Gains From Trade = $1 to $3 Trillion

In a research article "The Payoff to America from Globalization," three economists associated with the Institute for International Economics (and Northwestern University and Brigham Young) quantify and estimate: a) the payoff from opening the U.S. economy to international trade since WWII, and b) potential future gains from opening the economy to more trade going forward.

They find that trade opening since World War II has added between $800 billion to $1.4 trillion to the U.S. economy, or about $7,000 to $13,000 per household. Estimates of the potential additional gains from removing the rest of U.S. trade barriers range from $400 billion to $1.3 trillion, or about $4,000 to $12,000 per household. Since trade opening permanently raises national income, these gains are enjoyed annually.

Trade opening inevitably entails adjustment costs, and they estimate the lifetime cost of all worker dislocations that have been triggered by expanded trade in the United States could be as high as $54 billion, although probably less. The permanent gains from past and potential trade liberalization ($1.2 trillion to $2.7 trillion) easily swamp the modest sums necessary to alleviate the temporary pains of adjustment. In the future as in the past, free trade can significantly raise income – and quality of life – in America. (Via JohanNorberg.net.)

Using both international trade theory models and hundreds of empirical studies like the one above, there is overwhelming evidence that the benefits of free trade significantly outweigh the displacement and adjustments costs of trade, creating positive net economic benefits for countries that trade, and an increase in income, wealth, prosperity and the standard of living.