Trade and inequality in Europe and the US

Abstract

Low-income countries’ share of global exports nearly tripled between 1990 and 2015, largely due to China’s emergence as an exporting powerhouse. Evidence from several European countries and the US shows that import competition from China differentially reduced employment and earnings for workers in more trade-exposed industries and regions. We show that manufacturing employment declined most dramatically in countries where import growth was not matched by a commensurate expansion of exports. We also provide new results for the UK which indicate that imports from China contributed to substantial declines in consumer prices alongside job losses in manufacturing. However, while the adverse labour market impacts were concentrated on specific groups of workers and regions, consumer benefits from trade were widely dispersed and of similar magnitude for high and low-income households. We argue that assistance targeted towards displaced workers and depressed areas would better help the losers of globalization than new import tariffs.