The dramatic rise in import competition from developing countries has given new urgency to explain political responses in the United States and other advanced economies. While recent scholarship has demonstrated multiple effects of trade shocks, far less attention has been paid to unbundling the mechanisms through which import competition affects political responses on compensatory and trade policies. In this paper, we assess the possibility that an important part of the political effect works through local economic institutions – labor unions – that shape the relative strength of workers in the policymaking process. We study the US House of Representatives to untangle this institutional channel from other channels.

In our empirical analysis we leverage two distinct sources of exogenous variation: an instrument for import competition drawn from the literature and a novel instrument for district-level union membership based on history and geography. We use them in a new semi-parametric approach to disentangle causal mechanisms. We find that (i) import competition lowers district-level unionization, (ii) weaker unions lead to less legislative support for compensating economic losers as well as less opposition to trade deregulation, and (iii) the union channel represents a large fraction of the overall effect of import exposure on legislative votes. We show that results are robust under alternative specifications and when accounting for possible local violations of exclusion restrictions. These findings have important implications for the political economy of globalization. They suggest that the political impact of globalization is broad with lasting consequences for civil society and democratic politics.