What have been the benefits to the United States of trade expansion?

Gary Clyde Hufbauer, a senior fellow and Lucy Lu, a research analyst at the Peterson Institute for International Economics, updating a landmark PIIE study made in 2005, calculate the payoff from 1950 to 2016 at $2.1 trillion.

The payoff has stemmed from trade expansion resulting from policy liberalization and improved transportation and communications technology. The sum translates into an increase of $7,014 in GDP per capita and $18,131 in GDP per household.

The potential gains from future policy liberalization, their report posits, could be as large as $540 billion for the United States by the year 2025, or an increase of $1,670 in GDP per capita and $4,400 in GDP per household.

The report cites recent study of 27 European countries and 13 other large countries (including the United States) that showed that trade had a disproportionately positive impact on poorer consumers than on their ore affluent counterparts. According to that study, trade has increased real income by 63 percent for those in the 10th income percentile and by 28 percent for those in the 90th income percentile. Part of the explanation is that trade has significantly lowered the cost of manufactured goods and processed foods, which account for a large share of expenditures by poorer consumers, while having a much weaker impact on the cost of services, which account for a larger share of expenditures by richer consumers.

The new report also provides a special focus on the cost to workers. “But expanded trade results in losers as well as winners, and losers are seldom compensated,” the report noted.

The flip side of the benefits of trade expansion has been the loss of 156,250 manufacturing sector jobs annually over the past 13 years. While the number sounds staggering, the researchers note that the figures represent less than one percent of the number of people who were involuntary separated from their jobs each year.

The report argues for a more generous unemployment insurance program and an expanded Earned Income Tax Credit (EITC) program that covers severe losers among displaced workers, proposals the report estimates to cost about $30.2 billion a year. “They should be implemented,” the report concludes, “both to address the economic harm to losers and to alleviate political hostility to globalization.”