What Are the Economic Gains from International Trade?

Reporting on a recent working paper, the April 2018 NBER Digest summarizes,

 There is surprisingly little direct quantitative evidence on how the U.S. economy would react if the door were shut on trade. To find a precedent, the researchers point out that one could go back to the Embargo Act of 1807, when the United States banned trade with Great Britain and France in retaliation for their repeated violations of U.S. neutrality. GDP declined sharply, but the agrarian world during the presidency of Thomas Jefferson bears little resemblance to today’s high-tech, service-oriented economy.

…To simplify the analysis, they elect to focus on trade in factor services, namely the labor and capital embedded in goods purchased from around the world. They then estimate the gains from trade by comparing the size of a counterfactual U.S. economy that depends entirely on domestic resources with one that has access to foreign factor services through international trade.

…The researchers do not offer a single estimate of the gains to the U.S. economy from international trade, but they suggest that the reasonable range falls between 2 and 8 percent of GDP. They acknowledge that while foreign trade raises the level of economic output, not everyone is a winner. Consumers enjoy lower prices, but some workers may see that benefit offset by declining wages or layoffs.

Not too shabby.

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