Trade integration leads to optimal protection levels for economic stability.
Increasing trade integration can impact individual utility in a complex way when the international specialization pattern is uncertain. A model with a variety of goods shows that while more trade integration can lower prices and boost income, it can also increase the risk of job displacement if a sector closes down due to foreign competition. The study suggests that there is an optimal level of protection needed, which is higher when price reductions from trade are small and when countries have similar technologies.