The short answer is yes. The harder, unanswered question is: How, exactly?

A body of research including our own papers shows overwhelming evidence that, over the last 20 years or so, trade integration with low-wage manufacturing countries like China has had dramatic effects on the manufacturing landscape in rich countries like the United States and Germany.

It also appears this growing trade exposure is to blame, at least in part, for growing political polarization and increasing support for parties that advocate for populist and protectionist agendas. In our own work, we documented that in Germany during the last three decades, growing import competition from Eastern Europe and China has increased voting for extreme far-right parties, while export access to the same countries appears to have reduced it.

But that leaves a question. For all the research showing that trade shocks that have impacted regional manufacturing employment also had regional effects on political behavior, it is not yet clear what mechanism causes this link.

This represents a larger challenge for economic research. While applied economic research has made huge advances in estimating causal effects of variables of interest on outcomes (for example, the causal effects of import competition on either labor market outcomes or voting), causal mechanisms—the causal links among the different outcomes—are often still a “black box.”

Mexican farmers protesting the removal of import tariffs on U.S. and Canada agricultural goods—as agreed to under the North American Free Trade Agreement (NAFTA)—gather around a tractor set on fire by demonstrators during a protest in Mexico City, Jan. 31, 2008. Photo by Eduardo Verdugo/Associated Press.

One fundamental problem: We have far more potential outcomes that we would like to explain than we have natural experiments or variables that cause the outcomes. As a result, research often generates a large number of stand-alone causal effects on many outcomes with relatively little to say about possible causal links between these. To illustrate, the same types of regional trade shocks have been used to estimate the effect of import competition on manufacturing employment, social transfers, wages, legislators, voting, crime, marriage markets, and patenting. But we have not gotten a clear view of possible causal mechanisms, e.g. whether trade’s effect on one outcome might be explained by its effect on another.

In some contexts, our lack of a fuller explanation is not a huge problem. For example, import competition may increase crime and reduce patenting, but the additional crimes are probably not being committed by laid-off inventors, and crime is not preventing researchers from inventing. In other words, there is probably no causal mechanism linking these two outcomes.

But in other contexts, as with studying trade’s effect on labor markets and on voting, the lack of causal links between these two outcomes is a problem. If import competition has negative labor market consequences and makes voters turn to extreme or populist parties, then it is likely that there is a causal mechanism linking these two outcomes and it is important for policy-makers to know to what extent the populist backlash against globalization is explained by trade’s effect on labor markets.

The search for causal mechanisms is called causal mediation analysis. Existing methods falling under this umbrella allow for the identification of causal effects only under restrictive assumptions. The most important restriction is that the explanatory variable is assumed to vary exogenously—in plain English, this means that you are effectively assuming the conditions of a randomized control trial. A second important restriction is that existing frameworks do not allow the explanatory variable to have any unobserved effects that also affect the observed mechanism.

What does that mean? As an example, suppose we had a dataset of college seniors and in it we could observe, first, whether students attended a job interview training workshop; second, students’ dress code at a subsequent job fair; and, third, whether they secured a job offer. Suppose we wanted to ask to what extent the workshop helped with getting a job because it advised students to dress more professionally. To answer this question, existing causal mediation frameworks would have to assume that workshop attendance was totally random and additionally assume away any unobserved effect of the workshop—such as a more serious attitude by student job-seekers—that might influence students’ dress code and also directly affect their chances of securing a job through better interview skills.

Under those assumptions we could estimate what percentage of the training’s effect on securing a job was explained by dressing more professionally—but this estimate may be totally wrong because the statistical assumptions are.

For example, students most likely attend job interview training workshops deliberately and not randomly. The most common solution to this problem is to find some other source of exogenous variation that partly drives the variation one is really interested in. For example, perhaps the student union accidentally advertised the workshop in some dormitories and not others. This exogenous/accidental variation can serve as an instrumental variable for workshop participation. A large portion of all applied economics research in non-experimental data—including the entire agenda on regional trade shocks—relies on such instrumental variables.

We developed a method that allows us to statistically estimate causal mechanisms in data where a shock (e.g. trade exposure) is not random but where we have an instrumental variable for it. Importantly, our method allows for trade to have unobserved effects (perhaps anxiety about globalization) that in turn influence both labor market outcomes and voting.

As with any statistical framework, we do need to make some assumptions that will not always be appealing. Fortunately, in our research question—trade exposure’s effects on labor markets and voting—these statistical assumptions are very reasonable.

So we applied this method—identifying the assumption on causal relations and estimating instrumental variables—and reached a surprising finding. We found that 170 percent of the total effect of trade exposure on populist voting is explained by labor markets.

This is an important finding in the current policy debate. First, it implies that the negative labor market consequences of import competition from low-wage manufacturing countries have been even more consequential at the ballot booth than one might have thought. Second, it implies that trade integration can be a force for political moderation if we can cushion its negative labor market effects.

Why would trade exposure’s other effects on voting be politically moderating? We are not sure yet. But a plausible hypothesis is that with increasingly fractionalized global supply chains, trading increasingly means working in international teams to bring all the different intermediate products and production steps together into final products.

The post Are Trade Shocks to Blame for Our Extremist Politics? appeared first on Zócalo Public Square.

This is how societies have progressed over many centuries: from Silk Road traders traversing the Middle East to Asia, to explorers crisscrossing from the Old World to the New World, to the millions of students who flock to the United States to attend college and graduate schools. Free trade has freed us from the tyranny of our own narrow ideas and ways of living. The movement of peoples across national boundaries has transformed religion, technology, and political thought for many centuries.

Now, free trade and the free movement of people is under attack. In Trump’s America, coinciding with Brexit and perhaps with an impending “Frexit” from the European Union, many of us are wanting to crawl back into our shells, hoping the distance that we create, both economic and cultural, will protect us from the dislocation, and redistribution of wealth.

It will not.

Demonstrators, one dressed in a Theresa May puppet head, pose near parliament in London, March 13, 2017, to express their concern that the Prime Minister is whipping members of parliament to endorse a “blank cheque Brexit.” Photo by Kirsty Wigglesworth/Associated Press.

The forces of technology have always been powerful and are likely to become even more so in the future. Robots carry no passports and don’t need visas to invade our shores. Artificial Intelligence (AI) does not even need to travel by sea, air, or land. It will arrive on our computers, tablets, and smartphones while we are asleep.

So factory workers in Detroit or Ohio should no longer be worried about the threat of exported Chinese, Japanese or South Korean manufactured goods. The real threat comes from factories that will be largely run by robots, and the tsunami-like advance of AI.

Is it not our moral duty to protect those who are deeply hurt by free trade, immigration, and, now, by the ever-accelerating free movement of technology? Of course it is. But our focus should be on protecting workers, not old jobs or dying industries. The best way to protect workers is to make them ready for the new, ever-changing world we live in.

Endless cavalier talk about job retraining can sound patronizing. It isn’t easy to learn new trade or skills, especially as one gets older. But there are fresh ideas worth considering about how to protect people and help them to adapt, and at least a few of these are worth trying.

First, even if we cannot re-train ourselves so easily, we certainly can make sure that our children are equipped to navigate the new world with more agility and ability. This means making sure they receive a modern education. How do we make sure that education remains affordable and within reach for all, especially those being displaced?

Here’s one idea: When a worker is laid off, we should do more than simply protect her basic needs by providing unemployment insurance and other social security benefits. We should also offer her vouchers that allow her to send her children to school, college, or vocational training schools; the voucher could cover her own education if she is so inclined.

Second, we can make unemployed workers eligible for micro-finance loans that encourage them to start a small business of their own. Entrepreneurship is not a panacea, and is still riskier than having a stable job, but society can help shoulder the risk of failure with them.

Third, we must now embrace the idea of Universal Basic Income (UBI) to make sure that no one is hungry, without adequate healthcare or a roof over their heads. Such guarantees need not add to the taxpayers’ burden if we reallocate the existing transfers and subsidies that have favored the upper middle-class and the rich. We can begin by targeting agricultural subsidies and the tax-deductibility of corporate debt and mortgage interest.

Of course, entrenched interests will fiercely oppose such moves. But the Trump-led transformation into a protectionist and parochial society, if enacted, would be far worse. We can ignore a thousand years of history only at our own peril.

The post Want to Really Help Workers? Then Embrace Free Trade appeared first on Zócalo Public Square.

Or, as moderator Steven Greenhouse, a former labor reporter for The New York Times put it to a panel that included an economist, an entrepreneur, a labor law scholar, and a business development leader, “Why does globalization get such a bad rap?”

Jerry Nickelsburg, a senior economist with the UCLA Anderson Forecast, pointed out that the data measuring the effect of globalization “are actually really convoluted,” and that it’s difficult to separate the effect of globalization from advances in mechanization, changing tastes and the overall shift to the information age. We’re seeing much more inequality in terms of income and employment, he acknowledged, but much of that inequality is due to a range of factors, many of which go beyond globalization, such as the replacement of workers by robots.

Nonetheless, said Katherine Stone, an expert in labor law at UCLA School of Law, no matter how you measure it, it’s clear that in globalization, “there are winners and losers, and the losers haven’t been adequately compensated or supported.” That could change, she said, with a shift in social policies and economic programs “that might make them winners as well.”

For entrepreneur Kati Suominen, the solution can be found in the work of companies like her own Nextrade Group, which she founded to help governments and corporations optimize public policy and lending, to support trade and digitization. She argued that the digital economy, which enables anyone to open a virtual shop on eBay, for example, is the path to creating new and sustainable livelihoods for displaced workers, as well as opportunities for people new to the work force. “Do we want an America that protects workers whose jobs have been taken over by robots,” she asked, or an America that supports workers who use their ingenuity to get ahead in the new economy?

Yet, Greenhouse pointed out, in Germany, which is in theory a more globalized nation—with more of its Gross Domestic Product going to trade—globalization is not vilified as it is in America. He observed that “one reason is we do not as a nation do enough for the losers in globalization.” What prevents us from providing more support? he asked.

Part of the problem is America’s wrongheaded assumption that we’re “number one,” said Stephen Cheung, president of the World Trade Center Los Angeles. “Number one in what? Obesity?” Americans who insist on the nation’s primacy when our fate is so deeply intertwined with that of other nations, he said, are chasing a past that no longer exists. In the meantime, he said, we run the risk that “other countries will take off without us.”

Another issue, said Nickelsburg, is that “we treat all industrial workers who lost their jobs the same.” In fact, there is a great difference between a 30-year-old prepared to move into the new economy and other workers who “are like Tom Joad in The Grapes of Wrath,” Nickelsburg added.

The key to turning around perceptions about globalization is in tending to these displaced workers, said Stone. When workers’ well-paid union jobs vanish in places like Detroit and upstate New York, replaced by low-compensation service jobs, that’s not an acceptable outcome, she said. “There’s nothing in the nature of the universe that says being a home health aide has to be a bad job,” she said. The solution lies in changing labor laws to enhance unionization and workers’ collective bargaining power, and offering substantial retraining opportunities, “so when they get new jobs, the jobs are better than the jobs they lost, rather than a steady decline.”

Whoever the “winners” and “losers,” and whatever the path to a better future, the panelists agreed that America should not turn its back on globalization. “There is no case in the economic history of the world where protectionism has improved the lives of the country,” Nickelsburg said.

During the Q&A, one audience member asked whether globalization had negatively affected access to education, which spurred the panelists to remark on both the value of an educated workforce and to lament the lack of support for broad-based improvements in education.

“The critical issue for the 21st century is workforce development and education,” Nickelsburg said. With technology changing the world, lifelong education—keeping up with the changes in technology—is “the most critical issue for a globalized world.”

Yet, Greenhouse noted, “as inequality has increased, the people on top seem reluctant to fund better education.”

The post Globalization Doesn’t Have to Be a Winner-Take-All Deal appeared first on Zócalo Public Square.

The moderator, New York Times Phoenix bureau chief Fernanda Santos, took particular note of the reputational problems. And the three panelists—two from Arizona (Phoenix Mayor Greg Stanton and former Arizona-Mexico Commission executive director Margie A. Emmermann) and one from Mexico (Signum Research CEO and economist Héctor Romero)—took pains to dispel those reputations.

“When I was coming here, a friend of mine told me you shouldn’t go to Phoenix or Arizona because you may get arrested,” Romero said. “People in the U.S. sometimes believe they should not go to Mexico because they could get killed.” But Romero pointed out that he is always warmly welcomed in Phoenix, and that, despite issues with violence on the border in some states, Mexico is one of the most secure countries in Latin America.

Stanton, the Phoenix mayor, said several times that he had used the bully pulpit to distinguish himself from Arizona politicians whose actions and rhetoric have given the state an international reputation for being anti-immigrant, and anti-Mexican. He has made 12 trips to Mexico and opened a trade office in Mexico City to deepen economic, cultural, and educational partnerships between his city and “the growing economic giant that is Mexico.”

“If we don’t take advantage of that here, shame on us,” Stanton said of Mexico’s growing middle class. He noted that Arizona had lagged behind the rest of the country in exports, and he wanted to double exports from Phoenix to Mexico in the next five years. “We don’t have a choice,” the mayor said. “We have to build that stronger relationship.”

Indeed, all three panelists said that economic ties between Arizona and Mexico already run much deeper than is commonly understood. Emmermann, the former Arizona-Mexico Commission director, said that interests in trade, education, and energy were converging on both sides of the border.

Noting that people still associate Mexico with low-wage and low-skilled jobs, Emmermann, now vice president of Molera Alvarez LLC, said: “That’s the Mexico of the past … You’ll find we’re talking less and less about differences, and more about similarities.”

“Some of my best friends are gringos,” quipped Romero, in agreement. “We are very similar.”

Romero said that commerce between the countries was five times greater than 20 years ago, when the North American Free Trade Agreement went into effect. Still, he said, “the U.S. economy is much more important to Mexico than we are to the U.S.—but this importance is growing very, very fast.” He argued that, in the U.S. economic competition with China, “the U.S. should see Mexico as a partner. In fact, we already are a partner.”

Stanton spoke with some envy about how export-oriented the Mexican economy is, and suggested it was a model for Arizona. “We can learn a lot from Mexico,” he said, pointing to Mexico’s free trade agreements with 42 countries around the world.

The panelists all took note of energy reform in Mexico and a commitment to renewal of infrastructure, and all three said those changes provided significant openings for companies from Arizona (and around the U.S.) to do more business in Mexico.

Education is also an important area for improvement—both in terms of its quality in both places, and in the need for exchanges. “One area where Mexico and the U.S. have not done a good job is student exchanges,” said Stanton.

Added Romero: “Only 15,000 Mexican students are at U.S. universities, which is a very, very small number. It should be around 60,000 students, maybe around 100,000 students.”

During the question and answer session with the audience, the panelists cited Texas—which provides in-state tuition to Mexican students—as a leader in exchanges that Arizona should emulate.

And Stanton made a point of saying the Lone Star State is better integrated with Mexico in other ways. “Texas is way ahead of Arizona when it comes to trade relations” with Mexico, he said. “Texas is way ahead of Arizona when it comes to tourism”—attracting Mexican tourists.

The audience questions also covered tomatoes and agriculture in Mexico, and the potential of the Port of Guaymas in the state of Sonora, which borders Arizona. The panelists predicted that Guaymas could grow into Arizona’s seaport, given its proximity.

Emmermann also noted the strong business and investment ties between Arizona and Canada, and said that Phoenix needed to think of itself as a crucial North American city, linking the U.S., Canada, Mexico, and eventually Central America. “We need to think bigger,” she said. “We need to be a trading bloc, a large trading bloc.”

“Phoenix connects the Americas,” Stanton said.

The post Arizona Could Become the Gateway to the Americas appeared first on Zócalo Public Square.