Trade is essential to every economy in the world. But policies to further liberalize trade are under attack. Both U.S. presidential candidates oppose the Trans-Pacific Partnership (TPP) agreement negotiated by President Barack Obama with 11 other Pacific Rim countries, though Democratic candidate Hillary Clinton has supported it in the past. The Republican candidate, Donald Trump, has threatened to withdraw from the World Trade Organization and impose steep tariffs on imports from China and Mexico if they do not comply with his demands. In June, a majority in the United Kingdom—albeit a slim one—voted to leave the European Union, the world’s largest trade bloc. Although the U.S. and Europe are already major trading partners, negotiations to more closely bind their economies seem to be making little progress in the face of stiff resistance from civil society groups in major EU countries. So what is behind the backlash?

In the wake of the Great Recession, the euro crisis, and a spate of attacks from Paris to San Bernardino linked to the so-called Islamic State, it is not surprising that many people are tempted to turn inward. Migration, especially with the surge of refugees desperate to escape conflicts in the Middle East, Central America and other hotspots, is a growing source of cultural as well as economic anxiety. And many in Europe are frustrated with the EU’s handling of the crises there and of the economy in general. In a spring 2016 Pew Global Attitudes poll, half or more of the respondents in seven of 10 European countries said their governments should focus on domestic problems and let other countries deal with theirs as best they can. Nearly six in 10 Americans agreed with that sentiment.

Even free trade’s most strident critics usually assert that they are not opposed to trade per se. But they are concerned about where trade agreements are headed, and whether the benefits of trade are broadly shared. While the net benefits of trade are generally positive, there are losers as well as winners, and the losses are getting more attention in a period with globally stagnating middle-class incomes and rising inequality.

In addition, trade policy is to some degree a victim of its past successes. Traditional tariffs are mostly in the low single digits in high-income countries, so trade negotiators increasingly focus on regulatory and other behind-the-border measures that impact trade. This new agenda raises concerns about national sovereignty and the democratic legitimacy of trade deals. The perception that trade agreements are more about protecting the interests of multinational corporations than those of consumers, workers and the environment also reinforces concerns about fairness.

Why We Trade

Trade provides a variety of benefits, from lower prices for consumers to competitive pressures that keep domestic firms on their toes. It also encourages the reallocation of resources to their most productive uses so that economies can produce more with less. Globally, trade gives poor countries opportunities to tap into larger, more lucrative markets. Proponents of trade agreements often exaggerate the benefits, however, in order to sell them to skeptical publics and politicians. That leads to disappointment when agreements do not appear to create jobs or raise wages as promised, even when the causes of those grievances reside elsewhere.

The most obvious benefit from increased trade is lower prices, both for final products and for products that incorporate imported inputs. For example, thanks in part to increased imports over the past 25 years, the price of clothing in the United States has increased by less than 20 percent. That contrasts with a nearly 150 percent increase over the same time period for other items in the consumer price index, excluding food and energy. Trade also expands our choices. Take an example: Many consumers in countries of the Global North enjoy breakfasts that include coffee or tea, bananas or other tropical fruit—goods that would not be available at all without trade. For smaller economies, trade is absolutely essential to provide a range of goods and technologies that cannot be produced domestically.

While the net benefits of trade are generally positive, the losses are getting more attention in a period with globally stagnating middle-class incomes and rising inequality.

Trade also helps to make firms more productive, by providing access to imported inputs that are better, cheaper or both. And it allows firms to tap the best and brightest innovators wherever they may be. Import competition also puts pressure on domestic firms to make their own products better, cheaper or both. For example, the so-called Big Three American automobile producers—General Motors, Ford and Chrysler—were slow to adapt to the oil price shocks of the 1970s and bring smaller, more fuel-efficient models to the market. The Japanese automobile industry took advantage of the opening to increase exports to the U.S. market. While the adjustments that followed were painful for the U.S. auto industry, especially workers, there is no question that consumers were the beneficiaries of Japanese, and later Korean, competition.

Another key benefit of trade derives from more efficient resource allocation. Trade helps free up resources to do more of—and export more of—what a country is good at producing. That, in turn, enables a country to import more of what someone else is better at doing. In debates over trade, however, the benefits from imports are often overlooked. The focus instead is usually on exports and the jobs they create. While opponents of trade highlight the jobs that additional imports will destroy, what these debates obscure is that the net impact on jobs is relatively small. The Bureau of Labor Statistics reports that the average net change in U.S. employment in 2015 was more than 200,000 jobs per month. That compares to one prominent critic’s estimate that the North American Free Trade Agreement (NAFTA) caused 20,000 net job losses per year.

The pain suffered by workers in the U.S. automobile, steel, and other manufacturing industries that have been displaced by trade over the years is real—and, according to recent research, the losses are deeper and longer-lasting than most economists thought. But the United States does a particularly poor job of addressing these costs. Many European countries have done better at helping their citizens adjust to and take advantage of globalization. But there are concerns there, as well as in the United States, about the direction that trade agreements are taking and the role they might play in increasing inequality and infringing on national sovereignty.

Trade Policy, Redistribution and Inequality

The gains from trade liberalization are generally large enough to compensate the losers and leave no one worse off, in theory. In the real world, however, this compensation is often inadequate, if it occurs at all. There is also a growing feeling among many who have seen their inflation-adjusted incomes stagnate or even fall that much of globalization in recent years favors elites over ordinary workers.

The United States has a Trade Adjustment Assistance (TAA) program to help workers dislocated by trade adjust to new economic conditions, and to provide income while workers search for new jobs. But it is often difficult to untangle the effects of trade from those of technological change, and the program reaches a relatively small number of dislocated workers. According to the most recent annual report, just fewer than 60,000 workers nationwide were deemed eligible for TAA benefits in 2015. While the TAA net is small, the overall safety net for Americans who lose their jobs is thin, and many workers fall through. Unemployment compensation is typically available for a relatively short period of time. And despite passage of the Affordable Health Care Act, known as Obamacare, in the United States, good health insurance and pensions are still often linked with employment. Thus losing a job carries higher costs in the United States than in many other advanced economies where governments play a larger role in guaranteeing access to health care and pensions.

There is a growing feeling among many who have seen their incomes stagnate or even fall that much of globalization in recent years favors elites over ordinary workers.

Recent polling shows just how divided Americans are on the benefits of global engagement. Half of Americans polled by the Pew Global Attitudes Project in April 2016 thought “involvement in the global economy” was a bad thing, because it caused job loss and lowered wages. Forty-four percent said such involvement was good because it provides markets and opportunities for growth. With significantly lower levels of inequality, only around a third of people in nine European countries were as gloomy about global engagement. Greece, however, with its recent financial woes and the highest level of inequality of the 10 EU countries surveyed, had a higher share of people taking a negative view of involvement in the global economy than the United States.

In another Pew survey, 58 percent of Americans thought trade agreements had been good for the United States as a country, but only 43 percent thought they had been good for their own family’s finances; 36 percent of respondents thought they had been hurt. Only among those with household incomes over $100,000 did a slight majority—52 percent—say that trade agreements had helped their family’s finances. Trade surely gets more of the blame than it deserves for the overall problems of job loss and stagnant wages. But many Americans weigh the risks associated with new trade agreements more heavily than the benefits, and come out against trade on balance.


Proponents of globalization often argue that technological change is a more important contributor to inequality and stagnant incomes in advanced economies than trade. But that is not a meaningful response to people’s concerns. Moreover, that argument ignores the degree to which globalization and technology have become intertwined. Advances in information and communications technology have allowed firms to replace customer service personnel with automated phone systems or online tools, often to the frustration of their customers. These technologies also allowed firms to move customer service operations that still required human interaction to wherever in the world it was cheapest to do so.

Another source of frustration for those feeling left behind is the fact that capital is relatively more mobile than labor. Not only have owners of capital been better positioned to take advantage of globalization, trade agreements now place a major focus on facilitating and protecting that mobility. Moreover, the sense of unfairness and the perception that the benefits of trade agreements are not broadly shared are bolstered by concerns that trade agreements increasingly infringe on democratic decision-making.

Trade Agreements, National Sovereignty and Democratic Legitimacy

At least since the 1960s, the scope of trade agreements has been expanding. Up to that point, trade negotiations had focused on cutting import tariffs. The General Agreement on Tariffs and Trade (GATT), created after World War II to prevent trade wars like those of the 1930s, oversaw a reduction in average tariffs in high-income countries to the low single digits by the 1980s. The GATT’s successor, the World Trade Organization, turned to a range of other policies that can affect trade, from intellectual property laws to the setting of qualification standards for professional services and the details of food safety regulations. That shift to behind-the-border and regulatory issues intensified with the rise of global supply chains and the turn to bilateral and regional trade agreements among fewer countries. But growing numbers of people in democratic societies view this trend as a threat to national sovereignty and as tilting the balance in favor of trade over other social priorities, such as worker rights, the environment, food safety and access to affordable medicines.

Losing a job carries higher costs in the U.S. than in many other advanced economies where governments play a larger role in guaranteeing access to health care and pensions.

The aim of negotiations over regulatory cooperation or harmonization is to soften the impact of unnecessary differences in regulation and thereby reduce the transactions costs involved in producing for two sets of regulators with the same ultimate goal. But the lack of transparency in trade negotiations, and the disproportionate role that the business community tends to have in influencing trade policy, feeds perceptions that the real aim is to lower standards. Differences in regulations also often reflect divergent social priorities or approaches to risk that are difficult to reconcile. Increased regulatory cooperation has been a major goal of the Transatlantic Trade and Investment Partnership (TTIP) talks between the United States and European Union. But that part of the agenda is attracting a great deal of pushback from European civil society groups.

Many trade agreements, including the TPP, also include new or expanded protections for multinational corporations that are not always compatible with the interests of society as a whole. The push for stronger intellectual property rules is one such example. Efficient and equitable systems for granting patent and copyrights should strike a balance between providing incentives for innovation and encouraging the broadest possible diffusion of new technologies and creative works. Copyrights that provide protection for decades after the author has died, for example, are far beyond what is necessary to stimulate creativity. And patent protection for pharmaceutical companies that discourages competition from generics for an extended period threatens the affordability of medicines, particularly in developing countries.


Investor-state dispute settlement (ISDS) mechanisms, which allow individual investors to sue governments for alleged violations of their rights, raise broader questions about the balance being struck in trade and investment agreements. Arbitration provisions have long been standard in bilateral investment treaties to protect companies against uncompensated expropriation of their property, which is not particularly controversial. Concerns grew in the early 1990s, however, when U.S. negotiators broadened the definition of expropriation in the NAFTA negotiations to include indirect or regulatory expropriation. The expanded expropriation provisions were replicated in other investment agreements, and a sharp increase in the frequency of ISDS complaints over allegedly arbitrary or unfair treatment followed. Data from the U.N. Committee on Trade and Development show that governments win these cases more often than not. But the fact that investors continue to file complaints raises suspicions that corporations are more interested in raising the cost of regulating and deterring new regulations than in winning these cases.

What to Do

If policymakers want to rebuild support for an open trade system, they will need to be more ambitious in some areas and less so in others. Critics exaggerate the degree to which globalization is to blame for inequality, but those who want freer trade need to do more than pay lip service to the often deep losses that accompany it. This is a challenge particularly for American policymakers. Former Treasury Secretary Larry Summers, however, has argued that more effective domestic policies are necessary but not sufficient to “undergird global integration.” Policymakers, in the United States and elsewhere, will also need to reform both the substance and the process of negotiating trade agreements.

In the United States, ensuring that Americans are prepared to take advantage of globalization’s opportunities, and that its benefits are spread more broadly, is a large agenda that will take time to implement. It is not only about compensating the losers from trade, it also about addressing the anxieties of those who fear they may be next. A narrowly targeted, reactive program like Trade Adjustment Assistance is not enough. Moreover, the tight links between globalization and technology mean that many programs need to be economy-wide, not trade-specific. The list of needs includes investments in infrastructure to create jobs and improve productivity, and with interest rates near zero, now is the time to make those investments. Workers need to be flexible and mobile, and that means making sure they have access to quality education and training programs. The Affordable Health Care Act is a step toward delinking health insurance from jobs, but just a step. TAA provides relatively generous income support for trade-dislocated workers, but it is available to only a small number of them. Payments under the general unemployment insurance program are generally smaller, and coverage has been shrinking for many years. Until policymakers come together to address these shortcomings, the foundation for an open trade policy will remain shaky.

Critics exaggerate the degree to which globalization is to blame for inequality, but those who want freer trade must do more than pay lip service to the deep losses that accompany it.

Policymakers also need to reconsider the appropriate scope of trade agreements. In the face of demands to drop ISDS from the TTIP and other trade agreements, EU negotiators came up with a proposal that includes an independent tribunal, an avenue for appeal, and narrower definitions of what could constitute unfair treatment for foreign investors. U.S. negotiators have not gone as far, but they did narrow the scope of the ISDS provisions in the TPP deal and embrace other process reforms. Thus far, however, these changes have not quieted the protests over this provision. Given the relatively low success rate of investors under existing ISDS procedures, and the fact that many countries are offering subsidies and other incentives to attract investment, it is not clear that this provision is worth the political antagonism that it generates.

To the degree that regulatory coherence remains part of the trade agenda, the process of negotiating and ratifying trade agreements needs to be more open and transparent. In traditional trade-bargaining situations, negotiators value secrecy because it allows them to reach compromises and avoid generating opposition to every proposed tariff cut before an overall deal can be reached. With negotiations on behind-the-border and regulatory issues that only indirectly affect trade, however, secrecy is more problematic. The European Union has responded to criticisms of the Transatlantic Trade and Investment Partnership negotiations by making its own negotiating proposals public and by providing summaries of each negotiating round. American negotiators, in contrast, continue to refuse to release their own positions, or to allow EU negotiators to characterize them for purposes of delineating differences. Secrecy creates additional suspicions in the United States because special legislative rules apply to trade agreements that truncate debate and prohibit amendments. Those rules need to change with respect to trade agreements that reach far beyond borders, and the U.S. trade representative’s office should follow the EU example in releasing more information to the public about its negotiating positions.

Open trade policies are under threat today because too many people feel excluded or left behind. Until that changes, trade agreements will remain a tough sell.

Kimberly Ann Elliott is a senior fellow at the Center for Global Development and a member of the National Advisory Committee on Labor Provisions in Free Trade Agreements. She is the author of numerous books and articles on trade, food security and worker rights.