The Unequal Effects of Free Trade

The palpable frenzy in mainstream economics set off by Donald Trump’s trade war has led many to fear it is only a matter of months before an indefinite, and possibly very long, period of stagflation begins. Although the effects thus far of Trump’s tariffs are surprisingly murky, Fed Chair Jerome Powell, major banks and bank CEOs, leading economists, and global analytics firms are in broad agreement there’s a strong chance prices will rise across numerous staples, durables, and inputs. If that comes to pass, the odds are equally strong that higher prices will entail (and be made worse by) slow to negligible growth; less supply-chain resilience due to new bottlenecks and slackening investment; and penny-pinching by low-margin but essential businesses such as grocery stores and small pharmacies. Eventually these trends could lead to reduced inventories and even shortages. The extended uncertainty would then further chill investment and business revenue, precipitating a potentially vicious cycle of layoffs.

Although nearly all facets of the economy are negatively impacted in such an environment, working-class families with growing children will disproportionately suffer from the get-go. This is because in an inflationary spiral their purchasing power is falling at the same time that their monthly needs and routine expenses stay fairly constant. The obligations their budget must satisfy are very unlikely to lessen without causing considerable pain and lost opportunities. Any proverbial belt-tightening is therefore bound to be about making do with less, rather than setting aside a portion of one’s income towards savings or a big-ticket purchase.

In other words, opponents of protectionism assert, the Trump tariffs promise to do the opposite of making blue-collar Americans prosperous again. One way or another, they will depress demand to the point of recession. The inverse assumption is that free trade, despite some residual challenges in the Rust Belt and small-town America, has been an overall success—and that any agenda to revise the global trade system is wrongheaded, if not downright miserly.

It is indeed a tenet of mainstream economics that liberalized trade and transnational economic integration are keys to fueling the wave of growth that “lifts all boats.” But the increase and persistence of steep economic inequality over the past few decades has been inextricable from the processes of globalization, raising the issue of who benefitted most and least from the pre-tariff status quo. Many studies paint a picture in which trade shocks, while regrettable, were comparatively minor in the aggregate when compared to the wide-ranging benefits of greater trade. Given the extended backlash to globalization, however, there are reasons to believe that the era of radically increased trade was not a boon to workers but primarily served what one scholar calls the “new aristocracy” of the top 9.9 percent. Addressing that backlash thus requires a more candid look at the broken promises and exaggerated successes of an epoch that is fast coming to an end.

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Ardent free-traders certainly sound as if they are looking out for the working class when they counter Trump’s case for high and broad tariffs. In the last thirty-five years, consumers have benefitted significantly from low-cost imports and the strong dollar, both of which partly offset the decline in wage growth that began in the 1970s. Liberal trade agreements have increased not just the volume but the range of goods available. In addition to greater convenience and access to more novel experiences, this range has enhanced consumers’ sense of agency. Even for those who receive social assistance or are on a fixed income, it purportedly furnishes more ways to make ends meet. All else being equal, more variety means more affirmative decision-making.

Conversely, barriers to trade are always seen as the quickest way to make workers poorer, since their choices are not merely limited but covertly conditioned by “rent-seeking” firms determined to curb competition from countries producing lower-cost goods.

This is a powerful narrative that chimes with one (though certainly not the only) definition of modern economic freedom. And it is complemented by optimistic theories of free trade’s agglomerative impact on development. Free trade is supposed to promote virtuous competition and economic diversification. It’s also supposed to encourage economies of scale, leading to efficiencies that boost growth while keeping prices for essentials and small luxuries low. In effect, it is a way to facilitate abundance for the masses while helping to restrain wage-push or demand-driven inflation.

But those efficiencies—while observable from China’s astonishing industrial capacity to Walmart’s logistics and advances in containerized shipping—coincided with “secular stagnation” and unmitigated trade shocks. Instead of capital formation and job growth in flagging industrial regions, there were plant closures and vacated downtowns. Big box stores and mega-mergers quickly monopolized the upsides of cheaper imports, displacing local businesses that laid-off and underemployed workers could no longer patronize.

A familiar pattern played out across the small cities and towns that had formed the backbone of American manufacturing. While the volume of trade may have been exponential—and huge discounts may have temporarily abounded—access to goods was increasingly concentrated in a handful of large wholesalers and retailers who were usually remote from cratering town centers. Paradoxically, the glut from overseas fueled scarcity and lowered expectations. Those industrial workers who hadn’t received pink slips may have been able to stretch their paychecks further for a few years, but they were looking over their shoulder at their less fortunate neighbors, hesitant to ask their employers for raises and benefits amid fears of more outsourcing.

Contrary to the notion that all boats would rise, a cruel irony played out. The workers who were supposed to benefit most from trade based on their propensity to spend more of their wages on household goods ended up subsidizing the consumption of those who were at a healthy remove from industrial decline. Booming suburbs near financial centers and new tech hubs reaped the benefits of cheap imports, while cities attracting college grads and affluent professionals were tipped for a new era that would dull recognition of industrial decline.

In “superstar cities” especially, global trade was the lubricant of newfangled “amenities” and another wave of conspicuous consumption. It helped fuel fast fashion and countless dining scenes while outfitting less-upwardly mobile transplants with relatively cheap, ready-to-assemble furniture (hello IKEA). Combined with successive waves of job-hungry migrants entering construction and the service sector, trade helped temper living costs in zip codes whose reputation for affordability would soon pass. Finally, the tendency of tech firms reliant on global value chains to cluster in metros that had successfully transitioned to the “knowledge economy” boosted perceptions in nearby upscale suburbs that urban renewal wouldn’t have been possible without globalization.

In short, global trade was the unspoken engine of urban dynamism, the upper-middle-class its not-so-secret beneficiary after multinationals and business consultancies. That’s not to say there wasn’t some localist pushback in thriving metros that dovetailed with concerns about rapid gentrification and social displacement. Pressured by community groups and small business associations keen to preserve neighborhood culture and character, some cities took steps to shield local merchants from the encroachment of big box stores and the homogeneity they represented.

But this didn’t stop millions of city dwellers from turning to Amazon for all kinds of routine needs and away from the local hardware store, corner market, and mom-and-pop retailer. Lifestyle and delivery apps frequently supplemented (or curated) the rest, the product of Big Tech’s push to customize convenience. Of course, not every urban resident could indulge such whims. For the working poor who couldn’t keep up with monthly subscriptions and platform fees, immigrant-run dollar stores overflowing with merchandise of questionable origin and knock-offs substituted for the retail conglomerates that dominated elsewhere.

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The high tide of globalization was thus very much marked by a sharp, class-based juxtaposition between winners and losers. But these two categories, accentuated by divergent regional fortunes, also had gradations that couldn’t be reduced along overly simplified lines. Across the board, multinationals and their CEOs made out handsomely, whereas smaller manufacturers and mom-and-pops often struggled to adapt. Sometimes, however, the latter fared well, owing to municipal development strategies that tried to balance community interests with attracting marquee firms and new investment. Entrepreneurial immigrants, for their part, undoubtedly benefited from the lower overhead costs that free trade and liberal migration policies typically brought. Still, like all small businesses, their success hinged on attracting customers who had enough money to spend on nonessential services.

The experience of the working class also varied by sector and region. Port and warehouse workers along the Eastern and Pacific seaboards, for instance, often differed with their blue-collar counterparts in the heartland due to the robust demand and ample contracts that came with increased trade. The distribution of trade shocks also changed attitudes the further the effects moved up the value chain. Famously, autoworkers used to support liberalized trade based on postwar demand for American exports. Now their union leadership has embraced some degree of protectionism, though (nonunion) autoworkers in the South are more ambivalent, since their livelihoods have largely depended on European, Japanese, and Korean companies.

By contrast, in big coastal cities where high-end dining and similar services have flourished, calls for trade protection tend to fall flat among workers whose cosmopolitan worldview is similar to their clientele’s. This suggests that while the outlook on trade is downstream from how well a region has adapted to the knowledge economy, it can also denote a larger worldview and set of political values.

Of course, attitudes toward trade can be more complex than that, especially if we consider the ways in which urban workers navigate the material advantages and constraints of cities now dogged by an affordability crisis. Particularly in the Northeast, areas that once sought protectionist legislation in the 1960s and 1970s but subsequently attracted or incubated new industries ended up embracing globalization and the amenities that followed. In many of those same districts, rent-burdened younger Americans, though often attracted to the principles of fair and sustainable trade as well as local artisanship, now rely on Amazon, Target, Shein, and Temu to make the most of their shrinking disposable income. One could argue that opposition to tariffs in their case isn’t so much about strong enthusiasm for free trade but reflects, rather, a sense that it is already too hard to maintain a decent standard of living and that tariffs will simply make things worse.

The tilt of the suburbs on trade issues is open to interpretation as well, albeit in a somewhat different way. In the 1990s and 2000s, malls and fancy shopping centers stocked overwhelmingly with foreign-made goods were the seeming apex of the consumer experience. That moment has since passed. With the gradual “suburbanization” of poverty and intermittent signs of flatlining job creation, many suburbanites are starting to experience the economic anxiety that has long afflicted aging factory towns. Where they land on protectionist measures today, therefore, may not reflect the heady optimism about globalization that characterized suburbia at the turn of the century.

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Faced with Trump’s penchant for aggressive protectionism, it is tempting to fall into one of two camps and deflect from any discussion about the complexities of trade policy and globalization. Supporters of the tariff strategy are convinced this is America’s last chance to spark an industrial revival that restores high-wage jobs, while those who see free trade and global openness as fundamental to America’s strength believe there are other remedies to pockets of despair. But there are clear limits to each worldview. Inflected with MAGA’s “burn-it-all-down” mentality, the former seem determined to disregard warnings from experts about the consequences of the trade war. The latter, meanwhile, are often too wedded to said expertise, betraying the sense that, in downplaying the social costs of free trade, they have limited their imagination for how to meet these mounting challenges.

Progressives who grasp the economics of Trump’s base must nevertheless chart a path that is serious about the magnitude of the crisis haunting the left behind. Regardless of how far “de-globalization” proceeds—and whether “stagflation” envelops the country as a result of Trump’s heavy-handed policies—there is no going back to a trade system that proved politically unsustainable. Amid unprecedented choice, too many Americans feel worn down—and worse, that their individual potential has gone unfulfilled. If progressives are to succeed, they will have to propound a vision of economic well-being that reconciles the country’s different regions and that restores among workers a deeper sense of agency, possibility, and life purpose.