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While trade can increase national welfare, recent estimates from both developed and developing countries show that labor market adjustment costs matter. Regulating trade, defined as adding or removing tariffs and other trade barriers, is not the best way to help lower-income workers who suffer from trade-induced losses. Policies that reduce adjustment costs may increase aggregate welfare more than regulating trade flows does. Key findings Pros Trade increases national welfare by lowering prices for consumers, adding product variety, and contributing to economic growth. If part of a selective and proactive industrial policy, regulating international trade can help developing countries support exporting firms and workers. Reducing adjustment costs can increase the welfare gains from trade in both developed and developing countries. Cons Trade liberalization leads to reallocation of workers and resources across sectors and therefore imposes significant adjustment costs on workers. Even if trade liberalization increases national welfare, the costs can be highly concentrated geographically. Regulating international trade to recover lost jobs may not be effective because mobility costs are significant. Failure to address concentrated losses can undermine popular support for trade. Author's main message While trade increases national welfare, its liberalization can impose significant and concentrated costs on workers. These costs are often born disproportionately by certain segments of society, which has created a groundswell of anti-globalization in many countries, as evidenced by the UK’s exit from the EU (Brexit) and the US withdrawing from or renegotiating key free trade agreements. Reducing adjustment costs would be a more effective policy to boost employment than trying to restrict trade. In developing countries, however, carefully managed trade regulation can play a key role in supporting firms and workers in ways that contribute to economic growth. Download full article (PDF) This article first appeared on IZA World of Labor in June 2018. Reproduced with permission Tweet September 21, 2018 Print Article(s) by this author Effects of regulating international trade on firms and workersThe benefits of trade regulation increase when workers are mobile September 21, 2018［From IZA］ Articles Column Special Series Newspapers & Magazines Fellows' Works VoxEU Column From IZA Perspectives from Around the World Other Contents RIETI Report Policy Update Keizai Sangyo Journal Communications Newsletter RSS Feed Facebook X YouTube Research Areas Research Programs (FY2024-2028) Research Programs (FY2020-2023) Research Programs (FY2016-2019) Research Programs (FY2011-2015) Policy Research Domains (FY2006-2010) Projects Survey Fellows Research/Policy Papers Discussion Papers (English) Discussion Papers (Japanese) Policy Discussion Papers (English) Policy Discussion Papers (Japanese) Technical Papers (English) Technical Papers (Japanese) Non Technical Summaries List of Articles in Journals Research Digest Discussion Papers Search Publications RIETI Books (English) RIETI Books (Japanese) History of Japan's Trade and Industry Policy Authors' Words Other Publications (English) Other Publications (Japanese) Events Symposiums Workshops BBL Seminars Archived Seminar Series Data JIP Database R-JIP Database CIP Database Industry-Specific Nominal and Real Effective Exchange Rates AMU and AMU Deviation Indicators JSTAR RIETI-TID RIETI FDI Database ICPA Project Links Articles Column Special Series Newspapers & Magazines Fellows' Works VoxEU Column From IZA Perspectives from Around the World Other Contents RIETI Report Policy Update Keizai Sangyo Journal (METI Journal) About RIETI Privacy Policy Site Policy Site Map Help Contact METI Web Site Research Institute of Economy, Trade and Industry, IAA (JCN 6010005005426)JCN: Japan Corporate Number Opinions expressed or implied on this website are solely those of the author, and do not necessarily represent the views of the Research Institute of Economy, Trade and Industry (RIETI).Titles, numbers, specific names, etc. on this website are as of the date of publication. 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