NCPA - National Center for Policy Analysis

A New Look At Trade Barrier Costs

May 26, 1999

Surprisingly few studies exist which estimate the total costs of trade barriers. Experts find that the figures which have emerged are suspiciously low. That's because the models used to reach the estimates are flawed, believes Federal Reserve Bank of St. Louis economist Howard Wall.

He has used what he thinks is a superior model and come up with his own figures -- which are considerable.

  • The U.S. imported over $723 billion in merchandise from non-NAFTA countries in 1996 -- but would have imported over $111 billion more if it had a policy of free trade.
  • In percentage terms, U.S. protectionism decreased its merchandise imports from non-NAFTA countries by 15.4 percent -- or 1.66 percent of gross domestic product.
  • In the same year, the U.S. exported nearly $500 billion in merchandise -- but would have exported $130 billion more if the rest of the world had free trade.
  • This represented a 26.2 percent loss of U.S. merchandise exports to non-NAFTA countries -- or 1.94 percent of GDP.

Source: Howard J. Wall, "Using the Gravity Model to Estimate the Costs of Protection," Federal Reserve Bank of St. Louis Review, January-February 1999; Macroscope, "What Does Protectionism Cost?" Investor's Business Daily, May 26, 1999.

 

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