Demonstrators gather in support of the European Union outside the Houses of Parliament in London, June 28, 2016.ANDREW TESTA/The New York Times
The voter anger behind Britain's rejection of the European Union presents a warning for policy-makers across the Atlantic Ocean: Address the downsides of globalization or else.
Some of the forces that helped propel the Brexit campaign – trade-induced job losses, stagnating wages, a vanished sense of prosperity and economic security – are also present in the United States. As voters in Britain proved, those conditions are a combustible mix that politicians ignore at their peril.
"Politicians are going to have to acknowledge that the economic changes produced by globalization are creating many losers as well as winners," said William Galston, a senior fellow at the Brookings Institution in Washington. "The losers are signalling that they're not going to stand by any more and let their jobs and communities go down the drain without a fight."
The turmoil emanating from Britain will add urgency to an effort to understand the impacts of global trade on American workers. Recent studies by several economists have shown that China's entry to the World Trade Organization in 2000 had a larger, longer and more concentrated effect on employment in certain parts of the United States than previously thought.
What's more, by playing down such adverse impacts and insisting on the broader benefits of trade overall, economists and policy-makers may have stoked voter fury and increased the appeal of radical solutions.
"Trade boosterism has actually in some ways been the enemy of … a mature conversation that recognizes these costs are real," said David Autor, an economist at the Massachusetts Institute of Technology at a panel in May. He argued that trade promoters have basically said, "Shut up, don't complain, everyone benefits."
Earlier this year, Prof. Autor and several other economists published research showing that import competition from China caused an overall loss of between 2 million and 2.4 million American jobs between 1999 and 2011. In hard-hit areas, unemployment increased, both in the manufacturing sector and beyond, while wages declined. The effects of the trade shock lasted at least a decade, the researchers estimated.
Economists have long contended that the country as a whole is better off when American companies have new markets for their products and U.S. consumers have access to cheaper goods. Nearly all – including Prof. Autor – still believe that is true, but there is also a growing sense that far too little attention was paid to people and places that absorbed the brunt of a historic trade shock.
Stephen Jen, a former economist for the International Monetary Fund who now runs his own investment firm, wrote in a note to clients earlier this week that in terms of its impact on the U.S. economy, China's entry to the WTO was like "NAFTA times 20." In that period, Mr. Jen said, "global trade accelerated too rapidly; outsourcing happened too rapidly; investment in China took place too rapidly."
Yet beyond a token federal program widely viewed as ineffective, U.S. policy-makers have done little to assist workers hurt by the increase in global trade. Into that breach have stepped politicians like Donald Trump, the presumptive Republican nominee. He has proposed a slate of extreme solutions: ripping up existing trade deals, slapping high tariffs on imported goods and punishing companies that move production overseas.
The ill-effects of trade are one of Mr. Trump's favourite topics and he returned to the theme in a major speech on Tuesday delivered at a factory in Pennsylvania. Globalization has benefited the financial elite "but it has left millions of our workers with nothing but poverty and heartache," Mr. Trump said.
Meanwhile, his opponent, Hillary Clinton, the presumptive Democratic nominee, has sought to portray Mr. Trump as a beneficiary of globalization who has little regard for American jobs. "Trump furniture is made in Turkey, instead of Cleveland. Trump barware is made in Slovenia, instead of Toledo," Ms. Clinton said on Monday in a speech in Ohio.
Experts say there are several policy prescriptions that could mitigate the impacts of trade, but they require political will to implement. For instance, Mr. Galston of the Brookings Institution advocates a form of wage insurance. Workers would pay into the scheme, which would be triggered if they lost their job and accepted a new position with a lower salary. The insurance would make up a portion of the difference for a period of time, cushioning the economic blow and encouraging people not to drop out of the labour force.
"We have not been very creative or very attentive or very persistent" in addressing the concerns of those impacted by trade, Mr. Galston said. "We have to do better."