But, for individual workers, the impact of rising commodity prices was larger in the US – not least because, in Europe, high sales taxes meant that even a doubling of crude oil prices produced only a modest increase in prices at the pump. Only oil producers, and a small number of workers in the sector, benefited from higher oil prices in the US.

Still, high-priced commodities – and, in particular, crude oil – created the illusion of wealth for the US, which, unlike European countries, did not feel the need to increase its manufacturing exports to balance its external accounts. So the US allowed its manufacturing sector to stagnate, as its external balance deteriorated. As a result, American workers got squeezed from two sides.

All of this happened at about the same time as the North American Free Trade Agreement was coming on stream. Though most studies show that net job losses due to NAFTA were limited, this timing created the strong impression that free-trade agreements – and globalization in general – was a raw deal for American workers.

When the global financial crisis erupted in 2008, destroying the value of houses that had kept those workers feeling wealthy, the true weight of the situation fell on US workers. This created an opening for demagogues like Republican presidential candidate Donald Trump to win support on promises of prosperity 


Having misunderstood the causes of the extraordinary growth in trade in recent decades, political elites over-sold globalization. When one considers the gulf between their promises – explicit and otherwise – and the actual experience of many workers, the current backlash against trade openness should be no surprise.

But there is good news: if the decline in the volume of trade is due to lower commodity prices, it will largely benefit advanced-country workers. Perhaps this will be enough to ease the demand for unnecessary new trade barriers.

Daniel Gros is director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic advisor to the European Commission, the European Parliament, and the French prime minister and finance minister. He is the editor of Economie Internationale and International Finance.

©Project Syndicate

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