Effect of Increasing Import Competition from China on the Local Labor Market: Evidence from Sweden

Import competition from low-wage countries can worsen labor market conditions in high-income countries and undermine the sustainability of free international trade. We examine the effect of increasing manufacturing imports from China on manufacturing employment and wage earnings distribution in Sweden by employing a two-stage least squares estimation method. The empirical results indicate that, except for the transportation sector, the effect of increasing import exposure to China on manufacturing and non-manufacturing employment growth is statistically insignificant. Regarding earnings distribution, we find that the earnings growth of low-wage workers in the manufacturing sector is not significantly influenced by an increase in Chinese imports. However, wage earners at the median level or above are positively impacted by trade shocks from China. These findings have implications for seeking policy alternatives that can enhance the sustainability of the international trade order.