NCPA - National Center for Policy Analysis


September 20, 2005

Protectionists often make headlines by denouncing free trade agreements as bad for America. But economists, dating back to David Hume in 1752, have understood the benefits of free and open trade to society as a whole, particularly consumers.

Economists James Lagenfeld and James Nieberding calculated the implied effect of increased trade on U.S. consumers' income per household and discovered:

  • Free trade has had a cumulative aggregate benefit on American consumers of about $2.3 trillion from 1992 to 2002.
  • Free trade reduces the price of goods and services for consumers; between 1992 and 2002, real disposal income per household increased by $10,387 per year, and expanded trade accounted for 12 to 20 percent of the increase.
  • Two major trade agreements of the 1990s -- NAFTA and the Uruguay Round -- generated annual benefits for the average American family of four between $1,300 and $2,000, measured in 1996 dollars.

Free trade benefits Americans by:

  • Increasing the availability of imported goods to consumers, forcing domestic producers to lower prices and improve efficiency.
  • Increasing the purchasing power of the dollar.
  • Allowing producers of domestic goods to export their products to other countries, stimulating domestic economic growth.

Obviously, some groups will be adversely affected by free trade in cases where other countries can produce a better and cheaper good than a comparable domestic producer. However, this frees up resources to produce other goods. On balance, the benefits of free trade far outweigh the costs.

Source: James Langenfeld and James Nieberding, "The Benefits of Free Trade to U.S. Consumers," Business Economics, vol. 40, no. 3, July 2005.

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