Are trade wars class wars? The importance of trade-induced horizontal inequality

Kirill Borusyak and Xavier Jaravel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: What is the nature of the distributional effects of trade? This paper demonstrates conceptually and empirically the importance of “trade-induced horizontal inequality,” i.e. inequality that occurs among workers with the same level of earnings before the trade shock. This type of inequality does not affect the income distribution but generates winners and losers at all income levels. To quantify the horizontal inequality and changes in the income distribution induced by trade in a data-driven way, we develop a characterization of the welfare impacts, governed by simple and intuitive statistics of labor market and consumption exposure to trade. In the U.S., we find substantial heterogeneity in exposure and thus in the welfare effects of trade shocks across workers. Over 99% of the variance of welfare changes from trade shocks arises within income deciles. These findings run against a popular narrative that “trade wars are class wars.”

Keywords: trade liberalization; distributional effects; inequality (search for similar items in EconPapers)
JEL-codes: D63 F14 F16 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2024-07-01
New Economics Papers: this item is included in nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of International Economics, 1, July, 2024, 150. ISSN: 0022-1996

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Related works:
Journal Article: Are trade wars class wars? The importance of trade-induced horizontal inequality (2024)
Working Paper: Are trade wars class wars? The importance of trade-induced horizontal inequality (2023)
Working Paper: Are trade wars class wars? The importance of trade-induced horizontal inequality (2023)
Working Paper: Are trade wars class wars? The importance of trade-induced horizontal inequality (2022)
Working Paper: Are trade wars class wars? The importance of trade-induced horizontal inequality (2022)
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