What's behind the decrease in support for free trade?

In my ECONS102 class, we cover international trade and globalisation, but we don't really go into the globalisation debate any more (a consequence of squeezing more cool content into the paper, is that some things get squeezed out). However, we do still cover the arguments for and against free trade. And it would appear, based on recent experience, that the (increasingly populist) arguments against free trade are getting louder. A reasonable question then, is, what is behind the decrease in support for free trade?

In a new article published in the European Journal of Political Economy (ungated earlier version here), Philipp Harms (Johannes Gutenberg University Mainz) and Jakob Schwab (German Development Institute) try to answer that question. They use data from the International Social Survey Programme (ISSP) waves in 2003 and 2013, i.e. before and after the Global Financial Crisis. The data they use covers 21 countries, and includes over 37,000 observations. The key variable is based on the answer to the following question:

“How much do you agree or disagree with the following statement? ‘[My country] should limit the import of foreign products in order to protect its national economy.’”

Respondents were asked to answer on a scale from “Agree strongly” (=1) to “Disagree strongly” (=5). We capture this answer in the variable IMP_PHIL, which takes a value of 1 if a respondent disagrees or strongly disagrees with the statement (i.e. if he or she gives the answer 4 or 5). Over the entire sample, this applies to roughly 40% of the population.

So, given that 40% of people disagree or disagree strongly with that statement, there is substantial (but not majority) support for international trade in the sample. Harms and Schwab then use a regression model to find individual-level and country-level factors associated with support for international trade, and find that:

...a lower Age, higher education (Degree), a more successful career (WrkSup), as well as individual prosperity (RelIncome) induce respondents to support international trade, since all these features enable individuals to reap the benefits of globalization...

On top of these preconditions for economic success, a generally open attitude towards other countries (Cosmopol) is also positively correlated with the likelihood that an individual welcomes foreign goods imports... Moreover... in most economies, the average attitude towards international trade changed significantly between 2003 and 2013. More specifically, we observe that the average support for international trade decreased in twelve out of 21 countries, while it increased in six countries – interestingly, including the United Kingdom and the United States – and did not exhibit significant changes in three countries.

They then go on to tease out the factors associated with the change in support at the country level, and find that:

...a higher (lower) GDP growth rate significantly raised (reduced) support for international trade. The second variable we use to capture countries’ experience during the global financial crisis is the change in a country’s stock market index between its peak (usually June 2008) and its trough (usually March 2009). We expect larger collapses to drag down the support for trade, i.e. a positive sign of the variable StockMarket. The results... support this hypothesis. The third variable we used for Crisis-Experience... was the change in a country’s unemployment rate between 2008 and 2009... the coefficient of CrisisUnemp has the expected negative sign, but that the effect is not statistically significant. By contrast, the duration of the crisis (CrisisDuration) has a significantly negative effect... the change of a country’s Gini coefficient between 2003 and 2013 (ChangeGini, in percentage points) had a significantly negative effect on the support for international trade...

In other words, countries that generally had a worse experience of the Global Financial Crisis (lower GDP growth rate, larger falls in the stock market, and greater increases in inequality, but not changes in the unemployment rate) experienced greater reductions in support for international trade.

Finally, allowing the effects of various characteristics to change over time in their analysis, Harms and Schwab conclude that:

...our findings contradict the standard narrative that the increasing sentiment against international trade predominantly reflects the anger of those groups whose wages and jobs were negatively affected by international competition. By contrast, it is rather the eroding enthusiasm of the elites than the depression of the deprived, which contributed to the declining support for international trade: in 2013, youth, education and income were less likely to make individuals respond explicitly in favor of international trade than in 2003.

Those results are the most surprising aspect of the paper. As Harms and Schwab note, it contradicts the standard narrative.

It feels like there is more important work to be done in this space. Especially, I wouldn't be surprised if there was a common explanation for both the higher-inequality-lower-support relationship and the decline in elite support for trade. Hopefully, further research will help us understand this a bit more.