TO HELP THE POOR, GLOBALIZE MORE.

In the last decade we’ve gone from the view that freer international trade is good for everyone (which few economists actually believed) to the view that freer trade has such harmful effects on so many people it really shouldn’t be any country’s default policy. The turning point, as with so many things, was the Crash of 2008, which in fact had little to do with trade, apart from stopping it nearly dead for about six months.

The common view now seems to be that we must be very careful about opening up our markets. Otherwise, the lower-income people hurt by such liberalization might rise up enraged and do something completely crazy like elect a Donald Trump (who, though reputedly a business person and accomplished deal-maker, acts as if trade and exchange are zero-sum).

In this dispiriting context it’s very refreshing to read a new working paper from the World Bank Group in which three economists argue, in effect, “To help the poor, globalize more.” In fact, only one of the three (Gaurav Nayyar) is from the World Bank while the two others (Adelina Mendoza and Roberta Piermartini) are from the World Trade Organization, which has an obvious interest in trade.

The paper shows yet another classic case of unintended consequences when it comes to trade protection. Countries want to protect their worst-off citizens, so when liberalizing trade, they go slow in industries where low-income people work. The researchers confirm this by looking at India. On average, people in the bottom tenth of the Indian workforce — who are very poor, consuming just US$9.60 per week — work in industries protected by tariffs averaging 35.6 per cent. As you move up the income distribution, the rate of protection falls. India’s top 10th, who average US$96.50 per week, receive tariff protection of only 11.6 per cent.

So far, so good: Protect the poorest. But what if all countries do that? The effect is to close off international trade in the goods poor people make and the effect of that is lower prices for those goods. Now, if you’d like your income to be higher, do you want world demand for the goods you produce to be higher or lower? No need to labour the obvious: You want the strongest possible demand for your goods. Unfortunately, all countries’ desire to protect their weakest citizens has the exact opposite effect. It reduces worldwide demand for these goods and that very likely makes the people who toil over them worse off compared to how they’d be under freer trade.

Bottom line? “To help the poor, globalize more.” That’s not actually from the paper. International civil servants aren’t supposed to traffic in rhyming slogans (even ones that barely rhyme). Rather, the paper’s title is in the form of a question: “Are the ‘Poor’ Getting Globalized?”, to which the authors’ answer is: No, not nearly enough.

The argument depends on a number of assumptions, key among which is that the poor produce essentially the same goods all around the world. If India’s poor people make shirts and shoes and Canada’s poor people milk and cheese (which they don’t), then you don’t get the cumulative effect of every country discouraging trade in the same goods, thus reducing the goods’ prices and hurting the people who produce them.

So to see if their idea holds water, the authors face the gigantic empirical task of showing that this pattern does hold. The data they gather for India, which include both the tariff rates and the number of non-tariff barriers other countries impose on Indian goods, do show that other countries’ protection does get steeper the lower down the Indian income ladder you go. Thus the average tariff faced in export markets by the poorest tenth of India’s workers is 24.4 per cent, while the average tariff faced at the top is just 14.5 per cent.

With protectionism growing in the U.S., some Canadian policy-makers favour trade diversification, including via a freer-trade deal with India. The Trudeau Progressives will want to make sure any such deal works for poorer Indians and Canadians. The World Bank study suggests the way to do that is for both countries to open their markets more, not less.

The study also looks at how protection affects women. Same result. In nine of 10 income brackets, all except the very highest, goods produced by Indian women face higher tariffs in export markets than goods produced by Indian men (and the top-bracket exception isn’t important since few women are in it). And the pattern is the same: Higher foreign tariffs for the poorest women, lower tariffs for the less poor.

Our earnestly, ostentatiously feminist federal government will want any trade deal with India to protect women. The World Bank study suggests tariffs designed to protect Canadian women will likely hurt Indian women. If this were the U.S., President Trump would say “We take care of our own.” What does Prime Minister Trudeau say?

ALL COUNTRIES’ DESIRE TO PROTECT THEIR WEAKEST CITIZENS HAS THE OPPOSITE EFFECT.