Winners and Losers of trade - how does one assess the damage!

The impact of trade, trade policy and trade agreements on domestic economies has been a subject of debate for a long time. While the benefits of liberalisation are evident with the ability to export into hitherto protected markets, libealisation also leads to domestic economies being open to competition and imports. This leads to the now famous "Winners and Losers" paradigm in trade - while trade does lead to many winners in terms of increased exports and cheaper products to consumers, it does also lead to loss of jobs, lower wages as well as disruption of local industries.

Simon Lester, while analysing the USITC's Report on the distributional impact of trade policy in the US focussed on the protectionism versus liberalisation debate. The post made me curious about the USITC report itself. Rather long, I stuck to the Executive Summary. However, for those interested in stakeholder views and academic discussion on how trade policy can impact local economies and what distributional impact it can have, this report is a good read.

During negotiations of trade agreements, there is often an analysis made on how much tariff reduction or opening up of service sectors to foreign competition will impact local jobs. Trade agreements also have fervent supporters in exporters who view market access to be a positive outcome. While the impact on the economy as a whole may be positive in terms of the terms of trade, it undoubtedly leads to local losers. While consumers may benefit from more choice and lower costs, loss of jobs to local manufacturing units may be more pronounced and electorally unpalatable. Many times the latter are a political constituency while consumers lack the political unity across the country to seek lower costs.

The report highlights, again, like the last post, the importance of looking at data, modelling and analysis. Can specific instances of opening up of the economy in certain sectors post a free trade agreement be analysed in terms of losers and winners? How has foreign competition impacted local businesses? Has local manufacturing in those products reduced? Have the businesses been more agile and shifted to different products? Have the employees moved to greener shores? Or has it impacted their wages and employment.

The Report is a great read to anyone interested in understanding trade policy from the wider purview of distributional impact. What was striking was the methodology used in terms of stakeholders, literature analysis and academic discussions.