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\u003cp\u003e\u003cspan\u003eThe economic roots of the current backlash against globalisation stem from trade’s distributional consequences and from inattention to workers displaced by either globalisation or technological progress. These issues are as present in high-income countries, such as the United States and the United Kingdom, as they are in emerging economies such as China, India and Brazil, which are viewed as the beneficiaries from freer trade. The distributional consequences of trade in emerging markets are less salient because these economies recently experienced faster growth rates than higher-income countries. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eEconomists have long said that, although freer international trade raises aggregate living standards in a country, it also generates domestic winners and losers. Those hurt by international trade will likely oppose further liberalisation and call for protectionism, jeopardising the economic benefits of trade to society as a whole. When the benefits of trade are diffuse but the losses concentrated, disaffected workers can become a political constituency that undoes liberalisation. \u003c/span\u003e\u003c/p\u003e\n\u003ch5\u003e\u003cstrong\u003e\u003cspan\u003eA zero-sum game? \u003c/span\u003e\u003c/strong\u003e\u003c/h5\u003e\n\u003cp\u003e\u003cspan\u003eThe rapid integration of emerging economies into the global market made the potential loss of earnings and jobs in high-income countries more significant. After the Second World War, a large proportion of international trade occurred among similar, high-income countries trading similar types of goods (apart from oil and other natural resources). In this setting, international trade provided companies access to more markets, inducing innovation and lowering the costs of production. Consumers, in turn, benefited from lower prices and access to a broader variety of products. While some domestic companies undoubtedly lose from this type of international exchange, intra-industry trade does not tend to generate stark differences in earnings and employment within a country. Starting in the 1980s, however, developing countries began implementing large-scale trade liberalisation and joining the World Trade Organisation. Developing countries now account for more than 40% of world trade. This process shifted the composition of trade toward exchange between high-income and lower-income countries (as well as increased trade among emerging economies), driven by forces of comparative advantage. Economic theory predicts that such trade will give rise to distributional consequences within countries, increasing fears about lower wages and job losses. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eDistributional conflicts over trade were always present in the global order after the Second World War. French farmers opposed the creation of the European Economic Community and were appeased only by the drafting of the Common Agricultural Policy. During NAFTA negotiations, there was significant opposition from US labour unions to freer trade between the United States and Mexico. What is different today is that the sheer size of China and the rapid rise in the productivity of its workforce – set against stagnant real income growth, technological displacement of routine work and rising inequality in high-income countries – increased the salience of these distributional issues in developed economies. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eInternational trade is widely presumed to make households in developing countries better off. Poverty is declining in developing countries, especially in China and India, giving rise to the belief that trade is a zero-sum game. Some argue that developing countries are winners and developed countries are losers, and the higher incomes earned by middle-class families in China come at the cost of lower incomes and job losses in the United States. However, it is important to remember that international trade generates winners and losers (at least in relative terms) within all countries. Although the collective evidence from more than 25 years of research suggests that trade is not the primary contributor to rising inequality in developed or developing countries, its distributional effects matter. Rigorous analysis finds several similarities in how international trade, and more specifically import competition, affects labour markets at all levels of development.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eMuch has been said about the loss of manufacturing jobs in the United States and Brazil, particularly from Chinese import competition. These employment losses are concerning, but not surprising as they fit textbook economic theories. International trade, in addition to changing consumer tastes and prompting technological advances, simultaneously creates and destroys jobs. Job churning is an important component of a healthy and dynamic economy. \u003c/span\u003e\u003c/p\u003e\n\u003ch5\u003e\u003cstrong\u003e\u003cspan\u003eRegional variation\u003c/span\u003e\u003c/strong\u003e\u003c/h5\u003e\n\u003cp\u003e\u003cspan\u003eWhat is more surprising and worrisome is that the effects of international trade on earnings and employment are geographically concentrated and long lasting. The effects of international trade depend on a region’s exposure to import and export shocks. Individuals in regions with high concentrations of export-oriented industries fare better than individuals in regions with lower concentrations of exporters. Conversely, individuals in regions with high concentrations of import-competing industries fare worse than individuals in less exposed regions. This is supported by research on a range of countries, including Brazil, China, India, Mexico, the United States and Vietnam. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eEconomic theory expects individuals to relocate from adversely affected regions toward better-performing areas over time, causing earnings differences to dissipate. In reality, there is imperfect inter-regional worker mobility. Moving is costly and may entail giving up informal insurance such as the help and support of family and friends. Rigidities in markets for property and productive assets may make it difficult to buy and sell important elements of peoples’ livelihoods and well-being. Research suggests that the reasons for worker immobility are country-specific, depending on the level of development, government policies and social norms. The unequal effects of trade persist partly because of a lack of outmigration from adversely affected regions after large trade shocks. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eMoreover, the adverse effects of import competition on earnings and employment can amplify with time. Immobility can last up to 20 years after a trade reform is implemented, as the case of Brazil’s 1991 import liberalisation suggests. The relative earnings of workers in affected areas deteriorated since capital only slowly depreciates over time, ultimately leading to factory closures. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eBecause the adverse effects of import competition are long lasting and geographically concentrated, there are potentially significant spillovers to other outcomes such as schooling, crime, health and the availability of locally provided public goods. These combined effects can further increase income disparities across geographic regions and lead to inequality of opportunity for individuals living in affected communities in the longer term. \u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cspan\u003eIf governments wish to maintain support for freer trade, which is potentially more important in today’s world of global supply chains than it was in the past, they need to help those who are left jobless. Exactly how governments should help those hurt by globalisation is context-specific, depending on the country’s level of economic development, the flexibility of its labour market and the structure of its public finances. Providing social safety nets is costly, but protectionist measures to reverse global trade risk greater harm. Disrupting global supply chains and punishing those who benefit from trade will not bring back lost jobs, but it can undo the gains in growing industries.\u003c/span\u003e\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e\u003cspan style=\u0022background: white; color: black;\u0022\u003eThis article was drafted for the University of Pennsylvania’s Perry World House 2018 Global Order Colloquium, which was supported by a grant from Carnegie Corporation of New Yo\u003c/span\u003e\u003c/em\u003e\u003cem\u003e\u003cspan style=\u0022background: white; color: black;\u0022\u003erk.\u003c/span\u003e\u003c/em\u003e\u003cem\u003e\u003cspan\u003e \u003c/span\u003e\u003cspan style=\u0022color: black;\u0022\u003eIt draws heavily on existing surveys by the author, particularly ‘The Impact of Trade on Inequality in Developing Countries’, in \u003c/span\u003e\u003c/em\u003e\u003cspan style=\u0022color: black;\u0022\u003eFostering a Dynamic Global Economy: The Jackson Hole Economic Symposium Proceedings\u003cem\u003e (2017).\u003c/em\u003e\u003c/span\u003e\u003c/p\u003e","className":"richtext reading--content font-secondary"}), document.getElementById("react_OQ9QrPOSoEG7Ptdgb6IKFQ"))});
\u003cp\u003e\u003cspan\u003eInternational trade usually entails job losses in some areas. Governments must manage these losses without undermining the benefits that trade can bring.\u003c/span\u003e\u003c/p\u003e
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