The arguments for free trade and its extraordinary benefits were made more than 200 years ago by the handsome economist David Ricardo. Three years from now we can celebrate the 200 anniversary of his publication of the theory of ‘comparative advantage’.
Ricardo understood the simple relationship between one person who lives in a banana forest and another person who lives in a cotton field. Ricardo understood that the person living in the banana forest should be selling bananas to the person who lives in the cotton field in return for the cotton. That the existence of tariff barriers was forcing the person who lives in the banana forest to try and grow cotton and learn to weave and vice versa. With trade barriers in the way neither person was making the most effective use of their resources or talents.
To bring this issue up to date and help my readers understand the extraordinary benefits of free trade in the United States, especially since the early 1960s, we need to consider two locations in the world where the per capita income is significantly different.
One is Brazil where the average income is about $12,000 per person per year. Brazil has vast resources of every sort including fertile land, water, forests, oil and minerals. The second is Singapore. Singapore is a tiny island, (technically a peninsula) connected to Malaysia with virtually no resources other than dirt, sun, sand and a very good harbor. The average income in Singapore is about $50,000 per person per year.
So how can the nation with vast space and resources have such low per capita income compared to the tiny island that has no resources?
The answer to this question is simultaneously one explanation of why the United States is so rich. Singapore is a trading nation; it lives entirely on trade. It doesn't produce anything other than what it can add to the value of any good or service that it imports. Singapore imports raw products and applies value to those products; it resells them as exports. It is a pure trading nation, (a Ricardian paradise) and it is considerably richer than any nation that lives on its resources.
Trade is the source of nearly all wealth in the world.
The United States has been the beneficiary of an aggressive free-trade policy for most of its history but especially since the 1960s. It has always been the Republican Party that pushed for greater free-trade.