Trade

Lane Kenworthy, The Good Society
December 2025

Trade is the buying and selling of goods and services across national borders. Exports are goods and services produced in the United States and purchased in some other nation; imports are produced outside the US and purchased here. Trade is one aspect of globalization, which also includes cross-border movement of people (migration), money (foreign investment), jobs (outsourcing), and culture, along with supranational decision making (United Nations, World Trade Organization, International Court of Justice).

There was very little trade across geopolitical borders prior to the late 1800s, as we see in figure 1. Large-scale international trade is a phenomenon of the post-World War II era, with a particularly sharp rise since 1970. A rapid increase since 1970 is also what we observe in the United States, as figure 2 shows.

Figure 1. Trade
All countries. Average of exports and imports as a share of GDP. Data sources: Our World in Data, “Trade and Globalization” and “Trade as a Share of GDP,” using data from Antoni Estevadeordal, Brian Frantz, and Alan M. Taylor, “The Rise and Fall of World Trade, 1870–1939,” Quarterly Journal of Economics, 2003 for 1500-1820, Mariko J. Klasing and Petros Milionis, “Quantifying the Evolution of World Trade, 1870-1949,” Journal of International Economics, 2014 for 1870-1949, Penn World Tables for 1950-69, and the OECD for 1970ff.

Figure 2. Imports
United States. Share of GDP. Data source: Federal Reserve Bank of St. Louis, FRED database, series B021RE1A156NBEA.

Most economic analysts believe trade contributes to economic efficiency and therefore faster economic growth. About 10% of worldwide economic growth since the early 1990s owes to trade, according to one estimate.1

However, imports can hurt workers in rich nations. When Americans purchase imported goods or services instead of ones produced in the United States, that may reduce jobs and/or wages for some American workers — especially the less-skilled, whose labor is more easily replicated in poor countries.

Between 2000 and 2012, imports from China jumped from 1% of America’s GDP to nearly 3%.2 That’s a large increase in a fairly short span of time. Estimates suggest this increase in imports from China may have cost Americans 2 to 3 million jobs.3 In principle those workers could have shifted to other jobs, but in practice that can be difficult unless the displaced worker is willing to accept significantly lower pay and/or move to another city or state. Trade with poorer nations probably also reduces Americans’ wages. Some workers who have lost a job or experienced a drop in wages receive unemployment compensation, trade adjustment assistance, or other government benefits, but those transfer benefits haven’t been sufficient to offset the loss.4

As a result, trade with low-wage countries periodically flares up as a key issue in American politics, especially during presidential elections. Candidates for the presidency often promise to pursue a “tougher” trade policy, by which they mean reducing imports.

Would it be a good thing if the United States imported fewer goods and services from Mexico, China, India, and other developing nations?

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TRADE AND LIVING STANDARDS IN POOR COUNTRIES

Much of the world’s population is poorer than even the least well-off in the United States. Figure 3 offers one way to see this. It shows that the income of the poorest Americans (1 on the horizontal axis) situates them at approximately the 55th percentile of the world’s income distribution (vertical axis), meaning their income is higher than that of a bit more than half of the world’s population. In China, a person in the middle of the distribution (50 on the horizontal axis) has an income similar to an American at the bottom. In India and Nigeria, 85-90% of the population have incomes below that of the lowest-income Americans.

Figure 3. Household incomes in the US and three poorer countries
2018. Horizontal axis: Position (rank) in the income distribution within a particular country. Vertical axis: Position (rank) in the worldwide income distribution. Posttax income adjusted for household size and converted to a common currency using purchasing power parities. Data source: Branko Milanovic. This updates figure 3 in Milanovic, The Haves and the Have-Nots, Basic Books, 2011.

Trade between poor nations and rich ones can help the incomes of people in poor countries grow faster. If producers in poor countries are able to sell their goods and services in rich countries, the size of the market expands enormously. There are more customers and those customers are, on average, able to pay more than customers in the poor country. This enables increased production in the poor country, which usually leads to more jobs and rising wages. Virtually every successful economic development story of the past half century — including South Korea, Taiwan, Hong Kong, Singapore, China, Brazil, Botswana, and Mauritius — has relied heavily on exports to rich countries.5

When economic growth increases in poor nations, some of the added income goes to wealthy owners in those countries or to executives and shareholders of multinational corporations. But some of it goes to ordinary workers in the poor nations. Between 2000 and 2012, China’s share of world manufacturing exports increased from 5% to 17%, and during that decade more than 200 million Chinese moved up into the global middle class.6 More broadly, as we see in figure 4, the period of rising trade since 1970 has coincided with, and almost certainly been a key contributor to, the most rapid reduction in worldwide poverty in human history.

Figure 4. Worldwide poverty
Share of persons with income below the poverty line. Data source: Our World in Data, “Poverty,” using data from Michail Moatsis, “Global Extreme Poverty: Past and Present Since 1820”; World Bank Poverty and Inequality Platform.

AMERICA’S TRADE POLICY AND IMPORTS

Policies to reduce imports include tariffs (taxes on imports), quotas, restrictions, and regulations. Figure 5 shows a measure that combines these various policies, with higher scores indicating lesser use of them. It suggests that America’s trade policy openness has tended to be similar to that of most other rich nations in recent decades.

Figure 5. Trade policy openness
Scale of 0 to 100, with higher scores indicating greater trade openness. The score is based on a country’s average tariff rate and the extensiveness of non-tariff barriers to imports. Data source: Heritage Foundation, heritage.org/index, series trade freedom. Thick line: United States. “Asl” is Australia.

Figure 6 shows imports in these countries. The United States has tended to import less than most other affluent nations. That isn’t because we’ve had a more protectionist policy approach to trade (see figure 5). It owes mainly to our large size, which means there are plenty of domestic producers in most product markets, and to the fact that it costs more to transport goods from Europe to the United States than from one country within Europe to another.

While the level of imports varies widely across these countries, there is considerable similarity in the trend over time. In most of them we observe a steady increase since 1970.

Figure 6. Imports
Share of GDP. Data source: OECD Data Explorer, “Annual GDP and components — expenditure approach.” Thick line: United States. “Asl” is Australia; “Aus” is Austria.

So the United States doesn’t have a policy approach to trade that is notably more open than that of other rich democratic countries. Nor do we import more; on the contrary, we import less. And despite the rise in imports from China since 2000, America hasn’t experienced an unusually large surge in imports, neither compared to the past generation nor relative to other affluent nations.

IMPORTS AND AMERICANS’ EMPLOYMENT

Next, let’s consider employment. Although service jobs are increasingly vulnerable to replacement abroad, the worry about imports has mainly to do with jobs in manufacturing. Figure 7 shows manufacturing employment as a share of the working-age population since 1970. US manufacturing employment has declined steadily, as it has in all of the rich democracies.

Figure 7. Manufacturing employment
Employment in manufacturing as a share of the population age 15-64. Data source: OECD Data Explorer, “Employed population by economic activity” and “Historical population data.” Thick line: United States. “Asl” is Australia; “Aus” is Austria.

Could the United States significantly alter the downward trend in manufacturing employment? This trend has multiple causes, has occurred in all of the rich democratic countries, and has been ongoing for more than half a century, which suggests reason to be skeptical. Even Dani Rodrik, one of the most prominent critics of free trade in recent decades, has concluded that “there is virtually nothing you can do with trade policy … that is going to bring substantial manufacturing employment back to the U.S.”7

Developments since 2009 bear this out. China has become less attractive as a site for manufacturing, due to an increase in transportation costs caused by rising oil prices (prior to 2015), an increase in Chinese wages, and an increase in the value of China’s currency.8 Since 2009, US manufacturing output has increased, as some factories have moved back from China, other new ones have opened, and existing ones have increased production. Yet many of these factories are heavily automated, so manufacturing employment in the United States hasn’t increased.9

IMPORTS AND AMERICANS’ WAGES

Imports threaten not only Americans’ jobs but also wages. When employers are able to shift production abroad to a lower-wage country, they can use this as a threat in negotiating pay with existing employees.10 That creates downward pressure on the wages of US workers in manufacturing and some services.

For American workers on the middle and lower rungs of the wage ladder, wages (adjusted for inflation) haven’t increased very much since the late 1970s, as figure 8 shows. Imports, which increased steadily during this period (figure 2), almost certainly have contributed to this. But changes to many other institutions and policies also contributed, including greater use of computers and robots, the shareholder value revolution in corporate governance, heightened competition in domestic product markets, union decline, and stagnation in the federal minimum wage.11

Figure 8. Wages
Hourly wage at the 50th (median) and 10th percentiles of the wage distribution. 2024 dollars; inflation adjustment is via the extended chained CPI-U. Data source: Economic Policy Institute, State of Working America Data Library, “Hourly wage percentiles,” using Current Population Survey (CPS) data.

So how large has the impact of imports been? One simple test: wages increased less between 1974 and 2000 than they did from 2000 to 2024, though import levels were a good bit higher in the later period. This suggests imports’ effect on wages probably has been fairly small.12

IMPORTS AND AMERICANS’ OVERALL ECONOMIC WELLBEING

Standard economic theory predicts that, overall, trade will enhance the financial wellbeing of people in not only poor exporting countries but also rich importing ones. That is, even taking into account the loss of income experienced by individuals who lose their job or have their wages reduced, the importing nation’s population as a whole will benefit, due to the greater choice they have in purchasing goods and services, the lower prices they pay for goods and services, and the increased economic efficiency, which may boost economic growth and employment.

What does the evidence tell us about whether this has in fact been the case for the United States? We have a variety of estimates.

Pablo Fajgelbaum and Amit Khandelwal estimate that the average gain from trade for Americans is equivalent to 8% of income. They also find that the gain is larger for households with lower income, who tend to spend a much larger portion of their income on goods that are made more cheaply abroad and therefore cost less than if made in the US.13

Lorenzo Caliendo and colleagues estimate that in the immediate aftermath of a large trade shock such as the increase in Chinese imports the US experienced after 2000, the net benefits of trade to Americans may be close to zero. Once workers are able to move to new localities and regions in order to get back into employment, the net benefits become positive and sizeable.14

Xavier Jaravel and Erick Sager estimate that increased imports from China after 2000 reduced prices paid by an average American household by about $1,500 per year, and that the value of this was about ten times as large as the value of jobs lost due to these imports.15

The US International Trade Commission estimates that, as of the mid-2010s, eliminating the (relatively few) trade restrictions we have in place would boost Americans’ welfare by about 0.02% of GDP.16

A 2012 survey of 50 academic economists by the University of Chicago’s Booth School of Business found that 96% of those responding agreed with the statement “Some Americans who work in the production of competing goods, such as clothing and furniture, are made worse off by trade with China.” Yet 100% agreed that “Trade with China makes most Americans better off because, among other advantages, they can buy goods that are made or assembled more cheaply in China.” Similarly, 98% agreed that “On average, citizens of the US have been better off with the North American Free Trade Agreement than they would have been if the trade rules for the US, Canada, and Mexico prior to NAFTA had remained in place.” And 96% agreed that “Freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”17 A 2024 survey found 79% disagreeing or strongly disagreeing that “The gains for the American economy from tripling the existing tariffs on Chinese steel and aluminum products would measurably outweigh the losses.”18

So according to the best available estimates, and the consensus among experts, trade is a net positive for Americans’ living standards.

WHAT DO AMERICANS THINK?

Surveys by Gallup, the Pew Research Center, and the General Social Survey began regularly asking Americans about their views on trade and trade policy in the early 1990s. The responses suggest that Americans are divided about the effect of imports and about what our trade policy should be. As figures 9 through 11 show, between one-third and one-half of American adults think the impact of foreign trade and free trade agreements has been bad for the United States, and between half and two-thirds believe we should limit imports.

Figure 9. Foreign trade is more a threat than an opportunity
Share of US adults. Question: “What do you think foreign trade means for America? Do you see foreign trade more as — an opportunity for economic growth through increased US exports or a threat to the economy from foreign imports?” Response options: opportunity, threat, both, neither, no opinion. The line shows the share responding threat, with both, neither, and no opinion responses excluded. Data source: Gallup, “Foreign Trade,” gallup.com.

Figure 10. Free trade agreements have been bad
Share of US adults. Bad thing for the US question 1: “In general, do you think that free trade agreements like NAFTA and the policies of the World Trade Organization have been a good thing or a bad thing for the United States?” Response options: good thing, bad thing, don’t know. The line shows the share responding bad thing, with don’t know responses excluded. Bad thing for the US question 2: “In general, do you think that free trade agreements between the US and other countries have been a good thing or a bad thing for the United States?” Response options: good thing, bad thing, don’t know. The line shows the share responding bad thing, with don’t know responses excluded. US has lost more question: “Thinking about increased trade of goods and services between the US and other nations in recent decades…. Some say the US has gained from increased trade because it has helped lower prices and increased the competitiveness of some US businesses. Others say the US has lost out from increased trade because it has cost jobs in manufacturing and other industries and lowered wages for some US workers. All in all, would you say the US has gained more than it has lost or lost more than it has gained?” Response options: gained more, lost more, don’t know. The line shows the share responding lost more, with don’t know responses excluded. Hurt my family financially question: “Do you think free trade agreements have definitely helped, probably helped, probably hurt, or definitely hurt the financial situation of you and your family?” Response options: definitely helped, probably helped, neither/doesn’t affect me, probably hurt, definitely hurt, don’t know. The chart shows the share responding probably hurt or definitely hurt, with don’t know responses excluded. Data source: Pew Research Center, various reports.

Figure 11. America should limit imports
Share of US adults. NYT-CBS question: “Which of the following statements comes closer to your opinion: (1) trade restrictions are necessary to protect domestic industries, or (2) free trade must be allowed, even if domestic industries are hurt by foreign competition?” Response options: trade restrictions are necessary, free trade must be allowed, don’t know. The chart shows the share responding trade restrictions are necessary, with don’t know responses excluded. Data source: New York Times. GSS question: “How much do you agree or disagree with the following statement: America should limit the import of foreign products in order to protect its national economy.” Response options: agree strongly, agree, neither agree nor disagree, disagree, disagree strongly. The chart shows the share responding agree strongly or agree. Data source: General Social Survey, sda.berkeley.edu, series imports.

One study found that, in an experimental setting, Americans were more likely to prefer an outcome of trade in which one American is better off but 1,000 people from the trading partner country are worse off rather than an outcome in which one American is worse off while 1,000 people in the other nation are better off.19

This skepticism toward trade and imports on the part of a significant share of Americans may help account for some of the dynamics of recent presidential elections. In 2016, Donald Trump and Bernie Sanders argued vigorously for a more restrictive trade policy,20 and they ended up among the top three vote-getters (along with Hillary Clinton). Both again got quite a few votes in 2020. And in 2024 Trump won a second term as president with tariffs as one of his main campaign pledges.

POLICY OPTIONS

Like technological advance and trade within nations, international trade tends to increase overall economic wellbeing but to impose a cost on some people in the form of lost jobs and/or lower wages.

It is widely agreed that the appropriate policy response to technological progress and to trade within the United States isn’t to block it or limit it. Instead, it’s to provide the people harmed with some compensation and help in adapting. Helpful cushions and supports include unemployment insurance, portable pensions and health insurance, schooling, retraining, job placement assistance, wage insurance, infrastructure improvement for hard-hit communities, and a decently high minimum wage and Earned Income Tax Credit.

Arguably, the case for this approach is even stronger when it comes to international trade. If we restrict technological advance, cross-state trade, or international trade, Americans suffer as consumers. For international trade, there is an additional victim: the workers in poor countries who lose out on the jobs and higher wages that international trade generates. Many of these people have living standards far below those of the United States (figure 3), which means the overall benefits from trade are that much greater. In the words of David Autor, “The gains to the people who benefited are so enormous — they were destitute, and now they were brought into the global middle class. The fact that there are adverse consequences in the United States should be taken seriously, but it doesn’t tilt the balance.”21 This line of reasoning favors an approach put succinctly by Joseph Stiglitz in his book Making Globalization Work: “Rich countries should simply open up their markets to poorer ones, without reciprocity and without economic or political conditionality.”22

(This doesn’t imply support for any and all “free trade agreements.” Such pacts may be stuffed with provisions protecting particular rich-world firms or industries to a degree that, on net, the agreement will hurt rather than help poor nations.23)

Why not use just a little protectionism to limit imports in certain sectors, or in certain vulnerable parts of the US? The free trade position has three responses.

First, some barriers to imports aren’t objectionable. Indeed, the United States still has some in place today, and the losses to wellbeing here and abroad probably aren’t massive. But by the same token, advocates of small-bore protectionism ought to acknowledge that this strategy isn’t likely to do much to slow the decline of manufacturing employment in the United States, nor to get wages for workers in the bottom half rising more rapidly.

Second, in the present US context, arguing for tougher trade policy or against free trade agreements may be an unwise use of political capital. The cushions and supports needed to help Americans harmed by international trade are also needed to aid the victims of technological change and of within-country trade, and they are underdeveloped in the US — inadequate in coverage, funding, and coordination. Part of the reason these programs are inadequate is that debate about trade tends to get stuck on the question of whether or not to limit imports. Three groups have an interest in framing the debate in these terms: politicians who find it helpful to argue that their opponents are protectionist and thereby against Americans’ interests as consumers,24 lobbyists for firms that stand to benefit from import restrictions, and workers in manufacturing and offshorable services. Even when the proposed restrictions are relatively minor — minimal labor and/or environmental standards, for instance — once this door is opened, it almost inevitably takes center stage in the debate. Far less attention, if any, gets devoted to the adjustment and cushioning side. As a result, the political constituency and momentum for cushions and supports tend to be far smaller than they could be.

Third, there is a symbolic consideration. America has, arguably, been at its best when we’ve embraced globalization and sought to improve the wellbeing of people in other countries. Think of World Wars I and II, the Marshall Plan, opposition to communist expansion, the Peace Corps, US leadership in creating and supporting international organizations and procedures (the UN, the IMF, the World Bank, Bretton Woods, GATT). The United States is among the richest societies in human history. We do have economic problems, including too-slow wage growth for half or more of the workforce and limited employment opportunity for some. But choosing to address these challenges by restricting access to America’s markets, at the expense of the world’s poorest, sends a message that may not be worth the relatively small gain.

  1. Paul Krugman, “The Gains from Hyperglobalization,” New York Times: The Conscience of a Liberal, 2013. See also James Manyika, Susan Lund, Jacques Bughin, Jonathan Woetzel, Kalin Stamenov, and Dhruv Dhingra, “Digital Globalization: The New Era of Global Flows,” McKinsey Global Institute, 2016. ↩︎
  2. Neil Irwin, “What Donald Trump Gets Pretty Much Right, and Completely Wrong, About China,” New York Times, 2016. ↩︎
  3. Robert E. Scott and Will Kimball, “China Trade, Outsourcing, and Jobs,” Briefing Paper 385, Economic Policy Institute, 2014; David Autor, David Dorn, and Gordon H. Hanson, “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” 2015; Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, “Import Competition and the Great US Employment Sag of the 2000s,” Journal of Labor Economics, 2016. ↩︎
  4. Dean Baker, “Trade and Inequality: The Role of Economists,” Center for Economic and Policy Research, 2008; Jared Bernstein, The Reconnection Agenda, 2015, ch. 5. ↩︎
  5. Joseph E. Stiglitz, Making Globalization Work, W.W. Norton, 2006; Dani Rodrik, “The Past, Present, and Future of Economic Growth,” Global Citizen Foundation, 2013. ↩︎
  6. Autor, Dorn, and Hanson, “The China Shock,” using World Development Indicators data; Rakesh Kochnar, “A Global Middle Class Is More Promise Than Reality,” Pew Research Center, 2015. The global middle class is defined here as an income of $10 to $20 per day. ↩︎
  7. Quoted in Thomas Edsall, “Global Trade War, Trump Edition,” New York Times, 2016. See also Dani Rodrik, “America’s Manufacturing Renaissance Will Create Few Good Jobs,” Project Syndicate, 2024. ↩︎
  8. Daniel W. Drezner, “Globalization Is a Moving Target: Today’s Protectionists Seem to Be Focusing on an Image That Is 10 Years Out of Date,” Washington Post: Post Everything, 2016; Noah Smith, “Hey, Bernie Sanders, Trade Isn’t All Bad,” Bloomberg View 2016. ↩︎
  9. “The Insourcing Boom,” The Atlantic, 2012; Abha Bhattarai, “Factory Jobs Trickle Back to the US, Giving Hope to a Once-Booming Mill Town,” Washington Post 2016; Ben Casselman, “Manufacturing Jobs Are Never Coming Back,” FiveThirtyEight, 2016. ↩︎
  10. As of 2013, for instance, total compensation for a manufacturing employee averaged $7 per hour in Mexico, compared to $36 in the United States. Conference Board, “International Comparisons of Hourly Compensation Costs in Manufacturing and Submanufacturing Industries,” 2014. ↩︎
  11. Lawrence Mishel, “Causes of Wage Stagnation,” Economic Policy Institute, 2015. ↩︎
  12. See also Robert C. Feenstra, “Integration of Trade and Disintegration of Production in the Global Economy,” Journal of Economic Perspectives, 1998; Edward Leamer, “What’s the Use of Factor Contents?,” Journal of International Economics, 2000. ↩︎
  13. Pablo D. Fajgelbaum and Amit K. Khandelwal, “The Unequal Gains from Trade,” Quarterly Journal of Economics, 2016. ↩︎
  14. Lorenzo Caliendo, Maximilano Dvorkin, and Fernando Parro, “The Impact of Trade on Labor Market Dynamics,” Working Paper 21149, National Bureau of Economic Research, 2015. ↩︎
  15. Xavier Jaravel and Erick Sager, “What Are the Price Effects of Trade? Evidence from the US and Implications for Quantitative Trade Models,” Discussion Paper 13902, CEPR, 2019). ↩︎
  16. Cited in Paul Krugman and Robin Wells, Economics, 2015, p. 237. ↩︎
  17. University of Chicago, Booth School of Business, IGM Forum, “Free Trade,” 2012; “China-US Trade,” 2012. ↩︎
  18. University of Chicago, Booth School of Business, Clark Center for Global Markets, “Tariffs,” April 30, 2024. ↩︎
  19. Diana C. Mutz and Eunji Kim, “The Impact of Ingroup Favoritism on Trade Preferences,” International Organization, 2016. ↩︎
  20. “If corporate America wants us to buy their products, they need to manufacture those products in this country, not in China or other low-wage countries,” said Sanders. “Income and Wealth Inequality,” berniesanders.com, accessed January 18, 2016. ↩︎
  21. Quoted in Nathaniel Popper, “How Much Do We Really Know About Global Trade’s Impacts?,” New York Times, 2016. ↩︎
  22. Stiglitz, Making Globalization Work, p. 83. This echoes Milton Friedman’s recommendation that “We should move unilaterally to free trade.” Milton Friedman and Rose Friedman, Free to Choose, Harcourt Brace Jovanovich, 1979, p. 50. ↩︎
  23. Paul Krugman, “Trade and Trust,” New York Times, 2015; Krugman, “Clinton and CAFTA,” The Conscience of a Liberal, 2016; Dani Rodrik, “A Progressive Logic of Trade,” Project Syndicate 2016. ↩︎
  24. N. Gregory Mankiw, “Beyond the Noise on Free Trade,” New York Times, 2008. ↩︎