Using the Gravity Model to Estimate the Costs of Protection

Economists' estimates of the actual burden that trade protectionism imposes on the economy have been surprisingly small. In this article, the author presents a method that captures some of the effects and distortions of trade protection that have not been captured by existing methods. He finds that during 1996, worldwide protectionism reduced United States exports by 26.2 percent. Likewise, United States protectionism decreased United States imports from non-NAFTA countries by 15.4 percent. He calculates further that the welfare cost of United States protectionism amounted to about 1.45 percent of United States national income, which is much higher than previous estimates.