Monday, September 14, 2020

Sharing the Gains from Trade

When I teach about the gains from trade, one thing I try to stress is that trading partners don't take welfare from each other, but help each other create welfare that wouldn't otherwise be there. As much as we bemoan the loss of jobs to China since 1990, the overall effect to America has been positive. The problem has been that the gains have not accrued to those who lost their jobs, but to consumers as a group.

This paper estimates that the gains are about $400,000 per displaced worker. Median net compensation is $33,000. There is a lot of room there for negotiation. We could impose a tax to capture some of that $400,000 and replace lost wages, or retrain workers, or offer Universal Basic Income (UBI).

"But taxes create deadweight loss!" You know what creates MORE deadweight loss? The rising popularity of anti-trade policies.

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