Using the Gravity Model to Estimate the Costs of Protection
Many economists expend a lot of energy decrying trade protectionism; nonetheless, their estimates of the actual burden that protectionism imposes on the economy have been surprisingly small. The author presents a method that captures some of the effects and distortions of trade protection which have not been captured by existing methods. He finds that during 1996, worldwide protectionism reduced U.S. exports by 26.2 percent. Likewise, U.S. protectionism decreased U.S. imports from non-NAFTA countries by 15.4 percent. He calculates further that the welfare cost of U.S. protectionism amounted to about 1.45 percent of U.S. national income, which is much higher than previous estimates.