Policy Brief: The New Gains from Trade – a crash course for policymakers on 21st century trade research

The links between trade and productivity are stronger than earlier research indicated.

This brief introduces the latest generation of trade research. The purpose is to help policymakers formulate an evidence-based trade policy for the future.

Trade research conducted in the last 20 years has uncovered stronger links between trade and productivity than predicted by earlier trade theory. Consequently, the gains from trade are even greater than previously thought. These are important insights for key EU priorities related to competitiveness and inclusive economic prosperity.

Six overarching policy conclusions follow from our synthesis of 21st century trade research.

  • Trade reform designed to stimulate productivity is particularly important for the EU, which has seen a decline in productivity growth during the past 20 years.
  • Tariffs on intermediate goods are a burden on industrial competitiveness. There is no point in saving them as “chips” for future trade negotiations.
  • Imports have been neglected as an important source of industrial productivity. The emphasis in trade negotiations should therefore be on improved import- and export opportunities equally.
  • Trade policy must avoid disrupting gains from trade associated with technology diffusion.
  • Gains from trade are potentially available in sectors where countries do not perceive an initial comparative advantage.
  • Public policies continue to play a pivotal role by providing social safety nets and facilitating economic adjustment.