GEP Research Paper 03/42
Trade Wars: The Exaggerated Impact of Trade in Economic Debate
Richard B. Freeman
This paper has subsequently been published in The World Economy, Vol.27, No.1 (2004).
Abstract
Trade has been at the heart of economic debates about globalisation in the past decade. Proponents of Washington Consensus (WC) style globalisation have touted the benefits of trade and open capital markets to developing countries and warned of the dangers of global labour standards. Opponents of WC style globalisation have worried that trade with developing countries lowers employment and wages in advanced countries and creates a race to the bottom in poor countries. This paper shows that both proponents and opponents of WC style globalisation have exaggerated the effects of trade and of trade treaties on economic outcomes. I argue that: 1) trade and widely debated trade treaties have had modest often indiscernible impacts on labour and other economic outcomes, and that in the US at least immigration has affected national factor proportions more than trade, 2) international capital flows have created as much harm as good in developing countries, and thus need to be more carefully regulated and monitored; 3) trade and labour standards are complements in the global economy, so that improvements in one create pressures for improvements in the other.
Issued in November 2003.
This paper is available in PDF format.