Anti-globalization bias and public policy

Opponents of globalization constantly point to the uneven impact of open trade. Although trade liberalization can make the overall economic pie bigger, not everyone gets a larger slice, and many may receive a much smaller piece than before because of competition from foreign-made products. Such concerns help to explain why many blue-collar American workers voted for Donald Trump in the 2016 US presidential election, and why French farmers and workers often take part in anti-globalization demonstrations.

But we should not exaggerate the importance of this point. In fact, three other inherent anti-globalization biases are at work in many societies, and often contribute to the emergence of misguided public policies that benefit neither employers nor workers.

First, although globalization frequently creates many more winners than losers, even before government redistribution programs, many winners mistakenly think they are losers because they fail to recognize globalization’s significant indirect benefits.

Consider the example of US imports from China. As many often point out, US sectors or regions that compete most directly with Chinese imports tend to fare less well, because these imports displace US jobs. But as my colleagues and I highlighted in a recent paper, US sectors that use relatively more Chinese-made intermediate inputs – such as computers and other electronic equipment, furniture, and lab coats – tended to experience faster job growth and larger increases in real wages between 2000 and 2014. Yet, opponents of globalization often ignore such findings.

Moreover, whereas only a subset of US manufacturing jobs is displaced by imports from China, America’s much larger service sector (and many of its manufacturing industries) benefits from cheaper Chinese-made inputs. Less than one-fifth of all US jobs are in manufacturing, while the service sector accounts for about three-quarters of employment – a pattern that also holds for all US states and almost all US cities.

We therefore estimate that when the total effects of US-China trade are considered, the real wages of three-quarters of American workers have increased (whereas if one focuses only on the direct competition effect, real wages would appear to have declined for most workers). In other words, even before the redistribution of some gains from employers to workers, an overwhelming majority of the US labor force already benefits from trade with China, and the total gains for workers are also positive.

However, although most Americans understand the direct effect of Chinese imports on jobs and wages, they do not recognize the positive indirect effect. That is not surprising. When a US firm fires workers, its human-resources manager may say, “Sorry we have to let you go, but you should blame our country’s imports from China.” Trump and much of the US media have repeatedly reinforced this idea. Our analysis, however, suggests that US job expansion is also linked to trade with China.

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