From Neil Irwin’s article, “Two Words That Could Shape the Politics of the Trade War: Loss Aversion — The pain of a loss tends to be greater than the enjoyment of a win. That has big implications for trade, and also helps explain the politics of health care and taxes” at The Upshot:
Even some workers directly helped by globalization have focused on loss. Consider, for example, a worker in a B.M.W. factory in South Carolina who told The Wall Street Journal in 2016 that she was skeptical of international trade because her uncles had lost their jobs at a cotton mill 30 years earlier.
Now, with his willingness to upend trade relationships that have been decades in the making, Mr. Trump faces the risk that he has spun things around. Suddenly, loss aversion may work in a pro-trade direction.
In a trade war, it is the companies, and workers, that benefit the most from globalization that find their incomes at risk. As China, Canada and the European Union retaliate against American tariffs, the winners from trade are the ones at risk of becoming the losers.
The ‘loss aversion’ takeaway effect apparently overshadows benefits of a given policy. As Irwin notes,
If loss aversion holds, the winners of a trade war — domestic producers of steel and aluminum, for example — could turn out to be as complacent about those gains as globalization’s winners have been for decades.
“The evidence says that a loss hurts about twice as much as a gain of the same size, so there is a large asymmetry,” said Patricia Tovar Rodriguez, author of the 2009 paper on loss aversion and trade and now a professor at Pontifical Catholic University of Peru. “Losers may therefore have a much larger incentive to lobby, and to lobby harder, for the removal of those trade barriers.”
And it applies to all kinds of policies, not just trade:
President Obama’s health care law experienced miserable polling numbers in the initial years after its 2010 passage, with more people disapproving of the Affordable Care Act than approving of it, according to the Kaiser Health Tracking Poll. But those lines crossed in late 2016 as Republicans gained more power to repeal the law, and now the A.C.A. is favored by a six-percentage-point margin.
There are many ways to interpret that, but one of them is through the prism of loss avoidance. Perhaps in the rollout of Obamacare, the people who had something to lose — either through higher taxes or the risk of losing a health plan they were happy with — were most engaged.
Then, once the law was fully enacted and there was a president seeking to undermine it, the politics of loss aversion shifted, with people who had gained insurance more likely to be energized. That certainly lines up with the ferocity of the protests against legislative efforts to repeal the A.C.A. in early 2017 — and with the comparison to the energy of anti-Obamacare forces in earlier years.
Ditto, even, for tax policy, argues Irwin, noting the failure of the GOP to get much of a bump from their loudly-trumpeted tax cut, which provided very little for anyone but the wealthy. “The logic of loss aversion would imply that those who are paying more in tax — largely people in high-tax jurisdictions losing out on some deductions they previously enjoyed — might have stronger (negative) opinions about the legislation than the many who benefit.”
Democratic candidates generally do a good job of noting the take-aways of Republican policies. But Irwin’s article and the findings he cites indicate that an even sharper focus on the losses incurred by the middle class as a result of Republican trade policies and undermining the Affordable Care Act could win additional votes for Democratic candidates. Perhaps characterizing the relentless GOP push for deregulation as taking away health and safety protections for American families and children could help Democrats take away some Republican seats in the House, Senate and state legislatures.