The U.S. Supreme Court ruling on the 20th of February to strike down sweeping emergency tariffs – only for new ones to be imposed by the White House within hours – is the latest episode in a year of sharply rising trade tensions that have fractured economic ties between longstanding partners within and outside the OECD.
A new TUAC policy paper published today argues that trade frictions and tariffs that have been causing economic uncertainty and leading the news for months are the long-term result of domestic policy choices: decades of capital markets opening, domestic wage suppression and labour market deregulation resulted in falling domestic wages and household consumption. With domestic demand faltering, countries pursued external competitiveness through a number of strategies to support business, but even successful export-led growth strategies run the risk of becoming unsustainable in the long-run, as they offload adjustment costs, in particular unemployment, onto their trade partners.
TUAC finds that as policymakers failed to protect workers and jobs, profits captured most of the benefits of trade and capital opening, and technological development. While trade openness across OECD countries nearly doubled – from 39% to 58% between 1995 and 2024 – the labour share of GDP fell in two-thirds of OECD economies between 1995 and 2022, as real wages failed to keep pace with productivity growth in roughly a quarter of OECD countries:
This system is the product of decades of deregulation, financial liberalisation, and policies that squeezed wages at home in the name of export competitiveness. You cannot fix global imbalances while tolerating unfair income distribution domestically. When workers' wages are suppressed, economies become dependent on exports and debt to grow. Fair wages and strong domestic demand are the foundation of balanced trade and financial stability, so as long as governments refuse to address inequality at home, they will not solve imbalances abroad.
TUAC urges governments to tackle domestic inequality and strengthen labour market institutions in order to achieve balanced economic growth and shared prosperity, both domestically and internationally. Making permanent contracts the norm, extending collective bargaining coverage, raising minimum wages, and reducing the excessive market power of employers, would lift household incomes and drive consumption in surplus economies. Trade unions also push for enforceable labour standards within trade agreements to prevent competitive wage-cutting and a slide in workers’ protections.
Without action on wages and inequality, no trade policy will deliver the stability that workers and economies need.
Read the full policy paper: Trade and labour: how repressive labour policies weigh on trade imbalances.
