This paper assesses patterns and drivers of current trade restructuring and its welfare implications. The main trade restructuring drivers include lower cost advanced technologies, rising offshore labor costs, and recent shocks like COVID-19, trade disputes, and geopolitical tensions. Data on bilateral trade flows show that the United States and the European Union have reoriented their trade relationships. Between 2017 and 2023, for example, U.S. imports from countries like Mexico and Viet Nam grew significantly, whereas imports from China and Japan declined significantly. Market reallocation stems from tariffs, trade restrictions, and large-scale industrial policies. Countries with greater competitiveness, high logistics capabilities, and technological readiness are emerging as new production hubs. Additionally, restructuring is having significant welfare effects. Automation has increased reshoring and increased wage inequality between high- and low-skilled workers in offshoring countries, reduced export demand, and led to job and income losses in offshore countries. Furthermore, protectionist measures have, predictably, decreased welfare. U.S.-China trade tensions, for example, raised U.S. consumer costs, reduced product variety, generated small tariff revenue, and forced exporters to absorb most of the retaliatory tariffs. Looking ahead, more evidence is needed on the long-run effects from restructuring and its effects on welfare. Meanwhile, policy dialogue should focus on preventing trade fragmentation and mitigating adverse welfare effects.
Authors
- DOI
- https://dx.doi.org/10.1596/1813-9450-10955
- Disclosure Date
- 2024/10/23
- Disclosure Status
- Disclosed
- Doc Name
- Trade Restructuring : Assessing Labor Market and Welfare Effects
- Originating Unit
- Off of Sr VP Dev Econ/Chief Econ (DECVP)
- Pages
- 33
- Published in
- United States of America
- Series Name
- Policy Research working paper; PROSPERITY; COVID-19 (Coronavirus);
- Unit Owning
- Prosperity-Poverty and Equity-GE (EPVGE)
- Version Type
- Final
- Volume No
- 1
Table of Contents
- Abstract 3
- 1. Introduction 4
- 2. Data and Approach 6
- Data 6
- Approach 6
- 3. Results 7
- 3.1 Trade Restructuring 7
- Patterns of Trade Reorientation 7
- Drivers of Trade Reorientation 10
- Tariffs 10
- Labor Productivity 12
- Logistics Capacity 13
- Technological Readiness 15
- 3.2 Labor Market and Welfare Implications 18
- Employment and Wage Effects 18
- Welfare Effects 19
- 4. Conclusion 21
- Annex 25
- Import Shares, 2017-2023 25
- Labor Productivity 27
- Logistics Performance 30
- Technology Readiness 32
