing, millions of 2007 CAD, 1994-2012

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Source:Kim(2019b)25

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BERDinmanufacturing

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Chart8:R&Dintensity,Canadianmanufacturing,1994-2013

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Chart7:ManufacturingshareintotalBERD,Canada1994-2013

Source:Kim(2019b)Source:Kim(2019b)

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Totalfactorproductivityinmanufacturing

Chart9:TFPindex(2012=100)andChineseimportpenetrationratio,Canadianmanufacturing,1992-2015

Source:Kim(2019b)

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R&DandTotalFactorProductivityatthefirmlevel

• WeestimatetheeffectofrisingChineseimportcompetitiononR&DexpenditureandTFPofmanufacturingfirms

• R&DisakeyinputtoinnovationØ NotallR&Dbecomessuccessful(e.g. patented).R&Disagoodindicatorfor

innovativeeffortoffirms

• TFPisabroadmeasureofproductivityØ Firm-levelTFPisestimatedusingavailabledataonoutputand

inputemployedbyfirms

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AGoodDataSource

• Moststudiesfocusonlargefirms(e.g. listedfirms)orfirmswithpatents(i.e. successfulinnovation)

• Weuseadministrativefirm-leveldata(T2 corporatetaxincome;T661SR&EDexpenditureclaims;StatisticsCanadaLEAPdatabase):T2-LEAP-SREDØ AllincorporatedfirmsinmanufacturingØ AllincorporatedfirmsthatfiledR&DexpenditurewithCRAØ AbroadmeasureofR&DexpenditureØ ButdonotincludeR&Doutsourcedtonon-residents

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Results

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1. RisingChineseimportcompetitionledtodeclinesinR&DexpenditureandTFPgrowthwithin manufacturingfirms

Ø Declineswerepronouncedwithinfirmsthatwereinitiallysmaller,lessprofitable,andlessproductive

Ø Alsoexperienceddeclinesinprofitmarginswhilelargerandbetter-performingfirmsdidnotv shrinkingroomtofinanceR&Dandotherinnovationsv theSchumpeterianeffectdominatesforthesefirms

o RentsafterR&DlowerthanrentsbeforeR&D

2. Butreallocatedresourcestowardsmoreproductivesurvivingfirmsandinducedlessproductivefirmstoexit.

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ProductivityDecomposition:ChangesdrivenbyChina

Ø Reallocationofresourcesisimportant

Ø Thewithin-effectisnegativebutpotentiallysmallastheeffectwaspronouncedmostlyinsmallerfirmswhichtendtobelessproductiveintheinitialperiod

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Table12:ChangeinTFPduetoChina,manufacturing,2005-2010

Contribution to thechangeinTFPlevelbetween2005and2010Within NegativebutsmallBetween Positive&magnitudelargerthanWithinExit PositivebutsmallTotal Positive

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V.Conclusion

• TradewithChinahasamulti-dimensionalimplicationfortheCanadianeconomyØ Abroad assessmentofthedistributionaleffectoftradeiskeyØ Lossinonepartmaybecompensatedthroughgainsinothers

(atleastintheory)

• Beawareofotherfactors(e.g.technologicalprogress)

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TechnologicalprogresscoincideswithrisingChineseimports

Source:Fort,PierceandSchott(2018)

Chart10:TechnologyAdoption,theUnitedStates,1972-2012

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TechnologicalprogressintertwinedwithrisingChineseimports

ArecentWallStreetJournalarticle(reportedinMichaels(2017)):

“WhenDrewGreenblatt boughtMarlinSteelWireProductsLLC,asmallBaltimoremakerofwirebasketsforbagelshops,heknewnothingaboutrobotics.Thatwas1998,andworkersmadeproductsmanuallyusing1950sequipment....PushednearinsolvencybyChinesecompetitionin2001,hestartedinvestinginautomation.Sincethen,Marlinhasspent$5.5milliononmodernequipment.Itsrevenue,staffandwageshavesurgedanditnowexportstoChinaandMexico.”

Fort,PierceandSchott(2018):

“ArechangesinMarlin'semploymentandoutputdrivenbytheavailabilityofrobotsorincreasedChinesecompetition?Whataboutemploymentandoutputatotherproducersofsteelwireproducts,whofaceincreasedcompetitionfrombothChinaandfromMarlin?Thesequestionsareevenmoredifficulttoanswerifrobots'availabilityitselfisinfluencedbytradeliberalization,forexample,byrobotmanufacturers'abilitytosourceintermediateinputsfromChina.”

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Appendix Table: Occupation group classification, skill level and skill type(1) Skill Type (2) Stats Can/HRSDC re-classification (3) 2-digit NOC (4) Skill Level

Management Management00 Senior management occupations Skill level A01-05 Specialized middle management occupations Skill level A06 Middle management occupations in retail and wholesale trade and customer services Skill level A

07-09 Middle management occupations in trades, transportation, production and utilities Skill level A

Professional Professional11 Professional occupations in business and finance Skill level A21 Professional occupations in natural and applied sciences Skill level A30 Professional occupations in nursing Skill level A31 Professional occupations in health (except nursing) Skill level A40 Professional occupations in education services Skill level A41 Professional occupations in law and social, community and government services Skill level A

51 Professional occupations in art and culture Skill level A

Technical and paraprofessional

Technical and paraprofessional22 Technical occupations related to natural and applied sciences Skill level B32 Technical occupations in health Skill level B42 Paraprofessional occupations in legal, social, community and education services Skill level B

43 Occupations in front-line public protection services Skill level B52 Technical occupations in art, culture, recreation and sport Skill level B

Other services Administration and administrative support 12 Administrative and financial supervisors and administrative occupations Skill level B13 Finance, insurance and related business administrative occupations Skill level B14 Office support occupations15 Distribution, tracking and scheduling co-ordination occupations

Skill level C

Sales62 Retail sales supervisors and specialized sales occupations Skill level B64 Sales representatives and salespersons - wholesale and retail trade Skill level C66 Sales support occupations Skill level D

Personal and customer information services63 Service supervisors and specialized service occupations Skill level B65 Service representatives and other customer and personal services occupations Skill level C

67 Service support and other service occupations, n.e.c. Skill level D34 Assisting occupations in support of health services Skill level C44 Care providers and educational, legal and public protection support occupations Skill level C

Trades, construction, and transportation

Industrial, construction and equipment operation trades72 Industrial, electrical and construction trades Skill level B73 Maintenance and equipment operation trades Skill level B

Workers and labourers in transport and construction74 Other installers, repairers and servicers and material handlers Skill level C75 Transport and heavy equipment operation and related maintenance occupations Skill level C

76 Trades helpers, construction labourers and related occupations Skill level D

Production Natural resources, agriculture and related production occupations

82 Supervisors and technical occupations in natural resources, agricultural and related production Skill level B84 Workers in natural resources, agriculture and related production Skill level C86 Harvesting, landscaping and natural resources labourers Skill level D

Occupations in manufacturing and utilities 92 Processing, manufacturing and utilities supervisors and central control operators Skill level B94 Processing and manufacturing machine operators and related production workers Skill level C95 Assemblers in manufacturing Skill level C96 Labourers in processing, manufacturing and utilities Skill level D

Note:High-skilled:A;Mid-skilled:B;Low-skilled:CandD.