Over the last 50 years or so, the concept of free trade has expanded around the globe, as economists (particularly U.S. economists) and policymakers have extolled its economic benefits. There is little doubt that free trade has lifted millions out of poverty around the globe and has made countries richer and more prosperous. However, it has also been extremely disruptive in wealthier countries (especially the U.S.) as the middle classes in those countries have seen their living standards stagnate, or only increase incrementally over the last 30-40 years or so.

The reason this has happened is not hard to guess. If a company or an industry or a country is suddenly exposed to competitive pressures that it was not exposed to before, then it must either A.) improve the quality of its product to justify its higher cost, or B.) lower the price of its product to meet the competition, or C.) go out of business. While industries and job opportunities have expanded in lesser developed countries as a result of free trade, the result has been the offshoring of U.S. jobs overseas.

But why was this allowed by our policymakers to happen? Some might argue that the captains of industry were able to “capture” politicians to push free trade agreements through that would improve the value of their stock price, but this doesn’t explain why professors, economists, and policymakers not obviously monetarily influenced by special interests would be proponents of free trade. The reason is, quite simply, that free trade does benefit the GDP numbers. Trade is not a zero-sum game, and both countries can be made ‘numerically’ better off with increased trade.

The problem is that the academic theories assume that the labor disruption from free trade will be minimal over the long term as workers move into new, more efficient, industries. The academic theories often assume no cultural clashes as workers move from one country into another, and are accused of “stealing” jobs from the local population. The academic theory doesn’t account for the fact that jobs today (in the U.S.) are highly complex requiring substantial training and experience. Whereas a middle class manufacturing job on an assembly line 2 generations ago only required a basic education and a strong back, the middle class jobs that replaced it require general computer knowledge (which most have), but also specific job knowledge that can often only be gained by experience, and company specific knowledge that often only be gained by experience within that specific company. In short, labor use is not as flexible as theories have assumed. A manufacturing worker 2 generations ago laid off at one company could either wait for the factory to re-open, in which case he would be rehired, or he could go to another manufacturing facility, many of the jobs of which would be similar to the one he just left. Over the last generation or so, so many manufacturing jobs were shipped overseas that there was nothing for the displaced worker to do but start over in another industry, usually for a much lower salary than what he was getting before.

It is hardly then surprising that there has been a nagging feeling for a long time, a feeling that has intensified over the last 8 to 10 years or so, that something in the U.S. has gone wrong. The trust in public institutions has deteriorated over the last 40 years, and part of it is that people feel that the institutions are only bringing value to the “insiders” and the “connected”, and not people “like them”. The feeling that government and institutions aren’t working for your benefit and don’t have your back inevitably leads to a sense of alienation, which can be seen in declining participation in the political process and of civic engagement. While certainly no trade (aka North Korea) leads to an impoverished population, too much free trade can lead to economic and social disruption as well. Policymakers should bear in mind that free trade is not ALWAYS a ‘good thing’ the next time they are considering signing a free trade agreement.