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China’s Technological Emergence and the Loss of Skilled Jobs in the United States: Missing Link Found?

The increasing net imports of advanced technology products (ATP) from China instigate some anxiety and anger in the United States these days. Some claim that China is eroding the United States' leadership in technological innovation (Preeg 2004). Others lament that the surge of ATP imports from China has caused job displacement in high-tech industries (Scott 2005). According to the latter view, China's technological leapfrogging is at least partly responsible for the withering U.S. middle class. China not only directly displaces high-tech jobs that sustain the working middle class, but also intensifies the threat effect whereby undermining workers' bargaining power for wage increases. This argument further states that China's manipulation of its currency, its exploitation of cheap, skilled workers and its lax protection of intellectual property rights contribute to its competitive advantage in high-tech trade. The immediate policy recommendation would be to overhaul U.S. trade policy with China to address the bilateral trade imbalance in general, and the high-tech trade imbalance in particular. China must be pressured to revamp its current unfair and unjust practices. Such diagnoses and policy prescriptions are problematic, however. First, no robust evidence verifies that the increase in high-tech exports by China is a manifestation of its rising technological capacities. Quite the contrary, most high-tech production is not performed by Chinese workers. Second, the increase in China's high-tech exports emanates from the evolution of the international integration of production (IIP). Simply targeting China has at best, marginal effects. At worst, this diverts policy attention in the wrong direction and forgoes the real opportunity to make a change. To account for China's high-tech exports and the implications thereof, this paper is structured as follows. The next section documents the oft-cited linkage