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

Borusyak, Kirill and Jaravel, Xavier (2024) Are trade wars class wars? The importance of trade-induced horizontal inequality. Journal of International Economics. ISSN 1464-3758 (In Press)

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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.”

Item Type:	Article
Additional Information:	© 2024 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
Date Deposited:	11 Apr 2024 09:03
Last Modified:	25 Apr 2024 15:24
URI:	http://eprints.lse.ac.uk/id/eprint/122606

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