International Trade Greatly Benefits the U.S. and World Economies

Study shows free trade vastly improves the standard of living

September 16, 2008 • News Releases

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As anti‐​trade rhetoric escalates on the campaign trail in anticipation of elections, a new study unequivocally shows that the expansion of international trade has been a boon for Americans and the U.S. economy.

“The evidence is clear: international trade raises a country’s standard of living,” writes Robert Krol, professor at California State University at Northridge, in “Trade, Protectionism, and the U.S. Economy: Examining the Evidence,” published by the Cato Institute.

The study, a comprehensive review of the important empirical studies that quantify the impact of trade on the economy, looks at data dating back to the end of World War II.

“U.S. goods (exports plus imports) increased from 9.2 percent of gross domestic product in 1960 to 28.6 percent in 2007. This expansion of international trade has benefited the United States and its trading partners considerably. The benefits include a higher standard of living, lower prices for consumers, improved efficiency in production and a greater variety of goods,” writes Krol. In fact, international trade is so beneficial that a global elimination of trade barriers would boost the income of Americans by a total of half a trillion dollars. 

Among the biggest criticisms of free trade is that it takes a toll on domestic workers. The study, however, finds that international trade only directly affects 15 percent of the U.S. workforce. Moreover, while “trade can result in the displacement of workers in industries that must compete with imports, the impact is modest relative to overall employment growth.” 

The author concludes: “Recent polls and political rhetoric suggest support for continued trade liberalization may be waning — and that is of concern. A movement away from the relatively open global trading system that is currently in place would impose significant economic costs on the United States and the rest of the world.”