How Does International Trade Affect Voter Behavior?

Voting behaviour depends on many factors: values, historical experiences, social environment, educational and cultural background and more. The current economic situation of a person is one of these determinants. Consequently, the negative employment and income effects in advanced economies resulting from trade with low-wage economies have an impact on citizens’ voting behavior.

Labour market effects of foreign trade

In another blog post I argued that trade with emerging countries can have negative effects on employment and wages in advanced economies. The argument runs as follows:

• If a country has a large stock of physical capital and only a small number of workers, the capital-to-labor ratio is high. Such a country is rich in capital or capital-abundant and poor in labor. Advanced economies such as the U.S. and Germany are characterized by this kind of endowment of factors of production.
• If the economy has a large number of workers but only a small stock of physical capital, the country is labor-abundant and capital-poor. Developing and emerging countries, such as China, are examples for labor-abundant economies.
• Due to its abundance of labor and the low wages, China has an international competitive advantage in manufacturing labor-intensive goods. This causes the demand for workers to rise. Due to the higher demand for workers, wages rise in China.
• The U.S. and Germany have a competitive advantage in manufacturing capital and technology intensive goods. By contrast, both countries reduce their production of labor-intensive products. Hence demand for labor decreases in the U.S. and Germany. The lower demand for workers causes wages to fall. Employment is reduced at the same time.

Hence, for advanced economies, foreign trade prompt a drop in employment and wages. This phenomenon has been fairly intensively researched and documented.

It is more than likely that these labour market effects associated with economic globalization will affect voting behaviour in advanced economies. Actually, there is growing empirical evidence for this relationship. Two reports will be discussed briefly below.

Germany: Globalization strengthens rightwing political parties

A study by Christian Dippel, Robert Gold and Stephan Heblich shows that globalization has a statistically significant influence on voter behaviour in Germany. The authors used German foreign trade with China and Eastern European countries as an indicator for globalization. They studied the influence of this trade on the voting behaviour of the entire political spectrum in Germany. The study covered the period from 1987 to 2009.

Analyzing the voting behavior in elections to the German ‘Bundestag’ at the level of counties (’Landkreise’), the only political spectrum with a significant response to imports from low-wage economies is the share of votes for rightwing parties. Rightwing parties in Germany during this period included the NPD (Nationaldemokratische Partei Deutschlands), Die Republikaner and the DVU (Deutsche Volksunion). When 408 German counties were analyzed, the following correlations could be observed:

• Those regions which were particularly seriously affected by import competition with China and/or Eastern Europe showed a significantly higher share of the vote for rightwing parties in the German Bundestag elections.
• To the extent that export opportunities improved in a region, the share of the vote for these parties declined.
• A glance at the individual data leads to the conclusion that it is low-qualified workers from manufacturing industries that are particularly affected by competition with Chinese and Eastern European competitors who are especially likely to support rightwing parties.

United Kingdom: Globalization strengthens Brexit supporters

Italo Colatone and Piero Stanig from Bocconi University have analyzed the influence of various factors on the Brexit Referendum in the United Kingdom (UK) (LINK: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2870313). Among other things, the analysis included trends for Chinese imports to the UK. More specifically, import flows from China in 167 regions between 1990 and 2007 were studied. Econometric calculations were used to examine whether increasing imports from China had a statistically significant impact on voter decisions:

• Those regions which were affected to a particularly great extent by Chinese imports systematically had a higher share of Brexit voters. This was particularly the case for regions which had a high proportion of manufacturing companies in the past.
• A region’s share of immigrants had no statistically significant influence on the voters’ decision of whether to vote for Brexit.
• The deciding factor for whether there tends to be greater support for Brexit depends not on the situation of the individual or their household, but rather on the economic situation of the region in which they live. Even if people are not actually personally affected by the negative effects of greater competition from Chinese imports, they are more likely to be anti-globalization and in favor of Brexit, because they are aware of the negative economic impact on their region.

Therefore, Colatone and Stanig state in summary: “Hence, we can claim that globalization of trade, as captured by our import shock measure, is causally driving support for Brexit. In addition, voters seem to react sociotropically to the globalization-induced shock” (page 37).

Personal conclusion

As a result, in my opinion, the interrelationship between globalization and voter behaviour can be summarized as follows:

• I believe the deciding factor for whether citizens in advanced economies are anti-globalization is the level of competition with emerging countries such as China and Eastern European countries. Such countries have a cost advantage in terms of industrially manufactured goods, due to low labor costs.
• That means that in manufacturing industries in advanced economies, there has been downward pressure on wages and a decline in employment. This causes dissatisfaction among those persons affected.
• At the same time, even among those individuals which are not yet affected by import-driven labor market effects, there is increasing uncertainty regarding their own economic situation in the future.

The wish to tackle the cause of this dissatisfaction and uncertainty subsequently leads dissatisfied and uncertain voters to turn towards anti-globalization parties.

Recommendation for further reading:

The content of this blog post is taken from my article “Economic Globalization Under Pressure – Why People in Industrial Nations Are Increasingly Critical of Globalization”, published in the Background Paper “A Closer Look at Globalization: The Positive Facts and the Dark Faces of a Complex Notion” for Salzburger Trilog 2017.