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

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The expansion of international trade has provided considerablebenefits to the United States and its trading partners. Yet thegrowth of trade also raises concerns about its impact on domesticfirms and their workers.

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

  • Income growth accounts for two-thirds of the growth in globaltrade in recent decades, trade liberalization accounts forone-quarter, and lower transportation costs make up theremainder.
  • Trade expansion has fueled faster growth and raised incomes incountries that have liberalized. A 1-percentage point gain in tradeas a share of the economy raises per capita income by 1 percent.Global elimination of all barriers to trade in goods and serviceswould raise global income by $2 trillion and U.S. income by almost$500 billion.
  • Competition from trade delivers lower prices and more productvariety to consumers. Americans are $300 billion better off todaybecause of the greater product variety from imports.
  • International trade directly affects only 15 percent of theU.S. workforce. Most job displacement occurs in sectors that arenot engaged in global competition. Net payroll employment in theUnited States has grown by 36 million in the past two decades,alongside a dramatic increase in imports of goods andservices.
  • Expanding trade does not explain most of the growing gapbetween wages earned by skilled and unskilled workers. The relativedecline in unskilled wages is mainly caused by technologicalchanges that reward greater skills.
  • Trade barriers impose large, net costs on the U.S. economy. Thecost to the economy per job saved in protected industries farexceeds the wages paid to workers in those jobs.

Robert Krol

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