Nicolas Lamp has a new paper out called, "How Should We Think about the Winners and Losers from Globalization? Three Narratives and their Implications for the Redesign of International Economic Agreements." This is from the intro:
In the wake of Brexit and the widespread public opposition to new international economic agreements that contributed to the election of Donald Trump to the US presidency, the “losers” from globalization – often stereotyped as low-skilled, white, working class men – have received unprecedented attention. While few would contest that manufacturing workers in developed countries have lost out over the past decades, the remedy proposed by President Trump and his advisers – to tear up, or at least renegotiate the international economic agreements concluded by the United States (US) – has been met with a mixture of concern and ridicule by the trade establishment. And yet, it seems clear that the success of Trump’s campaign has hit a nerve. Trump’s election conclusively demonstrates that, at least in the United States, politicians and trade officials are no longer able to convince voters that international economic agreements will “lift all boats”, if they ever were. Instead, those engaged in debates about trade policy will need to be open about the fact that international economic agreements create both winners and losers. The present paper suggests that there are at least three narratives about who those winners and losers are, and that our choice among those narratives has profound implications for the redesign of international economic agreements in the current era of increasing scepticism of and resistance to globalization.
A first narrative, which I call the “Trump narrative”, pits US workers against workers in developing countries, such as China and Mexico, as well as workers in developed countries with which the US has a trade deficit, such as Germany and Japan. On this view, workers are engaged in a zero-sum competition over jobs; trade agreements, including the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) Agreement, have allowed the developing countries to “steal” jobs with the aid of unfair trade practices such as export subsidies, currency manipulation and disregard for product safety and environmental standards, and have failed US workers by enshrining rules that disadvantage the US (such as uneven tariff levels).
A second narrative, which is mainly advanced by institutions engaged in the governance of global trade (hence I call it the “establishment narrative”), rejects this zero-sum view of the benefits of trade and instead holds that all countries gain from trade. However, the narrative admits that, while trade may be beneficial in the aggregate, it creates winners and losers within each economy. For example, highly skilled workers in developed countries will gain, as they can specialize in high-value added activities and become more productive, whereas relatively low-skilled workers see demand for their labour decrease, as companies gain access to a large pool of low-skilled workers in developing countries through the liberalization of trade and capital flows.
A third narrative, which I call the “critical narrative”, looks beyond the confines of national economies and focuses on the distributive effects of international economic agreements on different factors of production on a global scale. On this view, the protections for the owners of capital embodied in international economic agreements, such as intellectual property rights and far-reaching investment protections, curtail the ability of states to extract value from an investment and thereby shift the balance of benefits from an investment towards the investor. Moreover, the mobility of capital facilitated by international economic agreements not only increases the bargaining power of the owners of capital vis-à-vis relatively immobile factors of production, but also makes it harder for states to tax capital, resulting in an increased burden of taxation on labour.
(Nicolas posted a short, accessible summary of the paper on Twitter here.)
When I talk about the benefits of trade liberalization, I try to clearly acknowledge both the winners and losers, but Nicolas is right that some proponents (mostly politicians, but others as well) gloss over the negative impact on particular individuals. We hear things like, "NAFTA will create a million jobs," but we don't hear much about the jobs that will be lost. (Of course, opponents of liberalization are just as misleading about the impact.)
Nicolas asked me about his paper a while back, but I think I was swamped with many things at the time, and the best I could do was mumble something about how I thought there was some overlap between his three narratives, and I felt like I was a mix of the second and third narratives. But with more time to think about his paper, I had some additional comments, and I will offer them up here.
It seems to me that there are a number of sub-narratives under these three narratives, and it may help to flesh them out (or, it may just confuse things!). I tried to map them out very roughly in this graph:
Please keep in mind these are rough and general approximations, and I had a bit of trouble manipulating the exact positions. If you don't like where I put you on this graph, I apologize, and I would be happy to move you around to a more suitable spot!
Nicolas is focused on how each narrative views winners and losers from globalization, so let me go through that for some of these sub-narratives.
I'll start with me (up in the top left area of the graph). As I see it, open trade creates lots of winners and a few losers in each country. The total winning will outweigh the total losing pretty substantially, which is why I support trade liberalization. In contrast, closing off trade will create a few winners and a lot of losers, and the losing will outweigh the winning. In theory, trade restrictions could be used strategically as part of an effective industrial policy. In practice, however, they will mostly be used to benefit established, well-connected, and often sunset industries. Powerful interest groups benefit, while everyone else loses. Trade restrictions are about as useful as, say, ethanol subsidies. As for the losers from trade, they are not some special category of people who deserve special protection. There are always people losing out in the economy for one reason or another. Instead of special policies to help the losers from trade, we should have general policies to help people who lose a job for any reason. Of course, we won't agree on what those policies should be, but that's what we fight about in domestic politics.
In no particular order, let me say a few things about some of the other people/groups I've identified.
Ron Paul-type sovereigntists agree with me on the economics and the winners and losers, but they don't trust international agreements/institutions, and think free trade should be carried out exclusively through domestic policy. I would say they are establishment on the policies, but critical on the institutions. With regard to the Trump narrative, even if the foreigners are trying to steal our jobs, this group doesn't care.
Donald Trump-sovereigntists also hate international agreements/institutions, but unlike the Ron Paul crowd, the Trump folks think domestic policy should keep out most trade. They also don't trust foreigners generally. As for winners and losers, they think trade restrictions create more winners than losers, perhaps because they can see the winners with a quick glance, and thinking through who might be the losers takes a little effort. They also mis-read (or don't read) U.S. trade policy history. Doug Irwin's latest book would be helpful to them. Also, their fear of foreigners makes them concerned about the impact of globalization, because they see that some foreigners have won, which, in their view, means that American must have lost.
Global Trade Watch/AFL-CIO/Sierra Club are functionally similar to Trump on trade policy. They are not necessarily sovereigntists on non-trade issues, as they support international agreements in other areas. But on trade, they are pretty strong economic nationalists. This surprised me, because I didn't realize people on the left were so nationalist, but in my interactions them with they have always been pretty clear that they favor substantially closing the domestic market to trade (e.g., through Buy America policies or tariffs). They might try to tell you otherwise now and then, and explain that they just want conditions on trade liberalization. But the conditions they put out there are so difficult to meet that trade is effectively closed off. From what I can tell, they share Trump's basic view that by favoring domestic industries over foreign competitors, protectionism creates more winners than losers. Or perhaps it is not so much more winners than losers, but rather they think the particular winners are more important than the particular losers (e.g., labor union members win, others lose, so the trade restrictions are worth it). In terms of Nicolas' three narratives, they are a mix of the Trump narrative and the critical narrative. (With the AFL-CIO, my sense is they are mostly just the Trump narrative, with slightly less provocative language.)
Other critics are very different. The folks at the Electronic Frontier Foundation are not economic nationalists. They simply object to excessive IP protection and ISDS/investment protection. They see these provisions as giving wins to powerful special interests and leaving lots of losers to pay for it. They are solidly in Nicolas' critical narrative, although on tariffs and protectionism they are more like the establishment (but those issues are not their focus, and they come across as objecting to the system as a whole because they feel so strongly about the IP issues).
The left wing, pro-trade agreement redistributionists in the center are interesting (I won't name names, but you can probably guess some of the folks I have in mind here, and I hope some of them show up in the comments to this post). While generally supporting liberalization, they seem to favor tariffs and other forms of protectionism in some instances, and want trade agreements to take on far more social policy than they do now. They think we need to do a lot more for the losers from trade. In their view, it is the failure to do more for the losers that has led to a backlash. They worry about the inequality that they think has resulted from trade liberalization. (As for me, I don't think there is much of a backlash, except from protectionist industries, nativists, and certain NGO critics who worry about ISDS and excessive IP protection. I think the NGO critics are right and we should listen to them, but we should ignore the others. And I think that if inequality is your worry, protectionism should be the bigger concern.)
As for the more establishment types, the WTO can't do much except for defending the system. The U.S. Chamber of Commerce also defends the system, but just pushes for what's in the interests of business, figuring that this will create more winners than losers. The governments are more interesting, because they have the ability to push the system in one direction or another. The EU and USTR (pre-Trump) were probably a bit of the WTO view, combined with a mix of lobbying pressure from the pro-business and social critic views. USTR in the Trump era has moved closer to the AFL-CIO. I have no idea how China views the winners and losers from trade liberalization, but they probably see the system as a check on unilateralism.
With all that in mind, what can we learn from all this to help with the redesign of trade agreements? My guess is, the lessons we will all draw fit closely with the vision we already held for what should be in trade agreements. People who want stronger labor/environment provisions will still want those. People who want stronger IP provisions will still want those. And I will still want a trading system that focuses on trade liberalization, and leaves issues such as IP, labor, and the environment to separate international agreements/institutions.
