Free trade lowers prices -- but not on things poor people need (and it pushes up housing prices)

Part of the economic argument for free trade deals is that they benefit workers by producing cheaper goods -- even if you lose your manufacturing job, you can buy stuff a lot cheaper with the next job you get.

Now, a study by economists from MIT, NBER, University of Zurich and UCSD shows that the benefits of low costs are unevenly distributed. Because free trade doesn't have much impact on food prices, people who spend most of their earnings on the food they need to live get a lot less benefit from free trade deals -- while those of us with disposable income to spend on gadgets and fashion and fancy housewares reap the low-price dividend in spades.


Meanwhile, there’s another way that the price changes from trade can hurt the working class. Trade pushes up the incomes of the wealthier classes, and the resulting demand will tend to raise the prices of things that can’t be traded overseas, such as housing. Working class and poor Americans pay a larger percentage of their income in rent. And rent has gone up and up.


The China Shock: Learning from Labor Market Adjustment to
Large Changes in Trade
[David H. Autor, David Dorn, and Gordon H. Hanson/MIT, NBER, University of Zurich, UCSD]

Free Trade's Unwilling Victims
[Noah Smith/Bloomberg]