The effect of competition by Chinese exports in international markets on the Portuguese labour market

Chinese exports may affect a given country directly through intensifying competition in the domestic market, but also indirectly in foreign markets where firms from that country compete with Chinese exports. In fact, the large export market share gains of China in low-tech, low-skill products, like textiles, clothing, footwear, and electric appliances, were accompanied by losses in the export shares of several other countries, like Portugal. These indirect effects of competition in third-country export markets are the main object of this study; they can be significant given the growing sophistication of China’s exports, implying greater competition in virtually all industries in which developed economies operate. In our work, we analyze both the direct and indirect labour market effects of rising international trade exposure to China, focusing on the case of Portugal.

Consistent with previous research, we find evidence that China’s expanding role in global trade represented a major negative shock for the Portuguese labour market. However, in contrast to evidence from other countries, the direct effects of increased imports from China are mostly non-significant. The negative labour market effects stem exclusively from the higher competition of Chinese products in the main destination markets of Portuguese exports. Portuguese workers in industries more exposed to this indirect competition from China saw their total cumulative wages and employment fall when compared to similar workers in less exposed industries. Particular groups of workers were more affected by the Chinese competition in international markets, namely women, older and less educated workers. The paper points to the relevance of differentiating the effects of trade on the cross section of workers when designing economic and social policies aimed at supporting workers hurt by globalization.

Click here to go to the paper by Sónia Cabral, Pedro S. Martins, João Pereira dos Santos and Mariana Tavares.