Hamilton understood Smith’s free-market, free-trade arguments and agreed that if all nations played by Smith’s rules, free trade would be the best policy for the fledgling United States to adopt. But he noted that neither the U.K. nor any other nation yet adhered to the conditions Smith laid out, and warned that it would be folly for the U.S. to be the exception. George Washington sided with Hamilton on the issue. In contrast to most of his upper-class peers, Washington wore only garments made of domestically produced fabric, and emphasized that he bought no cheese or beer “but such as is made in America.”

When the War of 1812 was nearly lost for want of the young nation’s capability to produce the necessities of war, Jefferson changed his mind. Declaring that “manufactures are now as necessary to our independence as to our comfort,” he came around in support of high tariffs to protect American industry. Thus, from shortly after the war to about 1950, the United States enacted mercantilist trade and industrial policies; by 1900, it had become the richest country the world had ever seen.

By the end of World War II, with the economic infrastructure of Europe and Japan in ruins, virtually every American industry could out-compete those in the rest of the world. American industry was so strong, in fact, that it no longer needed the help and protection of the government. Rather, it needed the rest of the world to recover economically from the war, so that there would be markets open to its exports and investment. And once there were, the U.S. would gain from pursuing policies that promoted globalization.

The theory behind globalization was first enunciated in 1817, when the British banker David Ricardo outlined the concept of comparative advantage. Using the example of the production of cloth and wine in Britain and Portugal, Ricardo posited that Britain needed 100 hours of labor to produce a unit of cloth and 120 to produce a unit of wine, while in Portugal the time required was only 90 hours for cloth and 80 for wine. Portugal was the lower-cost producer of both products, but Ricardo’s key insight was that the Portuguese had a bigger advantage in wine than in cloth. If both countries specialized in the product in which they held a comparative advantage and traded for the rest, the global amount produced of both products would be greater and each country would have more of both.

Economists after Ricardo added more specifics to his ideas. They theorized that global trade flows were determined by a given country’s endowments of labor, capital, and natural resources. Nations with lots of cheap labor would produce labor-intensive products (shoes, textiles) while those with a lot of capital would produce capital-intensive products (machinery, cars), and those with abundant natural resources (oil, ore) would mine and export them.