Over time, the U.S. has increasingly integrated into the world economy. Back in 1971, international trade was a minor part of the U.S. economy. Imports were 5.4 percent of the value of GDP. By 2021, this figure rose to 14.8 percent (data from the St. Louis Federal Reserve). The increase in the relative importance of trade had an important consequence: it allowed the U.S. economy to become more efficient, which in turn enhanced the economy’s growth. This economic growth was substantial. While it may be hard to imagine, inflation-adjusted per capita GDP has more than doubled since 1971. To restate this in simpler terms, the U.S. economy is producing twice as much output per person now compared to what it produced in 1971.
How did trade make the economy more efficient? Economists give two reasons. First,…
