With nearly 95 percent of the world’s consumers living outside the United States, proponents of international trade agreements suggest that trade presents an opportunity for U.S. companies of all sizes to grow and expand. Critics worry that trade agreements will lead to increased economic inequality due to the lowering of domestic wages or jobs migrating overseas. So who’s right?

A new report by Progressive Economy Executive Director Edward Gresser finds that trade agreements can help to decrease economic inequality. Overall, the gains from trade would outweigh the risks.

Here is a summary of the report’s key findings: 

Ensuring a Level Playing Field

Today, imports and exports represent $1 in every $3 of U.S. GDP, and as technology makes shipping cheaper and more efficient, its impact will continue to grow. By playing an active role in international trade negotiations like the Trans-Pacific Partnership (TTP) and the Transatlantic Trade and Investment Partnership (T-TIP), the U.S. government has a greater influence on the trade standards adopted around the world. Participating in these agreements can increase the competitiveness of American goods on the international market by spurring adoption of fair labor and production standards in countries that trade with the United States.

When adopted internationally, these labor standards can help protect lower-income Americans and decrease economic inequality. Without U.S. participation, other nations alone will determine which standards become commonplace. 

Many Trade Barriers Hurt Low-Income Americans

International trade policy is especially influential on the lives of lower-income consumers. Tariffs for necessary consumer goods such as shoes, clothes, and blankets make up a greater proportion of the final price than those on higher-end counterparts. New trade agreements have the potential to correct this regressive taxation and increase the purchasing power of lower-income individuals.

Trade Can Increase Economic Growth

International trade helps to increase economic growth, which counteracts income inequality. The Progressive Economy report argues that though international trade is a secondary factor in affecting inequality, it does expand the pool of consumers to which businesses can export. Last year, every $1 billion of exports supported nearly 6,000 jobs. Increasing exports would lead U.S. businesses to expand and hire. Even if the income gap between the richest and the poorest is not directly decreased because of international trade, the overall standard of living for the least affluent is improved. 

Programs Help Protect and Retrain Workers Displaced by Trade

Given the increasingly interconnected nature of the global economy, the growth of international trade is inevitable. Understanding trade agreements may displace some workers, the federal government offers Trade Adjustment Assistance (TAA) to provide economic support and job retraining to individuals who lose their jobs as a result of international trade. This helps to minimize the potential negative side effects of international trade on American workers.

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Though on its own international trade is not a solution to economic inequality, it is one of many factors that can help boost workers’ economic livelihood by increasing national economic growth. Compared to the economic benefits of trade agreements, the risk of worsening inequality is small, and can be far reduced with effective trade policy.