Economic Outlook and Political Polarization in Trade Impacted American Labor

Abstract

Since the start of China’s WTO membership in 2001, there has been a decline of over one million U.S. manufacturing jobs. This process has been linked to an increase in U.S. political polarization. This project explores the relationship between local labor market trade exposure and Senate candidate ideological realignment. To this end, I exploit exogenous variation from economic outcome perceptions. The analysis combines multiple sources of information. The empirical strategy implements an IV method, in which Chinese import penetration in the U.S. is instrumented with Chinese import penetration in other advanced economies. Accounting for the presence of swing states, I find a significant impact on Senate polarization from increases in import penetration and household debt to income. These results support pre-existing literature and offer insight into the importance of economic optimism in widening political cleavages from trade.