Market integration directs resources toward higher-value uses, but the resulting spatial reallocation of economic activity can generate local spillovers. Communities may anticipate these spillovers and seek local control, limiting gains from trade via local protectionism. Exploiting differential exposure to the integration of the world's largest water market, we quantify the incentives driving protectionism and the market consequences of local control using two complementary research designs. First, we estimate how reform-induced water reallocation affects specific local outcomes: a 10% decrease in local irrigation reduces household incomes by 3%, agricultural employment by 6%, and population by 4%. Second, using a dynamic residential choice model, we recover a distribution of household willingness to pay to retain the broader local benefits of irrigation. Aggregating household valuations by location, median willingness to pay for irrigation is AUD $119/ML, with 13.5 percent of locations valuing water above the average market price of $235/ML. We combine these valuations with estimates of agricultural productivity to quantify how community veto rights would limit trade. Under asymmetric information, where transacting farmers must compensate communities for their privately known value of water, only 49% of trades remain feasible. The cost of local control depends on information and on whether positive spillovers can finance compensation for affected communities.