Where does today’s anti-trade sentiment come from? A new study finds that people are particularly sensitive to job losses and outsourcing due to international trade. Protectionist sentiments, the authors find, can be magnified given the right narrative frames.
In market economies, labor markets are continuously buffeted by a variety of shocks. As demand and supply conditions change, firms adjust by contracting or expanding production, and by moving from one location to another. In the process, workers are laid off and they have to seek employment in other locations or occupations.
By all estimates, international trade and offshoring account for a small proportion of such labor market dislocations. Technological change—automation—and domestic demand shifts are the prime culprits behind both cyclical labor market swings and long-term secular changes such as loss of manufacturing jobs (de-industrialization). Yet, political reaction to job losses tends to focus on international trade, and trade looms much larger in our political debates. We don’t see much political opposition to technology or to shifts in domestic demand patterns.
Where does the anti-trade sentiment come from? Is it that voters exaggerate the relative significance of trade shocks, relative to other labor-market disruptions? Are they more easily swayed by demagogues who target foreign nations? Alternatively, do voters view trade shocks as inherently different from other kind of shocks, deserving a stronger government response?
In a joint paper, we provide evidence in favor of the last hypothesis. People view trade shocks as being inherently different from other kinds of shocks. In other words, they care not only about job losses, but also about how those job losses come about. They are particularly sensitive to job losses due to international trade and, within trade, to international outsourcing to poor (as opposed to rich) countries.
Importantly, policy preferences are not fixed. They are malleable and easy to manipulate. Protectionist tendencies can be magnified through the provision of appropriate narrative frames.
Our evidence comes from the US where we implemented a large-scale online survey in which subjects were exposed to a piece of news formatted as a newspaper article on an impending garment plant closure. Subjects were divided randomly into six treatment groups corresponding to the six different scenarios described in the “news article”: (i) a drop in the demand for the good produced by the factory (“demand shock”); (ii) disruption in production due to new, labor-saving technology (“technology shock”); (iii) mistakes by management (“bad management”); (iv) international outsourcing to an advanced country; (v) international outsourcing to a developing country; and (vi) international outsourcing to a developing country with an emphasis on poor labor standards.
In addition to these six treatments, we had a control scenario where the news article discussed some changes in the factory without mentioning job losses. Our subjects were then asked about their support for various types of government action. They could choose to do nothing, provide government transfers to the displaced workers, or impose trade protection.
In general, people respond strongly to job losses. Exposure to our news stories about labor-market shocks resulted in a sharp increase in support for government action. The desired government response was heavily biased towards trade protection rather than financial assistance. There was a small increase in the demand for government transfers (of 10 percent or less), while demand for trade protection increased by a magnitude that ranged between 20 and 200 percent.
Even though non-trade shocks such as technology and demand shocks did increase the demand for protection, trade shocks elicited a much more protectionist response (see figure). Among trade shocks, our respondents exhibited greater sensitivity to trade with a developing nation than to trade with a developed nation. Simply changing the name of the country to which production is outsourced, from France to Cambodia, increased the demand for import protection by 6 percentage points (which was more than half the baseline level of demand for trade protection.)
Economists usually argue that the best way to respond to adverse labor market developments when we care about distributive outcomes is through transfers to workers rather than protectionism. Trade protection is a highly distortionary way of compensating the losers: it (over-)taxes a narrow range of commodities (imports) and encourages inefficient domestic production.
The baseline preferences of our sample (in the control group) were consistent with this. Unemployment compensation and training assistance are preferred to import protection by a very large margin. Yet our treatments produce a much greater boost in favor of protectionism than in desired transfers. We find that trade protection is nearly always the favored response to labor-market shocks, even when job losses are due to non-trade factors such as technology and demand shocks. Surprisingly, shocks unrelated to trade generated little change in demand for transfers.
An interesting exception is the case of job losses caused by management failures. In this case, it is the demand for compensatory transfers that went up without much of a rise in the demand for protection. Unlike transfers, trade protection helps employers as well as employees. Our respondents seemed unwilling to reward management through import protection when job losses were due to management failure—and hence the preference for direct transfers to labor in this scenario.
We also found interesting differences in responses across groups with different political ideologies. We grouped subjects according to whether they were pro-Clinton, Center (but leaning Clinton), Center (but leaning Trump), or pro-Trump during the 2016 presidential election. Predictably, Trump supporters were on average more protectionist than Clinton supporters, and they reacted much more strongly in favor of protectionism when primed with a trade shock. So respondents who were politically aligned with Trump exhibited much more elastic demand for trade protection than those aligned with Clinton. But the effect of priming for trade shocks on Clinton supporters was still sizable. We found that Clinton supporters primed with trade shocks were as protectionist as baseline Trump voters.
We observed another ideological difference in the case of our treatment that cited poor labor standards in the poor country. When we divided respondents into groups that reflect political orientation, we found that that mentioning labor abuses increased the demand for trade protection by “liberals” (Clinton voters) while decreasing it among Trump voters. (These differences were at best borderline statistically significant, however.) The effects in the opposite direction in these two subgroups canceled out in the aggregate.
Our findings attest to the power of even relatively simple vignettes to shape preferences over public policy. They are suggestive of the ease with which political campaigns can manipulate policy attitudes by supplying appropriate narrative frames.
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