When I was a full-time economics professor at the Naval Postgraduate School, I always taught my master’s students about comparative advantage. I showed them that if two people were on a desert island and discovered each other, they could each have more by specializing in producing the good in which they had a comparative advantage and trading for the other good. I would then go from a simple numerical illustration to three other important points.
First, I expanded from an island to a country, showing why it makes sense for people in California to trade with people in New York. Second, I expanded from a country to the world, showing that national borders don’t change the reasoning: people in the United States gain from trading with people in China, in Canada, or in any other country. Third, I showed how they implicitly recognized comparative advantage in their jobs. Many of my students had overseen dozens to hundreds of people. They realized, if only from experience, that even if they could do the jobs of their underlings better and more quickly, it was a fool’s errand to do their underlings’ jobs because that left less time for them to do their jobs.
I would then get into the fact that when trade is opened to the world, some businesses lose their business, and some workers in those businesses lose their jobs, to lower-cost foreign producers. Some workers will be worse off, I noted, for at least a few years, finding jobs that might pay 20 percent less than what they previously had earned. The threatened loss from foreign competition would lead some businesses and workers to lobby for tariffs or import quotas to make foreign goods less attractive to domestic buyers.
Students were excited about their new knowledge, but some were pessimistic about the prospects for free trade. They realized that most people don’t understand the argument they had just mastered and, therefore, the students figured that we were stuck with high tariffs. Then I gave them a pleasant surprise. I showed that tariffs had fallen every decade since World War II and were now a small percent of what they were before World War II.
This is from David R. Henderson, “The Benefits of Free Trade Are at Risk,” Defining Ideas, February 20, 2025.
I then get into the details about how tariff rates have fallen worldwide to a fraction of what they were before World War II, and show how that is now at risk.
Read the whole thing, which is longer than my usual Hoover article.
