This paper reviews the history of trade liberalization and the effects of freer trade on US labour market outcomes. It is motivated by the rise of economic nationalism, evident in the United States and elsewhere, which threatens the international “architecture” of trade, economic and financial arrangements that has been erected over the past 70 years. Populist policies reflect a backlash against trade liberalization, as many on both the left and the right of the political spectrum attribute the loss of well-paying manufacturing jobs and growing inequality to trade. The paper argues that these effects do not necessarily imply that trade went “too far.” Trade liberalization is the source of efficiency gains and wealth generation. The problem may be that domestic policies to sustain full employment and to ensure the gains from trade liberalization are shared did not go far enough. In part, this problem reflects the interaction of trade liberalization and financial integration, which limits the ability of national governments to introduce policies consistent with this objective. Addressing the challenges posed by political populism and economic nationalism therefore requires a consensus on domestic policies and changes to the international architecture that facilitate this policy framework.
Did Trade Liberalization Go Too Far? Trade, Inequality and Unravelling the Grand Bargain
CIGI Paper No. 168