Assessing the Impact of Trade Liberalization on Import-Competing Industries in the Appalachian Region

Author(s): Andrew B. Bernard, J. Bradford Jensen, and Peter K. Schott
Author Organization(s): Tuck School of Business at Dartmouth and NBER, Institute for International Economics, and Yale School of Management and NBER

This report details the significant pressure Appalachian manufacturing will face from import competition over the near and medium term and the relatively larger industrial and community adjustments that the Region faces compared to the rest of the US. The report analyzes the share of manufacturing imports from low-wage countries like China and India over the past 30 years. These low-wage imports are concentrated in relatively labor-intensive industries such as apparel and footwear and are relatively absent in capital-intensive, technology-intensive sectors such as transportation. The arrival of low-wage imports in a sector is associated with a higher probability of manufacturing plant closure as well as lower employment and output growth. Appalachian manufacturing employment and output are concentrated in industries facing high exposure to imports from low-wage countries, especially in textiles, apparel, furniture, rubber and plastic products, electronic and electrical products and lumber and wood products. Within industries, plants in the Appalachian region are less skill-intensive and less productive than elsewhere in the US. Appalachian manufacturing is therefore more exposed to the effects of imports from low-wage countries. The report forecasts the low-wage import shares in the next decade. By 2011, low-wage countries are predicted to account for 24 percent of all US imports, up from 15 percent in 1991. More importantly, the increase will be greatest in low-wage, labor-intensive industries, precisely those sectors that are over-represented in the Appalachian region. And, while tariffs and transportation costs are not expected to undergo substantial changes in the medium term, the next decade will bring continued pressure on firms in labor-intensive industries and on firms with a labor-intensive product mix in all industries. Developments in trade policy are unlikely to dramatically alter these forecasts.