International trade since the Washington Consensus: the gains and the pains

Controversy has always swirled around ‘trade liberalisation’ – and perhaps more so than for any other policy on Williamson’s original Washington Consensus list. Anti-globalisation protests in the 1990s and early 2000s sharpened scepticism of the idea that developing countries could reliably grow if they opened their markets to foreign imports. And two decades later, globalisation remains as divisive as ever. This chapter discusses accumulating evidence that liberalising a nation’s international trade gives rise to substantial aggregate gains and yet also substantial costs of adjustment and displacement. However, the trade-off involved is no different from any other policy change that strives to raise aggregate efficiency. While there are no easy options for policymakers who must balance the gains and pains from trade, lessons from recent research offer tentative recommendations for policymakers who are evaluating the prospects of trade liberalisation and seeking to resolve the tension between aggregate gains and concentrated losses.