Global trade has brought benefits from increased productivity to lower prices but governments have not adequately helped workers and communities hit hard by imports, the world’s top multilateral economic institutions said on Monday. In a report that serves as their answer to the Trump administration’s more protectionist trade stance, the International Monetary Fund, World Trade Organization and World Bank said that an open trading system based on well-enforced rules was critical to world prosperity.
The institutions, which have promoted free trade for decades, cited research showing that manufacturing regions that were more exposed to imports from China since about 2000 saw “significant and persistent losses in jobs and earnings, falling most heavily on low-skilled workers.”
It described what US President Donald Trump has called the “forgotten Americans” that he wants to serve with his “America First” trade policies.
“Workers displaced from manufacturing tend to be older, less educated and longer-tenured in the lost job than workers displaced from other sectors, and in turn tend to take longer to return to work,” the groups said in the report.
The report recommended more active government policies beyond traditional unemployment income benefits to retrain and redeploy workers idled by imports, including programs to encourage more worker mobility. These could include relocation allowances to help workers move to regions with better employment prospects and credit policies aimed at helping companies facing import competition to reorient their business models or invest in new technologies.
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But the report argued in favor of maintaining an open trading system that is bound by enforceable rules, saying that trade liberalization has boosted productivity and improved living standards.
The reports cited research showing that a one percentage point increase in trade openness raised productivity by 1.23 percent in the long run, and a Canadian study showed that a U.S. free trade deal in the 1980s increased Canadian labor productivity in the most impacted export-oriented industries by 14 percent and the most import-competing industries by 15 percent.
Economists generally view higher productivity as important to supporting wage growth and higher living standards in advanced economies.
The study also cited research showing that open trade is estimated to have reduced by two-thirds the price of a basket of goods consumed by a typical advanced economy low-income household.