DP17301 Understanding of Trade

Author(s): Stefanie Stantcheva
Publication Date: May 2022
Keyword(s): Experiment, Perceptions, protectionism, Surveys, Trade, trade policy
JEL(s): D72, D91, F1, F13
Programme Areas: International Trade and Regional Economics, International Macroeconomics and Finance, Political Economy
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17301

I study how people understand and reason about trade and which factors shape their views on trade policy. I design and run large-scale surveys and experiments in the U.S. to elicit respondents' knowledge and understanding of trade. I also ask about their perceived economic gains and distributional impacts from trade and their views on trade restrictions and compensatory redistribution for those hurt by trade. People's understanding of the price, wage, and welfare effects of trade is mixed. In general, respondents are optimistic about the efficiency gains from trade, but also understand that there may be adverse distributional consequences from it. Respondents' own exposure to trade through their sector, occupation, skill, and local labor market shapes their perceptions of the impacts of trade on themselves, others, and on the broader U.S. economy. I also find patterns consistent with the idea of "diffuse gains and concentrated losses": respondents' perceived benefits as consumers are nonsalient and unclear to them, while those in at-risk jobs starkly perceive the threats from trade. Beyond material self-interest, people have broader social and economic concerns that strongly influence their views on trade policy. The belief that is most predictive of support for open trade is that trade generates efficiency gains. Furthermore, people who believe that those hurt by trade can be helped using other tools (compensatory redistribution) do not oppose free trade, even if they think that it will entail adverse distributional consequences. The results highlight the importance of compensatory redistribution as an indissociable part of trade policy in people's minds.