Trade Briefing Paper No. 28

Trade, Protectionism, and the U.S. Economy: Examining the Evidence

By Robert Krol
September 16, 2008

The expansion of international trade has provided considerable benefits to the United States and its trading partners. Yet the growth of trade also raises concerns about its impact on domestic firms and their workers.

This study surveys the economic research on the causes of expanded international trade, the benefits of trade, the impact of trade on employment and wages, and the cost of international trade restrictions. The findings include the following:

  • Income growth accounts for two-thirds of the growth in global trade in recent decades, trade liberalization accounts for one-quarter, and lower transportation costs make up the remainder.
  • Trade expansion has fueled faster growth and raised incomes in countries that have liberalized. A 1-percentage point gain in trade as a share of the economy raises per capita income by 1 percent. Global elimination of all barriers to trade in goods and services would raise global income by $2 trillion and U.S. income by almost $500 billion.
  • Competition from trade delivers lower prices and more product variety to consumers. Americans are $300 billion better off today because of the greater product variety from imports.
  • International trade directly affects only 15 percent of the U.S. workforce. Most job displacement occurs in sectors that are not engaged in global competition. Net payroll employment in the United States has grown by 36 million in the past two decades, alongside a dramatic increase in imports of goods and services.
  • Expanding trade does not explain most of the growing gap between wages earned by skilled and unskilled workers. The relative decline in unskilled wages is mainly caused by technological changes that reward greater skills.
  • Trade barriers impose large, net costs on the U.S. economy. The cost to the economy per job saved in protected industries far exceeds the wages paid to workers in those jobs.

Read the Full Trade Briefing Paper

Robert Krol is a professor of economics at California State University, Northridge.