Throughout history, trade has played an essential role in the economy. In particular, free trade entails both benefits and costs. Many economists link evidence to the claim that trade significantly grows the economy; nonetheless the gains shared by citizens are not as diffusible as it would like to be seen. This poses a point of controversy to which the international system clashes over policy implications in regards to free trade. In essence, global integration can create both benefits and disadvantages; recently, however, it has come to our attention that international trade integration can impose harms that are distributed across the whole and generate significant “adjustment costs”, most notable with the the China Shock (Autor).
For a long time, economists have supported the notion that free trade has the ability to raise living conditions of a state. Nevertheless, these benefits are not diffusible to everyone and tend to be limited at the individual level. Certain benefits enjoyed by those who gain from trade include an overall rise in national GDP and increased economic opportunities. However, trade can be potentially harmful for others through the displacement of workers and “ … reshaping [of] skill demands… ” (Autor). Specifically, trade imposes both distributional and adjustment costs. Traditionally, economists believed that trade had benign impacts to which prices would be modestly affected and aggregate gains from trade would be typically positive. However, in light of new evidence, economists have completely overturned this thinking and now look to understand the evident distributional disadvantage trade imposes and devote themselves to “managing and mitigating the costs of trade adjustment” (Autor). Specifically, the rapid rise of China “ … has created identifiable losers in trade-impacted industries and the labor markets [they are in]” (Autor). Therefore, due to the China Shock, it is evident that the naive view economists traditionally held on international trade integration had to be reversed to the extent that trade may actually be more harmful than previous beliefs. Even though, trade is most definitely advantageous at the systemic level and possibly even state level, it nonetheless poses the ability to leave many individuals worse off.
Recently, it has become more and more evident that global integration can generate significant costs that creates many “losers” whom do not enjoy the gains from trade. Specifically, the China Shock has played a substantial role in this newly formed claim in regards to the impact it has generated on the rest of the world. In David Autor’s article, “Trade and Labor Markets: Lessons from China’s Rise”, he explains how global integration can actually pose harm to developed countries, and specifically their labor markets. The China Shock signifies the rapid rise of China’s market from the 1990’s onward to which it established itself as an economic powerhouse while reinventing trade as we know it. This rise led to many economists to discredit traditional theories held on trade such as the notion that trade adjustment impacts are not substantial enough to cause real harm. On the contrary, large trade shocks, such as the China Shock, can actually impose significant costs that can not only affect the home country, but everyone else in the world. For example, recent data published by the China Shock research team highlights the effects on the United States in regards to certain areas and industries that were most affected and exposed to this rapid rise. The website illustrates that numerous areas in the U.S. were significantly harmed by the trade shock of China due to “…those areas ha[ving] lots of jobs in industries where imports surged the most” (“The China Trade Shock”). Areas mostly on the East Coast where industries such as furniture and fixtures, and games, toys, and children’s vehicles were most impacted. As we can see, China’s rise had the ability to inflict substantial developed countries, such as the U.S.; it is made clear that trade shocks, like the China Shock, are able to create negative impacts everywhere, even the other side of the world.
In order to grapple with the binary nature of trade, economists and policy makers need to determine when and if trade is beneficial. Many have already began the work of determining the economic consequences developed by trade through “… assess[ing] who gains, who loses, by how much, and under what conditions” (“The China Trade Shock”). The current costs and benefits of trade are currently in the works by researchers in hopes that soon we will be better able to understand the true impact international trade integration has on society. Some benefits of global trade integration include lower consumer prices globally, increased productivity, and overall increased national welfare. On the contrary, many of these benefits are not distributed equally or diffused across the whole; particularly, at the individual level, trade is much more risky and can impose serious costs to those who are not able to enjoy the gains from trade.