Lothar Ehring

[Warning: this may offend some people!] I think economists have done society a disservice by elevating applied-micro studies that focus exclusively on the relative effects of trade across different groups of workers but are silent about the aggregate effects. Differences-in-differences is a useful hammer, but not everything's a nail. The paper Arpit cites says that regions that were exposed to NAFTA had worse labor-market outcomes than less-exposed regions. This doesn't mean that NAFTA was bad for US workers! A story that is entirely consistent with their results is that NAFTA increased US manufacturing employment overall, just less so in more-exposed areas. Autor et al's "China Shock" narrative is the best example. It has colored the debate on trade to such an extent that many economists (not to mention the vast majority of Americans) are convinced that trade with China was a net negative for US workers. But all it says is that regions that were more exposed to Chinese import competition had worse labor-market outcomes than less-exposed regions. It doesn't say anything about the aggregate effects! An important paper by Wang et al. (nber.org/papers/w24886) shows that after accounting for the supply-chain effects of Chinese imports, overall employment and wages actually increased. What's even more striking is that they find positive labor-market outcomes overall even in regions that experienced large manufacturing employment declines via the Autor et al. channel. I think we also do society a disservice by putting so much focus on labor-market effects. Especially in the case of China, the biggest effects come from lower prices (i.e. higher real wages). Here, there are no tensions between aggregate and distributional effects. Everyone gained, but lower-income households gained the most! For example, this paper by an old friend of mine (ericksager.com/uploads/3/8/0…) finds a "large fall in domestic prices" and that "[p]roduct categories catering to low-income consumers experienced larger price declines." And this paper by Mike Waugh (waugheconomics.com/uploads/2…) which develops a cool model where trade interacts with heterogeneity in the price elasticity of demand across the income distribution. He finds that "gains from trade are pro-poor and that the average gains from trade [is] substantially larger than representative agent benchmarks." Don't get me wrong: trade isn't a pareto improvement, and the tradeoff between widely-dispersed aggregate gains and concentrated losses is real. But somehow I think society is interpreting many of our findings as saying that trade is a net negative, not a net positive, and that's not good.