This is absolutely fascinating: Jason Furman, one of the foremost economists in the U.S. and former chair of the Council of Economic Advisers, explains why the so-called "China shock" is a myth.

According to him, "85 to 95% of Americans benefited" from trade with China, and "China has been part of helping [the US economy] work, not hurting it work."

In other words, the narrative that China "stole" American jobs and wages is the exact opposite of reality.

Furman's logic is pretty ironclad:

1) He points out, which is factual, that "the slowdown of wage growth and the rise of inequality began in the 1970s, when there basically was no trade with China." It then accelerated in the 1980s-90s when China trade was small, and slowed down after 2000. And "since about 2013," when trade with China was at its highest, "we've had pretty fast real wage growth," with "the fastest real wage growth for moderate income households."

In other words, the timing doesn't fit: if China was the cause, the problem should have gotten worse as trade with China increased. Instead, it got better.

2) A common narrative one hears about China is "who cares about affordable goods, we need well-paying jobs." But Furman points out it's actually one and the same thing: "the way we measure jobs is how much your wages can buy. If you improve purchasing power, you are making every single job in the economy better."

In very concrete terms, if salaries stay flat but Chinese imports make goods 10% cheaper, your purchasing power just went up 10%, as if you got a 10% wage hike. This makes every single job in the economy better.

In effect "jobs vs. cheap goods" is a false dichotomy: cheap goods ARE better jobs.

3) Furman also points out, rightly, that the majority of what U.S. imports from China isn't consumer goods: "more than half of what we import is actually inputs into the manufacturing process itself."

In other words, Chinese imports make U.S. manufacturing MORE competitive as it decreases their input costs. If you were to cut all Chinese imports, you'd cripple U.S. manufacturing as it would no longer be able to compete on price with anyone. And, as per point 2 above, you'd also destroy Americans' purchasing power, making every single U.S. worker worse off.

4) Last but not least, Furman says that the "China shock" literature is fundamentally flawed, as it "doesn't answer the most important question, which is what the net effect was." It "doesn't consider other causes for the job losses, doesn't look at all the places that gained jobs and wages, and doesn't integrate the consumer side."

All in all, he believes that if one were to actually calculate the net effect of trade with China on the U.S. economy, it'd show that "85 to 95% of Americans benefited." And even for the 5-15% who lost out, Furman says these people were failed by "our labor policies, our social safety net" - not by China.

What Furman is saying is more relevant than ever because, both in the U.S. and in Europe, this notion that China is somehow "stealing" Western jobs and prosperity has become the unquestioned premise of so many of today's policies.

Nobody even debates it anymore, it's almost universally assumed correct.

In my own country France, Macron keeps repeating it all the time, leading the charge in Europe to slap tariffs on Chinese imports, warning that China is "killing its own customers" and that it's a question of life or death for European industry (reuters.com/world/china…). He literally called last week for the EU to build its own version of America's Section 301 - the same protectionist tool Trump uses (politico.eu/article/emm…).

BUT, if Furman is right, and the data strongly suggests he is, France and Europe are about to inflict economic self-harm in the name of a problem that doesn't exist.

Much more affordable cars, for instance, would literally give every single European a big wage hike. It's Furman's argument on "85 to 95% benefiting" vs 5% to 15% losing out: the vast majority of Europeans would see their money go further, while a small number of jobs in legacy automakers would be disrupted. Instead of helping those workers transition, Europe wants to prevent making everyone better off.

Anyhow, please do watch the whole podcast, which has many other fascinating insights because Furman also debates with Justin Yifu Lin, the former Chief Economist of the World Bank and State Council Counsellor of China.

They're both interviewed by my friend @Hansong_Li - also a professor and an immensely smart man - in his excellent new podcast "worldviews" (imho one of the best new podcasts our there). The video is here: youtube.com/watch?v=TAj…