Did U.S. Politicians Expect the China Shock?

The Institute for International Economic Policy was pleased to invite you to the 14th annual Conference on China’s Economic Development and U.S.-China Economic Relations. This year, the conference takes place as a virtual series. This conference is co-sponsored by the Sigur Center for Asian Studies and the GW Center for International Business Education and Research (GW-CIBER).

In the two decades straddling China’s WTO accession, the China Shock, i.e. the rapid trade integration of China in the early 2000’s, has had a profound economic impact across U.S. regions. It is now both an internationally litigated issue and the casus belli for a global trade war. Were its consequences unexpected? Did U.S. politicians have imperfect information about the extent of China Shock’s repercussions in their district at the time when they voted on China’s Normal Trade Relations status? Or did they have accurate expectations, yet placed a relatively low weight on the subconstituencies that ended up being adversely affected?

In this inaugural event, HKU’s Bingjing Li discussed how information sets, expectations, and preferences of U.S. politicians are fundamental, but unobserved determinants of their policy choices in regards to the China Shock. Prof. Li applies a moment inequality approach designed to deliver unbiased estimates under weak informational assumptions on the information sets of members of Congress. Employing repeated roll call votes in the U.S. House of Representatives on China’s Normal Trade Relations status, she formally tests what information politicians had at the time of their decision and consistently estimates the weights that constituent interests, ideology, and other factors had in congressional votes. She will show how assuming perfect foresight of the shocks biases the role of constituent interests and how standard proxies to modeling politician’s expectations bias the estimation. She cannot reject that politicians could predict the initial China Shock in the early 1990’s, but not around 2000, when China started entering new sectors, and find a moderate role of constituent interests, compared to ideology. Overall, she will show how U.S. legislators appeared to have had accurate information on the China Shock, but did not place substantial weight on its adverse consequences.

Boston University’s James Feigenbaum served as a discussant and IIEP’s Maggie Chen moderated with an introduction from IIEP Director Jay Shambaugh.

About the Speaker:

Dr. Bingjing Li is an Associate Professor of Economics at the University of Hong Kong. Her main research fields are international trade and applied microeconomics. Using both micro data and quantitative models, her works focus on understanding the interactions of international trade with development and political economy factors, and their consequences.

About the Discussant:

James Feigenbaum is an Assistant Professor in the Boston University Department of Economics. He is also a Faculty Research Fellow at the NBER in the Development of the American Economy program and a Junior Faculty Fellow at BU’s Hariri Institute for Computing. James studies economic history, labor economics, and political economy. His research interests include understanding the effects of economic shocks on politics and politicians. Prof. Feigenbaum received his PhD in Economics from Harvard University and his B.A. with High Honors in Economics and Mathematics from Wesleyan University.

About the Moderator:

Maggie Chen is Professor of Economics and International Affairs at George Washington University. She has served as Director of GW’s Institute for International Economic Policy and worked as an economist in the research department of the World Bank and a consultant for the World Bank, the International Finance Corporation, the Inter-American Development Bank, and the U.S. Congressional Budget Office. Professor Chen’s research areas include multinational firms, international trade, and regional trade agreements. Her work has been published in academic journals such as the Review of Economics and Statistics, American Economic Journal: Applied Economics, American Economic Journal: Economic Policy, Journal of International Economics, and Journal of Development Economics. She is a co-editor of Economic Inquiry and an associate editor of Economic Modeling.

Introduction by:

Jay Shambaugh is Professor of Economics and International Affairs, and Director of the Institute for International Economic Policy at the Elliott School of International Affairs, George Washington University. His area of research is macroeconomics and international economics. He has had two stints in public service. He served as a Member of the White House Council of Economic Advisors from 2015-2017. Earlier, he served on the staff of the CEA as a Senior Economist for International Economics and then as the Chief Economist. He also spent 3 years as the Director of the Hamilton Project at the Brookings Institution. Jay is also a Faculty Research Fellow at the NBER and Non-Resident Senior Fellow in Economic Studies at Brookings. Prior to joining the faculty at George Washington, Jay taught at Georgetown and Dartmouth and was a visiting scholar at the IMF. He received his Ph.D. in economics from the University of California at Berkeley, an M.A. from the Fletcher School at Tufts, and a B.A. from Yale University.