We know three things about globalization. Lower transport and information costs and falling tariffs cause rapid increases in the movement of goods, services, capital and workers. These flows contribute to growth in global gross domestic product. Yet these developments are also one of the causes of increases in income inequality. The old free trade mantra claimed that this did not matter because all boats were lifted with the rising tide of globalization. But since 1973 the average hourly wage for 80 percent of American workers has risen by only a penny.
Since trade no longer works for everyone, it should not be surprising that the public is concerned. Some will argue that U.S. voters misunderstand the forces of technological change, which are a bigger driver of inequality than globalization. But detaching trade from technology is tricky. A recent study shows that the contribution of trade to inequality has probably risen over the last decade—amid the global flowering of information technology.
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