America’s cost-of-living crisis is a wage problem, not a price problem. The cost of essential services has raced ahead of the median paycheck for 25 years. The question that piece left open is why the paycheck stalled. The trail leads to a bargain Washington struck decades ago, when cheap imports became the whole measure of successful trade policy.

Cheap goods and lost paychecks landed on the same households – and the lost paychecks are at the root of the cost-of-living crisis. Trade with China raised the average household’s purchasing power by roughly $1,500 between 2000 and 2007, while a manufacturing worker heavily exposed to Chinese import competition lost cumulative earnings equal to 46% of a year’s pay.

The discounts were financed by the production base itself. Manufacturing has fallen from 23% of GDP in 1970 to 9% in 2025, and factory employment from 17.2 million in 2000 to 12.6 million today. Displaced workers moved into lower-paid service work that now accounts for nearly three-quarters of the economy.

What wages no longer cover, households now borrow. Labor’s share of income fell to 51% of gross domestic income in early 2026, its lowest since 1947, while corporate profits took 12.1%, their highest share since 1950. Household debt reached a record $18.8 trillion, up $4.6 trillion since 2019.

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