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income workers in emerging markets, for example,
may find it more difficult to adapt given weaker
safety nets and less financial resources available to
deal with adverse economic shocks. The bigger the
adjustment process, the more the gains from trade
will tend to be eroded.
While the rise in the skill premium from trade
liberalization has been well established for both
developed and developing countries, determining
the aggregate impact of trade on jobs has been more
challenging. To date, the evidence has been mixed.
We need further research in this area to determine
with more confidence a reasonable range of estimates
for these employment effects. Although evidence on
the extent to which jobs have been lost due to global
trade is inconclusive, job losses that are attributed
to trade tend to be viewed differently. That is, they
are seen as having been “lost to foreigners” and are
often viewed as a consequence of the policy decision
to liberalize trade in the first place.
Having said that, the challenge of adjusting to open
trade is a serious issue that has not received the
degree of attention it fully deserves. This may partly
reflect the fact that the burden has been borne
unequally and spread out over a long time period. It
also may reflect the fact that the winners from trade
have often tended to have a stronger voice than
those who have been the losers.
Research has documented that the effects on
individuals of job dislocation—including those
resulting from trade—can be significant and long
lasting. Older workers tend to suffer larger earnings
losses, and may face larger transition costs. Displaced
workers may not have the appropriate skills to find
good jobs in other areas of the economy, including
in growing export sectors. When the affected
industry represents a large share of the local
economy, the damage is often magnified. In this
case, the burden is more widespread because wages
across the community are likely to be hit as well.
And, this doesn’t begin to capture the full human
toll— including the impact on workers who have
lost confidence in the future and the poorer health
outcomes that occur because of increased stress.
For too many individuals in the United States, for
instance, the American dream has been put at risk,
with parents increasingly pessimistic about whether
their children will have the opportunity to do better
than they did.
We should find better ways to help communities that
are struggling because of the effects of free trade. In
the United States, we have historically experienced
a high degree of geographic labor mobility—much
higher than in other advanced economies. The
ability to move in search of better opportunities,
when possible, has helped to mitigate some of the
adverse effects of trade. But, mobility has declined in
the United States in recent years, implying that the
adjustment costs to trade may have increased.
Protectionism Is Not the Answer
Given these costs of global integration and more
liberalized trade, what is the best path forward?
Protectionism can have a siren-like appeal. Viewed
narrowly, it may be potentially rewarding to particular
segments of the economy in the short term. Viewed
more broadly, it would almost certainly be destructive
to the economy overall in the long term.
Countries need to compete better, not compete less.
Trade barriers are a very expensive way to preserve
jobs in less competitive or declining industries. They
blunt opportunities in export industries and they
reduce the affordability of goods and services to
households. Indeed, such measures often backfire,
resulting in harm to workers and diminished growth.
A better course is to learn from our experience.
From a U.S. standpoint, we should work to reduce
remaining foreign trade restrictions that impair our
ability to capitalize on our comparative advantages.
For example, market access restrictions can mean
that certain U.S. industries cannot realize their full
potential. Similarly, weaknesses in the protection
of intellectual property rights limit the ability of
U.S. producers to realize the full returns from their
investments. This lowers profits and diminishes
incentives to grow the business and employ more
workers.
If we are going to enhance the benefits of free
trade and better manage its costs, it is critical that
we continue to strengthen the global rules-based
system. On the positive side, I would point to the
WTO’s recent Trade Facilitation Agreement, which
addresses customs procedures and could reduce
global trade costs by almost 15 percent. But, at a
broader level, the momentum behind global trade
reform has clearly waned in recent years. This has
occurred notwithstanding the fact that there are
substantial areas in need of further reform, such as
agriculture, services and non-tariff barriers. That