While globalization has brought economic gains to people living in countries around the world, “these earnings are far from evenly distributed,” observes Dongho Song, associate professor at Johns Hopkins Carey Business School. Over the last two decades, declining economic well-being among people in some regions has been linked to a rise in populism, he notes, at a time when many nations have adopted more protectionist trade policies such as tariffs.
Just how do unequal gains from globalization translate into diminishing political support for openness in trade? That’s the central question that Song and colleagues set out to address in a recent working paper. For their study, they analyzed empirical voting outcomes, survey evidence, and lobbying expenditures and subsequently developed a theoretical model that closely parallels the political forces highlighted in their empirical analysis.
“Overall, we found that globalization delivers sizable aggregate gains, but when those gains are unevenly distributed; the resulting political equilibrium can shift toward protection.”
“Overall, we found that globalization delivers sizable aggregate gains, but when those gains are unevenly distributed, the resulting political equilibrium can shift toward protection,” says Song. “Accounting for this is essential for understanding the durability of open trade regimes.”
Opportunity… or threat?
In the first part of their study, Song and colleagues analyzed data on voting patterns and Gallup surveys to examine how rising imports from China shaped public attitudes and political activity in the United States from 1991 to 2019.
“We found that people in regions that are most exposed to import competition oppose globalization more strongly. While wealthier households tend to view trade as an opportunity, those in less-advantaged households tend to see it as a threat,” says Song, whose collaborators include Jesús Fernández-Villaverde, professor of economics at the University of Pennsylvania; and Tomohide Mineyama, a senior economist at the International Monetary Fund.
These attitudes are reflected in voting patterns and political behavior, the researchers found, writing, “Regions with lower wealth respond more strongly to rising Chinese imports by increasing campaign contributions to Republican candidates ….[contributing] more to political campaigns favoring trade protection.”
On the industry side, lobbying reinforces these electoral forces. Among industries most impacted by Chinese import shocks, lobbying sharply increased, particularly during trade tensions in 2018-2019, when U.S. lobbying expenditures on trade issues exceeded $3 billion annually. A key response to lobbying efforts, the team found, was the institution of tariffs.
“Taken together, the evidence indicates that rising Chinese import penetration shifted public sentiment away from openness and increased political activity aimed at influencing trade policy and sustaining protectionism,” says Song.
Shifts toward protectionism
Equipped with empirical evidence, the researchers next developed a quantitative theoretical model to validate their findings and to link the micro-level effects of globalization to macro-level political outcomes.
A central feature of the model: dual-layer income heterogeneity, which allows for households in the model to differ by industry and in financial wealth within an industry. The model also incorporates sectoral tariffs as a key policy variable and details how tariffs are determined through the interaction of voting and lobbying.
“What we find is that even within an industry sector there are uneven impacts and responses to globalization,” says Song. “And when a sector experiences large losses, it exerts political influence through lobbying.”
The result: Though open trade policies may generate gains overall, globalization’s unequal impacts shift voting and lobbying incentives toward protectionism.
To test their model, the team fed into it the U.S.-China data they had analyzed in the empirical portion of their study. “When calibrated to U.S.–China data, the model reproduces the observed decline in public support for globalization as trade exposure and wealth inequality rise,” the researchers found.
In providing a comprehensive explanation for the rise of protectionism over the last two decades, Song says his team’s model offers unique insights.
“Instead of assuming that shifts toward protectionist trade policies happen exogenously or are simply the result of changing political ideologies,” says Song, “we show that these shifts can arise endogenously from the economic effects of trade."
