International trade often gets bad press, being perceived as leading to job losses. And this is not entirely unfounded: while greater trade openness generally benefits economies, jobs in certain sectors and regions can be lost because of greater foreign competition.

There is certainly a link between trade and jobs. Openness to trade can positively influence the pace of economic growth, fuelling improved productivity and increasing demand for skilled labour. Both exporters and importers tend to pay higher wages than other businesses.

While many millions of jobs depend on international trade, it also has implications for the structure of employment. It can accelerate the transition to a services-based economy in developed countries and contribute to the shift away from agriculture in developing countries.

Trade affects workers in different locations differently. Some industries, especially in manufacturing, may be concentrated in particular regions. Workers are not perfectly mobile and some may not be able to transition easily into other sectors. Increased import competition can cause significant local dislocation, even if the impact nationally is modest.

So, while the benefits of trade liberalisation – such as lower prices for goods and services, and a greater variety of available products – are shared by many, gains are unevenly distributed. And, in some cases, low-skilled manufacturing workers may be hit hardest by trade-induced change.

Such disparities can foster the politics of populism and protectionism with increased globalisation often seen as the key culprit.

However, technological change, not trade, has been the main cause of declining manufacturing employment in advanced economies. For example, in the US, import competition may explain up to a quarter of the recent decline in manufacturing jobs while other factors such as technological change accounts for more than two-thirds.

Further adjustment is likely on the horizon. While trade openness can increase demand for higher-skilled jobs, the next wave of globalisation may also lead to shifts in the structure of demand internationally. As more services become tradable, employers may take advantage of wage differentials and outsource specific tasks more often, without workers needing to move locations to provide the service.

In other cases, capital may be substituted for labour in production processes, such that wage differentials become less important for firm-level competitiveness. This could promote near-shoring in some advanced economies, with manufacturers relocating production closer to their consumers. Here too, technology is playing an important role. The OECD thinks about 14 per cent of existing jobs could disappear because of automation in the next 15 to 20 years with a further 32 per cent changing significantly.

Meanwhile, rising wages in China have motivated shifts of some production to competitive Asian markets such as Vietnam, Thailand and Bangladesh.

The shifts in trade patterns have not been accompanied by erosion in labour standards. Rather, since the 1990s, global labour standards have been strengthened via the International Labour Organization. World Trade Organization members have also engaged in numerous bilateral and regional trade pacts that help to reinforce these labour standards. Nearly a third of free-trade agreements now include labour provisions. Consumers are supporting this development as they take sustainability into account in their product choices.

So while some discontent over the impact of globalisation on jobs is not unfounded, the appropriate response, in our view, is not for society to constrain growth and put up undue barriers to trade.

Instead, the benefits from trade can help to improve the well-being of societies overall and provide resources useful in addressing societal needs. When it comes to trade and labour, it is a race to the top and not the bottom.

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