The increasing polarisation of politics in the US in particular has spurred scholarly research on the potential links to increasing globalisation. This column focuses instead on Germany to investigate whether the rise of right-wing populism is associated with increased international trade. Regions most threatened by exposure to imports saw increases in support for far-right parties, while regions that benefited from export opportunities saw decreases. To counter this globalisation backlash, policy should aim to cushion the effects of trade exposure on the losers from globalisation.
Both economic theory and empirical research largely agree that international economic integration has positive aggregate welfare effects. Still, globalisation creates distributional frictions between winners and losers. Economic research so far has concentrated on labour market effects of increasing international trade (Autor et al. 2013, Dauth et al. 2014, Pierce and Schott 2016). While this research confirms that exposure to trade with low-wage countries causes labour market turmoil in high-wage countries, it also shows that positive labour market effects of trade outweigh the negative ones. However, the political consequences of this development have been widely disregarded in economic research.
Watch Robert Gold discuss whether globalisation fuels fringe politics in the video below
Only recently have scholarly papers started investigating the political effects of increasing international trade, fuelled by the rise of right-wing populism throughout Europe and by the increasing polarisation of US politics. Most of this research is centred on the US and investigates elected representatives’ reactions to the electorate’s growing opposition to globalisation (Feigenbaum and Hall 2015, Jensen et al. 2016, Che et al. 2016, Autor et al. 2016). The findings suggest that politicians adjust their stances in favour of less liberal policies in general, and more protectionist policies in particular. In a recent paper, we use German data to address the question of who captures the anti-globalisation vote (Dippel et al. 2015). This allows us to also shed light on reasons for voters’ increasing demand for populist policies.
Measuring trade effects on voting behaviour
We focus on the effects of Germany’s increasing trade with China and Eastern Europe. Trade with these countries rose unexpectedly due to two historic events: the fall of the Iron Curtain opened up the Eastern European markets, and China’s accession to the WTO made the country a global player. Thus, as can be seen from Figure 1, trade with China and Eastern Europe tripled over the first period of our analysis from 1987-1998, and tripled again over the second period from 1998-2009. Restricting the analysis to trade with Eastern Europe and China has two advantages. First, it helps to isolate the effect of trade on voting behaviour, independent of economic developments that took place simultaneously. If one would otherwise look at Germany’s increasing trade with France or the UK, for example, one would inevitably capture effects of European integration unrelated to trade, leading to biased results. Second, our focus allows comparison with research on the labour market effects of international trade (Autor et al. 2013, Dauth et al. 2014), which we consider relevant for explaining trade effects on voting behaviour.
Figure 1. German trade with Eastern Europe and China
Notes: Aggregate trade flows between Germany and China plus Eastern Europe based on UN Comtrade Data. Values in constant 2005 euros.
From the literature cited above, we know that local labour markets in high-wage countries are differentially affected by trade with low-wage countries. Some regions benefit from globalisation, while others lose. We expect those differential labour market effects to translate into differential trade effects on voting behaviour. Thus, we calculate a measure of regional trade exposure based on the German local labour markets’ start-of-period industry structure. If in 1987 a region was specialised in manufacturing industries that suddenly had to compete with producers in Eastern Europe and China, this region faces an increase in import-exposure, putting pressure on the local labour markets. In contrast, if a region was specialised in industries that could suddenly sell their products to new markets, this region faces an increase in export exposure, allowing jobs to grow. Netting out the effects of import exposure and export exposure gives us a measure of local labour markets’ overall exposure to international trade, as depicted in Figure 2 for our two periods of analysis.
Figure 2. Regional exposure to trade with Eastern Europe and China
Notes: Net value of trade exposure by period. Darker colours indicate higher levels of exposure.
Who captures the anti-globalisation vote?
We assess the effects of trade exposure on the outcomes of national elections in 408 German districts representing local labour markets. Looking at the whole political party spectrum, from the left-fringe to the far-right, we find clear results. Only the electoral support of far-right parties significantly responds to international trade. Increasing trade exposure leads to an increase in far-right parties’ vote share in national elections. As we argue in our paper, this indicates the German far-right parties’ success in capturing the anti-globalisation vote by offering a nationalist alternative to what they refer to as “nation-state-less predator capitalism” led by the “global dictatorship of big money” (Stoess 2010: 40-42).
Why does voting behaviour change in reaction to trade?
To verify that voters change their voting behaviour in reaction to trade, we look at individual party support as it is reported in the German Socio-Economic Panel. We find our regional-level results confirmed. Individuals affected by trade turn to supporting far-right parties, while other parties’ support is not affected. Moreover, the individual data reveal precisely who changes their voting behaviour in reaction to increasing trade exposure. It turns out that the positive effect of trade exposure on far-right voting is centred on a specific group of individuals — low-skilled manufacturing workers. This is exactly the group of individuals that, according to the prior literature, has faced the most adverse labour market effects from international trade. Thus, finally, we probe to what extend the trade effect on voting can be explained by labour market adjustments. We find that labour market turmoil caused by international trade is the major channel for translating trade exposure into increasing support for fringe parties.
From theory and prior research, we would expect trade to have a twofold effect on local labour markets. Increasing imports from low wage countries should negatively affect local labour markets, as manufacturing jobs in high wage countries get substituted. Conversely, increasing exports require factor-inputs and should have stimulating effects. We find exactly this in our data — regions exposed to high levels of imports face job losses and see an increase in the vote share for far-right parties. By contrast, regions benefiting from better export opportunities gain jobs and see a decrease in the vote share for far-right parties. A formal causal mediation analysis reveals that about two thirds of the overall trade effect on voting can be explained by labour market adjustments. And once again, this is confirmed on the individual level — workers affected by import competition turn to supporting the political far-right, while workers benefiting from export access abstain from doing so. Consequently, international trade integration has both a radicalising and a moderating effect, depending on its underlying labour market impacts.
Are there any policy implications?
Our research shows that globalisation has fuelled its own opposition. Workers who lose from trade integration express their dissent at the ballot box by voting for right-fringe parties – that is, parties that offer a nationalist alternative to ever-increasing globalisation. Even if fringe parties are unlikely to come into power, more moderate parties might strategically react to the anti-globalisation vote (Feigenbaum and Hall 2015, Jensen et al. 2016, Che et al. 2016, Autor et al. 2016). Policymakers might be less willing to further international economic integration if they expect the electorate to be increasingly opposed. This would imply welfare losses. To counter this development, policy must help those who lose from globalisation to cushion the effects of trade exposure. The positive effects of export access provide scope for such policies.
Autor, D, D Dorn and G Hanson (2013) “The China syndrome: Local labor market effects of import competition in the United States”, American Economic Review, 103(6): 2121–68.
Autor, D, D Dorn, G Hanson and K Majlesi (2016) “Importing political polarization? The electoral consequences of rising trade exposure”, NBER, Working Paper 22637.
Che, Y, Y Lu, J R Pierce, P K Schott and Z Tao (2016) “Does trade liberalization with China influence US elections?”, NBER, Working Paper 22178.
Dauth, W, S Findeisen and J Suedekum (2014) “The rise of the East and the Far East: German labor markets and trade integration”, Journal of European Economic Association, 12(6): 1643–1675.
Dippel, C, R Gold and S Heblich (2015) “Globalization and its (dis-)content: Trade shocks and voting behaviour”, NBER, Working Paper 21812.
Feigenbaum, J J and A B Hall (2015) “How legislators respond to localized economic shocks: Evidence from Chinese import competition”, Journal of Politics, 77(4): 1012–30.
Jensen, J B, D P Quinn and S Weymouth (2016) “Winners and losers in international trade: The effects on US presidential voting”, NBER, Working Paper 21899.
Pierce, J R and P K Schott (2016) “The surprisingly swift decline of US manufacturing employment”, American Economic Review, 106(7): 1632–62.
Stoess, R (2010) “Rechtsextremismus im wandel”, Technical report, Friedrich Ebert Stiftung.