‘The gains will be substantial’: The AI shock is looking a lot like the China shock, and a top economist says that’s actually good news

In 2001, China joined the World Trade Organization, sparking a manufacturing surge for the country. China became the “world’s factory,” and its export rate grew 30% each year from 2001 to 2006, more than double the growth rate from the previous five years. While the U.S. reaped the benefits of cheap imports from its new normalized trade partner, the American manufacturing sector took a beating: China’s production explosion accounted for 59.3% of all U.S. manufacturing job losses between 2001 until 2019—about 4 million jobs. Economists David Autor, David Dorn, and Gordon Hanson coined this phenomenon the “China shock.” A quarter of a century later, some economists have compared this industrial transformation and today’s rise of AI. Like the China shock, AI growth has been associated with a shift in labor: Despite many economists seeing little evidence, so far, of mass job displacement as a result of AI, tech companies have used the technology to justify laying off thousands of workers. Last month, Snap CEO Evan Spiegel announced the reduction of about 1,000 roles at the company, 16% of its staff. Klarna CEO Sebastian Siemiatkowski anticipates AI shrinking the company’s white-collar workforce by one-third by 2030. “The AI shock is following the same playbook,” Apollo chief economist Torsten Slok said in a blog post this past week. “The displacement force is different this time, impacting cognitive and white-collar work rather than factory floors. But every other element of the structure is remarkably familiar.” China shock vs. AI shock According to Slok, the shared themes of labor market upheaval between the AI and the China shocks may not be a bad thing. Following China’s WTO entry, overall U.S. unemployment remained low. As for manufacturing, the sector’s share of the labor market was already in decline well before the China shock as the U.S. transitioned to a service-oriented economy. Meanwhile, cheaper intermediary goods from China helped boost manufacturing