What would the world look like if it continued free trade and excluded America due to Protectionism?

The world would look fine but the United States will not. Americans are not unmindful of these facts. A recent Gallup poll found that 58% see trade as opportunity for job creation and only 34% see it as a job killer. However, research in policy making indicates that the more local workers compete with imports, the lower the number of votes will be cast for incumbent politicians—as the recent presidential election shows. If America is to go on gaining from trade, it must ensure it compensates those who lose out in the process. You can oppose protectionism, or you can oppose redistribution but it is getting harder to do on either side of the political spectrum.

In 2001 China joined the World Trade Organization (WTO). Although this did not have any effect on tariffs, for the rest of the world a tidal wave of Chinese imports followed. In the United States, Chinese imports surged from 1% of GDP in 2000 to 2.7% by 2015. The best explanation for this sudden influx is that China’s WTO membership provided investors with the assurance that America could no longer impose higher tariffs on China at will.

In any case, low prices of imports were a bonanza for American consumers. Excluding food and energy, prices of goods have fallen almost every year. It has been reported that clothes now cost the same as they did in 1986 and furnishing for a house cost as much as they did 35 years ago.

At the same time, trade created new markets for American firms. In 1993 America sold nearly $10 billion-worth of cars and parts to Mexico, at today’s prices thanks to NAFTA. By 2013 that had risen to $70 billion. Many American firms have become tightly integrated across the southern border, with low-skilled work done in Mexico and more complex tasks done across the border. Statistical trade records show that exports to China grew by almost 200% between 2005 and 2014, with agriculture, aerospace and car industries leading the way. Some workers have benefited from rising exports jobs, because firms that export pay more estimated at a wage-premium of 18%.

Economic theory predicts that trade, will devalue the pay of those workers whose skills are relatively abundant overseas. In 1995 Paul Krugman, an American economist, estimated that trade with poor countries explained only a tenth of the growth in the skilled-worker in the 1980’s while he and others found that technological change was more to blame than higher skills or education premiums.

But by 2008 Mr Krugman had a change of heart, cautioning that the steep volume of trade with China and other poor countries was probably increasing inequality. In 2013 an updated estimate of his model showed that trade with poor countries depressed unskilled workers’ wages by 10% in 2011, up from 2.7% in 1979.

For instance there are fewer than 30% car making jobs in America which has led to the false impression that America’s car industry has outsourced most of its work force when in reality advances in manufacturing technology such as robotics and automation are making the difference even if China or NAFTA disappeared tomorrow, far fewer jobs would return to America’s shores than have already left.

Today’s trade agreements are very different from NAFTA or other agreements which have brought down tariffs, because most tariffs have already been abolished.  The United States was going to be a prime beneficiary of TPP with only minor adjustments to its charter as its biggest provisions concern protection for intellectual property, liberalizing trade in services and enforcing stricter labor and environmental standards. In addition, TPP includes restrictions on state-owned enterprises. China will be welcomed into the agreement only if it curtails subsidies to its para-state enterprises.

Europe presents another opportunity as the forthcoming Transatlantic Trade and Investment Partnership will harmonize regulatory standards across the Atlantic in industries such as pharmaceuticals, telecoms and transport. Removing all such “non-tariff barriers” could raise America’s GDP by up to 3%, according to many studies. The world has still to contend with how to regulate global flows of data, here the United States, as the world’s technology hub, has a huge stake in participating and it would be a lose for all sides if the United States decides to pull out of international trade and become isolated with an “America First” slogan from the Trump doctrine.