Planet Money – "Why Economists Got Free Trade with China So Wrong"

Host: Greg Rosalski (NPR)
Guest: David Autor (MIT Economist)
Date: December 30, 2025

Episode Overview

This episode dives deep into the unexpected—and often devastating—impacts of free trade between the United States and China, focusing on why the economics profession failed to anticipate the "China Shock." Host Greg Rosalski interviews renowned labor economist David Autor, whose research fundamentally changed how economists—and policymakers—understand globalization’s fallout on American workers and local communities.
The conversation covers key findings from Autor’s latest research, misconceptions about trade adjustment, the lived experience of workers, and the political ramifications of economic dislocation.

Key Discussion Points & Insights

1. The Traditional View of Free Trade and Its Flaws

• For many years, the economic mainstream saw free trade as a clear win for the U.S., expecting that lost jobs in some sectors would be replaced by new opportunities elsewhere (02:43).
• Autor’s Critique:

  “The story that has been told about the consequences of trade is so far from the reality of how people live… It’s all gains, everyone’s better off, there’s no real cost. But that’s just not the lived experience... that’s not what the data ultimately shows.” – David Autor [03:09]

• Early economic models assumed frictionless adjustment and universal employment, overlooking deep and persistent regional job losses.

2. Unpacking the "China Shock"

• Background: After China joined the World Trade Organization in 2001, the U.S. saw a surge of imported goods—particularly in labor-intensive sectors like textiles and furniture—wiping out over a million manufacturing jobs.
• Impact: These losses weren’t uniformly spread, but instead pulverized specific manufacturing towns, creating "miniature depressions" with far-reaching social consequences, including increased mortality, depression, and declining labor force participation.

  “...job loss is extremely costly. Mortality goes up, depression goes up… it’s really way up there in the degree of psychic damage." – David Autor [04:05]

3. Why the Harm Was So Regionalized

• Manufacturing is highly concentrated—unlike hospitals or grocery stores, which exist everywhere, factories and mills cluster in certain regions.
• When Chinese imports surged, these clusters took the brunt, resulting in what Autor calls a "bomb being dropped over downtown" in affected communities (06:02–08:11).
• Ripple Effects: Losses in manufacturing decimated high-wage, low-education jobs, rippling out to local economies by shrinking incomes and demand for services.

4. Comparisons with NAFTA

• Why less-discussed? According to Autor, NAFTA’s effects were misunderstood because economists didn’t know how to measure them at the time.[08:48]
• Newer methods show NAFTA likely also had large employment and political effects, but the data and toolkit weren’t as robust until after the China experience.

5. What Economists Missed: The Adjustment Problem

• Two main ways communities could theoretically adjust:
  1. Workers shift to other industries.
  2. Workers move to new geographic areas.
• In practice, neither mechanism worked well.

  "What surprised us is...people have cast their lot by the time they’re...prime age adults...if that changes very rapidly, it's quite challenging for them to adjust." – David Autor [18:47]

• Adjustments were slow, wrenching, and scarring—people lost jobs and struggled to find comparable ones, and most did not move away, often due to lack of resources or better opportunities elsewhere (15:42–15:45).

  “You might think they all would have packed up and headed for higher ground, but in fact, they became less likely to move out...” – David Autor [15:42]

6. Findings from New Research: Place vs. People

• Communities often "recovered" statistically—with new jobs, new businesses, new residents.
• But the original workers hurt by trade rarely benefited from this recovery:
  • Job growth was in lower-wage industries (retail, warehousing, public-sector jobs).
  • New jobs were disproportionately taken by immigrants, women, young college-educated people, and not the displaced older manufacturing workers.

  “The economy rebounds in these places, but it doesn’t rebound for the people who were hurt directly by the shock.” – Greg Rosalski [18:09]
  “That’s absolutely correct.” – David Autor [18:18]

7. The Political Fallout & Broader Consequences

• The research resonates with the political rise of populism and nativism in the U.S., as many communities felt abandoned and ignored (21:16–21:42).
• U.S. policymakers failed to provide effective adjustment policies, such as wage insurance or gradual transition mechanisms, due to a persistent ideological belief in painless globalization.

  “...If you had to do it again...I would think you would really want to decelerate it to have it occur over a longer period of time. And you’d want to have many more policies in place to help individuals and places adjust to that.” – David Autor [22:00–23:38]

8. On Tariffs and Trump-Era Trade Policy

• Two camps on tariffs:
  1. Tariffs as political leverage/temporary tool.
  2. Tariffs as a permanent wall to protect domestic industries (the latter camp being a stronger force in recent years).
• Autor’s Take:
  • Blanket tariffs mostly drive prices up and don’t revive most types of US manufacturing.
  • Instead, “strategic vision” and targeted industrial investments (e.g., in high-tech sectors) are needed—just building walls is self-destructive.

  “You can't just keep winning races by hobbling your opponents, you eventually have to bulk up and run.” – David Autor [25:51]
  “It matters to the US that we have Apple and Microsoft and OpenAI... the innovation is occurring here and that leads to more innovation and we don’t want to lose that edge.” – David Autor [26:25]

Notable Quotes & Memorable Moments

• On Economist Blind Spots:

  “The absence was taken as evidence of absence, that there were no effects. But it turns out the research methods...were just not really asking the right questions.” – David Autor [10:16]

• Summing Up the Adjustment Myth:

  “It was not like the blackboard model of the labor market, where you lose one job and you get another almost equally good job at another firm.” – David Autor [14:32]

• On Policy Lessons:

  “The U.S. was very blinded by the belief that there was nothing to worry about. So why do you need a policy for a thing that’s not a problem?” – David Autor [21:42]

• Strategic Approach on Trade:

  “If you were trying to make the case that what we really need to do is reinvigorate certain sectors...you wouldn’t say...‘What we really need to get back is sock manufacturing, commodity furniture, doll assembly.’ Those things aren’t coming back...” – David Autor [24:32] “You can't just keep winning races by hobbling your opponents, you eventually have to bulk up and run.” – David Autor [25:51]

Timeline of Important Segments

| Timestamp | Segment Description | |------------|--------------------------------------------------------------------| | 02:43 | Introduction of free trade orthodoxy and the “mainstream” view | | 03:09 | Autor’s explanation of how lived reality diverges from theory | | 04:05 | The “China Shock” and its economic devastation | | 06:02 | Why regional job loss matters and is uniquely damaging | | 08:48 | Discussion of NAFTA vs. the China trade shock | | 10:16 | Why economists missed the warning signs | | 12:36 | Methodological breakthrough: regional labor market analysis | | 14:32 | Adjustment process—what actually happened to displaced workers | | 15:42 | Distinction between effects on people and on places | | 17:00 | Demographic shifts and who benefited from post-shock job growth | | 21:16 | Connections to political populism and policy failures | | 24:32 | On tariffs, Trump era trade strategy, and industrial policy | | 25:51 | The case for targeted investment over blanket protectionism |

Tone and Language

• The conversation is forthright, nuanced, and often sobering. Autor is precise, candid, and willing to critique his own profession’s past oversights.
• Greg Rosalski asks probing questions, highlights perceived gaps between theory and reality, and references the social and political context naturally throughout the interview.

Conclusion

This episode upends simplistic narratives about globalization’s winners and losers, revealing how concentrated trade shocks created lasting harm to specific communities and populations—and how neither markets nor economists are as nimble as old theories suggested.
David Autor advocates for a smarter, more compassionate, and strategically targeted approach to adjustment, urging policymakers and economists alike to confront uncomfortable realities and to design trade and industrial policies that truly work for those left behind.

Further Reading / Listening

• [China Shock research paper by Autor, Dorn, Hanson, Jones, and Setzler]
• Previous Planet Money newsletters and episodes on trade and U.S. manufacturing

For comments or suggestions for future episodes, contact: planetmoney@npr.org