Import Competition from and Offshoring to Low-Income Countries: Implications for Employment and Wages at U.S. Domestic Manufacturers

Using confidential linked firm-level trade transactions and census data between 1997 and 2012, we provide new evidence on how American firms without foreign affiliates adjust employment and wages in response to import competition from low-income countries. We provide stylized facts on the input sourcing strategies of these domestic firms, with an emphasis on how their importing behavior differs from multinationals operating in same industry. We then investigate how changes in pressure from low-income-country imports are correlated with changes in employment and wages at surviving domestic firms. We find that offshoring by domestic firms from low-income countries is associated with small declines in manufacturing employment and production worker’s average wage. Import penetration of U.S. markets from these sources, however, is associated with larger changes in employment and wages at both arm’s length importing firms and non-trading firms. Given differences in the degree of both offshoring and import penetration, we find substantial variation across industries in the magnitude of job changes associated with low-income country imports.