We have seen that international trade produces mutual benefits to the countries that engage in it. We have also seen that tariffs and import quotas, although they produce winners as well as losers, reduce total surplus. Yet many countries continue to impose tariffs and import quotas as well as to enact other protectionist measures.

To understand why trade protection takes place, we will first look at some common justifications for protection. Then we will look at the politics of trade protection. Finally, we will look at an important feature of trade protection in today’s world: tariffs and import quotas are the subject of international negotiation and are policed by international organizations.

Advocates for tariffs and import quotas offer a variety of arguments. Three common arguments are national security, job creation, and the infant industry argument.

The national security argument is based on the proposition that overseas sources of goods are vulnerable to disruption in times of international conflict; therefore, a country should protect domestic suppliers of crucial goods with the aim to be self-sufficient in those goods. In the 1960s, the United States—which had begun to import oil as domestic oil reserves ran low—had an import quota on oil, justified on national security grounds. Some people have argued that we should again have policies to discourage imports of oil, especially from the Middle East.

The job creation argument points to the additional jobs created in import-competing industries as a result of trade protection. Economists argue that these jobs are offset by the jobs lost elsewhere, such as industries that use imported inputs and now face higher input costs. But noneconomists don’t always find this argument persuasive.

Finally, the infant industry argument, often raised in newly industrializing countries, holds that new industries require a temporary period of trade protection to get established. For example, in the 1950s many countries in Latin America imposed tariffs and import quotas on manufactured goods, in an effort to switch from their traditional role as exporters of raw materials to a new status as industrial countries.

In theory, the argument for infant industry protection can be compelling, particularly in high-tech industries that increase a country’s overall skill level. Reality, however, is more complicated: it is most often industries that are politically influential that gain protection. In addition, governments tend to be poor predictors of the best emerging technologies. Finally, it is often very difficult to wean an industry from protection when it should be mature enough to stand on its own.

In reality, much trade protection has little to do with the arguments just described. Instead, it reflects the political influence of import-competing producers.

We’ve seen that a tariff or import quota leads to gains for import-competing producers and losses for consumers. Producers, however, usually have much more influence over trade policy decisions. The producers who compete with imports of a particular good are usually a smaller, more cohesive group than the consumers of that good.

An example is trade protection for sugar: the United States has an import quota on sugar, which on average leads to a domestic price about twice the world price. This quota is difficult to rationalize in terms of any economic argument. However, consumers rarely complain about the quota because they are unaware that it exists: because no individual consumer buys large amounts of sugar, the cost of the quota is only a few dollars per family each year, not enough to attract notice. But there are only a few thousand sugar growers in the United States. They are very aware of the benefits they receive from the quota and make sure that their representatives in Congress are also aware of their interest in the matter.

Given these political realities, it may seem surprising that trade is as free as it is. For example, the United States has low tariffs, and its import quotas are mainly confined to clothing and a few agricultural products. It would be nice to say that the main reason trade protection is so limited is that economists have convinced governments of the virtues of free trade. A more important reason, however, is the role of international trade agreements.

When a country engages in trade protection, it hurts two groups. We’ve already emphasized the adverse effect on domestic consumers, but protection also hurts foreign export industries. This means that countries care about one anothers’ trade policies: the Canadian lumber industry, for example, has a strong interest in keeping U.S. tariffs on forest products low.

Because countries care about one anothers’ trade policies, they enter into international trade agreements: treaties in which a country promises to engage in less trade protection against the exports of another country in return for a promise by the other country to do the same for its own exports. Most world trade is now governed by such agreements.

Some international trade agreements involve just two countries or a small group of countries. The United States, Canada, and Mexico are joined together by the North American Free Trade Agreement, or NAFTA. This agreement was signed in 1993, and by 2008 it had removed all barriers to trade among the three nations.

In Europe, 28 nations are part of an even more comprehensive agreement, the European Union, or EU. In NAFTA, the member countries set their own tariff rates against imports from other nonmember countries. The EU, however, is a customs union: tariffs are levied at the same rate on goods from outside the EU entering the union.

There are also global trade agreements covering most of the world. Such global agreements are overseen by the World Trade Organization, or WTO, an international organization composed of member countries, which plays two roles. First, it provides the framework for the massively complex negotiations involved in a major international trade agreement (the full text of the last major agreement, approved in 1994, was 24,000 pages long). Second, the WTO resolves disputes between its members. These disputes typically arise when one country claims that another country’s policies violate its previous agreements. Currently, the WTO has 160 member countries, accounting for the bulk of world trade.

Here are two examples that illustrate the WTO’s role. First, in 1992 a trade dispute broke out over the European Union’s import restrictions on bananas, which gave preference to producers in former European colonies over producers from Central America. In 1999 the WTO ruled that these restrictions were in violation of international trade rules. The United States took the side of the Central American countries, and the dispute became a major source of trade conflict between the European Union and the United States, known as the “banana wars.” In 2012, twenty years after the dispute began, the European Union finally changed its import regulations to abide by the WTO ruling.

A more recent example is the dispute between the United States and Brazil over American subsidies to its cotton farmers. These subsidies, in the amount of $3 billion to $4 billion a year, are illegal under WTO rules. Brazil argues that they artificially reduce the price of American cotton on world markets and hurt Brazilian cotton farmers. In 2005 the WTO ruled against the United States and in favor of Brazil, and the United States responded by cutting some export subsidies on cotton. However, in 2007 the WTO ruled that the United States had not done enough to fully comply, such as eliminating government loans to cotton farmers. After Brazil threatened, in turn, to impose import tariffs on U.S.-manufactured goods, in 2010 the two sides agreed to a framework for the solution to the cotton dispute.

Both Vietnam and Thailand are members of the WTO. Yet the United States has, on and off, imposed tariffs on shrimp imports from these countries. The reason this is possible is that WTO rules do allow trade protection under certain circumstances. One circumstance is where the foreign competition is “unfair” under certain technical criteria. Trade protection is also allowed as a temporary measure when a sudden surge of imports threatens to disrupt a domestic industry. The response to Chinese tire exports, described in the accompanying For Inquiring Minds, is an important recent example.

The WTO is sometimes, with great exaggeration, described as a world government. In fact, it has no army, no police, and no direct enforcement power. The grain of truth in that description is that when a country joins the WTO, it agrees to accept the organization’s judgments—and these judgments apply not only to tariffs and import quotas but also to domestic policies that the organization considers trade protection disguised under another name. So in joining the WTO a country does give up some of its sovereignty.

The forward march of globalization over the past century is generally considered a major political and economic success. Economists and policy makers alike have viewed growing world trade, in particular, as a good thing. We would be remiss, however, if we failed to acknowledge that many people are having second thoughts about globalization. To a large extent, these second thoughts reflect two concerns shared by many economists: worries about the effects of globalization on inequality and worries that new developments, in particular the growth in offshore outsourcing, are increasing economic insecurity.

Globalization and Inequality We’ve already mentioned the implications of international trade for factor prices, such as wages: when wealthy countries like the United States export skill-intensive products like aircraft while importing labor-intensive products like clothing, they can expect to see the wage gap between more educated and less educated domestic workers widen. Forty years ago, this wasn’t a significant concern, because most of the goods wealthy countries imported from poorer countries were raw materials or goods where comparative advantage depended on climate. Today, however, many manufactured goods are imported from relatively poor countries, with a potentially much larger effect on the distribution of income.

Trade with China, in particular, raises concerns among labor groups trying to maintain wage levels in rich countries. Although China has experienced spectacular economic growth since the economic reforms that began in the late 1970s, it remains a poor, low-wage country: wages in Chinese manufacturing are estimated to be only about 5% of U.S. wages. Meanwhile, imports from China have soared. In 1983 less than 1% of U.S. imports came from China; by 2013, the figure was more than 16%. There’s not much question that these surging imports from China put at least some downward pressure on the wages of less educated American workers.

Outsourcing Chinese exports to the United States overwhelmingly consist of labor-intensive manufactured goods. However, some U.S. workers have recently found themselves facing a new form of international competition. Outsourcing, in which a company hires another company to perform some task, such as running the corporate computer system, is a long-standing business practice. Until recently, however, outsourcing was normally done locally, with a company hiring another company in the same city or country.

Now, modern telecommunications increasingly make it possible to engage in offshore outsourcing, in which businesses hire people in another country to perform various tasks. The classic example is call centers: the person answering the phone when you call a company’s 1-800 help line may well be in India, which has taken the lead in attracting offshore outsourcing. Offshore outsourcing has also spread to fields such as software design and even health care: the radiologist examining your X-rays, like the person giving you computer help, may be on another continent.

Although offshore outsourcing has come as a shock to some U.S. workers, such as programmers whose jobs have been outsourced to India, it’s still relatively small compared with more traditional trade. Some economists have warned, however, that millions or even tens of millions of workers who have never thought they could face foreign competition for their jobs may face unpleasant surprises in the not-too-distant future.

Concerns about income distribution and outsourcing, as we’ve said, are shared by many economists. There is also, however, widespread opposition to globalization in general, particularly among college students. In 1999, an attempt to start a major round of trade negotiations failed in part because the WTO meeting, in Seattle, was disrupted by antiglobalization demonstrators. However, the more important reason for its failure was disagreement among the countries represented. Another round of negotiations that began in 2001 in Doha, Qatar, and is therefore referred to as the “Doha development round.” By 2008 it had stalled, mainly due to disagreements over agricultural trade rules. As of 2014 there was little sign of progress although the round was still being officially negotiated.

What motivates the antiglobalization movement? To some extent it’s the sweatshop labor fallacy: it’s easy to get outraged about the low wages paid to the person who made your shirt, and harder to appreciate how much worse off that person would be if denied the opportunity to sell goods in rich countries’ markets. It’s also true, however, that the movement represents a backlash against supporters of globalization who have oversold its benefits. Countries in Latin America, in particular, were promised that reducing their tariff rates would produce an economic takeoff; instead, they have experienced disappointing results. Some groups, such as poor farmers facing new competition from imported food, ended up worse off.

Do these new challenges to globalization undermine the argument that international trade is a good thing? The great majority of economists would argue that the gains from reducing trade protection still exceed the losses. However, it has become more important than before to make sure that the gains from international trade are widely spread. And the politics of international trade are becoming increasingly difficult as the extent of trade has grown.