The Rising Tide: How Trade Lifts All Boats

Free exchange turns scarcity into abundance for rich and poor alike.

Walker Wright — Aug 15, 2025

Summary: Trade has been a driving force behind economic growth, poverty reduction, and rising living standards across the globe. Far from harming the poor, open markets have helped lift billions out of extreme poverty while improving health, education, and life expectancy. History and modern evidence alike show that free exchange expands the economic “pie” for everyone, making prosperity the norm rather than the exception.

In his book The Rational Optimist, the British science writer Matt Ridley argued that economic progress began when people began to trade. “By exchanging,” he explained, “human beings discovered ‘the division of labour,’ the specialisation of efforts and talents for mutual gain… The more human beings diversified as consumers and specialised as producers, and the more they then exchanged, the better off they have been, are and will be.” For Ridley, “exchange is to cultural evolution as sex is to biological evolution.”

The Scottish father of economics, Adam Smith, recognized the economic potential of trade when he noted that “the liberal system of free exportation and free importation” is “not only the best palliative of a dearth, but [also] the most effectual preventative of a famine.”

While economists disagree on several policy issues, trade is generally not one of them. For example, survey data suggest that 95 percent of economists agree that tariffs tend to reduce economic welfare. Another 90 percent do not think the United States should restrict outsourcing.

You’d never know that by listening to today’s political debates. While protectionism is nothing new, the recent rise in anti-trade policies is an unfortunate setback for the United States and for the world.

Far from a rigged game that exploits those at the bottom, the globalization of the market system has brought global extreme poverty to its lowest levels in human history (Figure 1). That is why the Turkish-American Nobel Prize–winning economist Daron Acemoglu and his coauthors have described the creation of the market system as “one of the greatest achievements of humankind.”

Figure 1. Share of global population living in extreme poverty, including and excluding China.

*Sources:* World Bank Poverty and Inequality Platform 2024; Our World in Data 2024.

Note: Extreme poverty is defined as living below the International Poverty Line of $2.15 per day. These data are adjusted for inflation and for differences in living costs between countries. These data are expressed in international dollars at 2017 prices. The data relates to income measured after taxes and benefits, or to consumption per capita.

Furthermore, despite claims to the contrary, the United States’ participation in the global economy has significantly benefited American consumers and workers. Real incomes have not stagnated over the past few decades. They’ve risen, including for those at the bottom of the income distribution (Figure 2).

Figure 2. Real median personal income in the United States

*Source:* Federal Reserve Economic Data (FRED), St. Louis Fed

Note: Shaded areas indicate US recessions.

Nor has international trade hollowed out American manufacturing. While employment in the sector has declined as a result of automation and productivity gains, manufacturing output—especially output per worker—has increased.

As Michael Strain from the American Enterprise Institute observes, “America is upwardly mobile, particularly for those nearer the bottom of the income distribution. Incomes aren’t stagnant. Workers do enjoy the fruits of their labor. The argument that life hasn’t improved for typical households in decades borders on the absurd. The game is not rigged. The American Dream is not dead (Figure 3).”

Figure 3. Average real wage at percentiles of the wage distribution

*Source:* Michael Strain, *The American Dream Is Not Dead*, p. 47.

In a 2020 article, I reviewed the scholarship linking trade to economic growth and poverty reduction. Overall, the empirical literature shows that trade reduces poverty predominantly through economic growth. Critics sometimes claim that growth leaves those at the bottom behind. It may improve the average, they say, but only because of large income boosts at the top.

That talking point is simply untrue. Economic freedom, including openness to trade, and growth have been shown to improve incomes across the board. A rising tide truly does lift all boats, not just the yachts of the wealthy. Growth positively touches every tier of the economic ladder. A bigger economic pie means better living standards for everyone involved, making economic growth pro–poor.

The Indian economist Arvind Panagariya has documented trade’s role in the economic success of Hong Kong, Singapore, Taiwan, South Korea, India, China, and other countries throughout Asia, Africa, and Latin America. Across more than 200 jurisdictions and five decades of data, he found a causal relation between trade and per capita income: the countries that experienced intensive growth always maintained a high and/or expanding trade-to-GDP ratio.

In a new review of the literature, Dartmouth’s Douglas Irwin found the same thing. The empirical research on trade liberalization has been “remarkably consistent” in its conclusion that open trade fosters growth in productivity and, therefore, standards of living (Tables 1 and 2). Tariffs, on the other hand, hold growth, productivity and standards of living back. Previous literature reviews have come to similar conclusions. That is why economists from all sides of the political spectrum come together on trade.

Table 1. Selected studies of trade reform and economic growth.

*Source:* Irwin, “Does Trade Reform Promote Economic Growth?” p. 162.

Despite the populist rhetoric about helping the American workers and consumers, those same workers and consumers end up eating the cost of tariffs in the form of higher prices. The negative effects of protectionism also have a disproportional impact on the poor, who tend to gain the most from trade.

And keep in mind that living standards aren’t just about income. Open market economies have higher adult literacy rates, longer life expectancies, lower infant mortality rates, better environmental stewardship, and greater life satisfaction than closed economies do. As Nobel Prize–winning American economist Robert Lucas wrote, “The consequences for human welfare involved in questions [about economic growth] are simply staggering. Once one starts to think about them, it is hard to think about anything else.”

Table 2. Selected studies of trade reform and industry productivity

*Source:* Irwin, “Does Trade Reform Promote Economic Growth?” p. 168.

Note: TFP = total factor productivity.

Income inequality is a major criticism of an open economy, but, interestingly enough, most studies find no relation between greater economic freedom and income inequality (though the findings are somewhat mixed). It’s worth noting that concerns over income inequality are often concerns over inequality within already rich countries. When it comes to inequality, in other words, it tends to be the global rich arguing with the super global rich (and much of that concern is overblown).

But look at the bigger picture. Overall, globalization has led to both a decline in global poverty and global inequality (Figure 4).

Figure 4. Global income inequality: Gini index, 1820–2020

Note: Global inequality, as measured by the global Gini coefficient, rose from about 0.6 in 1820 to about 0.7 in 1910 and then stabilized around 0.7 between 1910 and 2020. It is still too early to say whether the decline in the global Gini coefficient observed since 2000 will continue.

Income is measured per capita after pension and unemployment insurance transfers and before income and wealth taxes.

According to the 2024 “Economic Freedom of the World” report, the share of income earned by the poorest 10 percent in the most economically free countries is about the same as that of the poorest 10 percent in the least economically free countries. In other words, the income distribution—the slicing of the economic pie—looks the same across countries, no matter the level of economic freedom.

Figure 5. Economic freedom and income share of lowest 10 percent

*Source:* *Economic Freedom of the World: 2024 Annual Report*, p. 28.

But the amount of income earned by the poorest 10 percent in the most economically free countries is eighttimes that of the poorest 10 percent and slightly more than the average person in the least economically free countries (Figures 5 and 6). The poor’s portion of the economic pie may be the same across countries, but free countries have bigger pies.

Figure 6. Economic freedom and income share of lowest 10 percent

We did not redistribute our way into riches or plunder our way into prosperity. Instead, the historical shifts both institutionally and culturally in favor of a trade economy led to a radical upsurge in material well-being that the American economist Deirdre McCloskey has aptly labeled “The Great Enrichment”:

In the two centuries after 1800 the trade-tested goods and services available to the average person in Sweden or Taiwan rose by a factor of 30 or 100. Not 100 percent, understand—a mere doubling—but in its highest estimate a factor of 100, nearly 10,000 percent, and at least a factor of 30, or 2,900 percent. The Great Enrichment of the past two centuries has dwarfed any of the previous and temporary enrichments.

It’s not that we suddenly figured out how to slice up the economic pie just right. We made the pie 2,900 to 10,000 percent bigger through commercial exchange. When the pie is bigger, there’s more pie to go around. And we’re all richer for it.

World Bank | Income Inequality

High-Inequality Economies Have Declined by More Than One-Third

Jul 17, 2026

“A measure that captures prosperity should account for both the level of welfare and level of inequality. A measure that captures inequality, such as the Gini index, is an example of a measure of inclusivity. The World Bank reports the number of economies with high levels of inequality, defined as those with a Gini index greater than 40. Based on this, the number of economies with high inequality has declined by more than a third in the past three decades.”

From World Bank.

World Bank | Income & Inequality

Global Progress Lifts Six Nations Into Higher Income Classifications

Jul 10, 2026

“Since 1987, the global income classification landscape has changed significantly, with the share of economies classified as low-income declining from 30% to 11%. These shifts have not been evenly distributed, however, with some countries moving across income groups much faster than others. This year’s update to the World Bank Group Country Income Classifications shows six countries moved to a higher income category, but each has a different story to tell: a country emerging from economic crisis, an export powerhouse outpacing its peers, and an economy that turned out to be 10% larger than previously thought are just three of them…

This year, none of the countries assessed moved down. Five moved from lower-middle to upper-middle income: Jordan, Micronesia, the Philippines, Sri Lanka, and Viet Nam. One moved from low to lower-middle income: Togo. They reached the same thresholds through very different paths.”

From World Bank.

Blog Post | Income & Inequality

Was COVID Also an Inequality Pandemic?

COVID slowed but couldn’t stop the fall in global inequality.

Chelsea Follett — May 22, 2026

Summary: Recent debates have framed global inequality as rapidly worsening, particularly in response to the COVID-19 pandemic. Evidence from the Inequality of Human Progress Index indicates that, despite temporary setbacks, long-term declines in inequality across multiple dimensions of wellbeing have largely persisted, with global disparities remaining well below 1990s levels.

Affordability fears, talk of a “K-shaped” economy, and claims of a new Gilded Age have pushed inequality to the center of today’s policy debates. Calls for a worldwide wealth tax and other unprecedented measures are not treated as radical but as inevitable—across academia, non-profits, the press, and international organizations, including the United Nations.

The COVID-19 pandemic seemed to clinch the case. As economies contracted and progress in poorer countries stalled, it was easy to assume that decades of convergence between developed and developing countries had come to an end. The authors of one Oxfam paper, for example, proclaimed during the pandemic that “unparalleled action [is] needed to combat unprecedented inequality in the wake of COVID-19.”

New research suggests a more nuanced reality. The updated Inequality of Human Progress Index assesses how the pandemic affected progress toward a more prosperous and equal world.

The pandemic clearly slowed improvement in global living standards and interrupted the pace at which countries were becoming more equal. It did not, however, cancel out the long-term, positive trends. Even under the strain of COVID-19, its attendant lockdowns, and other forceful policy responses, global inequality across key measures of well-being remained lower than it was a generation ago.

The index looks beyond income alone. It measures inequality across eight dimensions that shape everyday life, including lifespan, child survival, nutrition, education, internet access, environmental safety, income, and political freedom. The index, which I co-authored with George Mason University economist Vincent Geloso, seeks to offer a fuller view of gaps in global development, taking into account more aspects of human well-being than any prior index of inequality.

The data show a substantial decline in global inequality over the past three decades as rising prosperity allowed poor countries to narrow gaps with rich ones. That pattern held through 2019. During the pandemic years of 2020 and 2021, progress slowed sharply and, in some areas, stalled or modestly reversed. Yet the earlier gains were not erased.

This distinction is important. COVID-19 was a severe shock. Life expectancy fell worldwide. School closures disrupted education. Economic activity and international trade declined, with especially devastating effects on low-income countries. The index reflects these setbacks. Inequality stopped falling at its earlier pace and, in some measures, edged upward slightly after years of progress. Still, the overall level of global inequality remained far below where it stood in the 1990s.

In a few areas, improvement continued even during the crisis. Internet access expanded rapidly, especially in poorer countries, reducing inequality in access to information to its lowest level on record. Faster regulatory approvals amid the pandemic helped bring more people online. In Kenya, for example, Alphabet’s high-altitude internet balloons were finally cleared in 2020, allowing rural areas to gain internet access for the first time. The project had been stalled in regulatory review for nearly two years before the crisis prompted action.

Not all the data were encouraging. Inequality in political liberty ticked up during the pandemic as many countries took a turn toward greater authoritarianism. Even with the long-term shift toward electoral democracy intact, the setback shows the importance of protecting political liberty during emergencies.

For all the turmoil, the damage across different measures of well-being was thankfully limited.

These findings complicate popular claims that the world is experiencing a runaway increase in inequality. Calls for a global wealth tax, massive new aid commitments, or other significant expansions of state redistribution often rest on the premise that trade and free enterprise have failed to deliver shared gains. The data suggest otherwise.

If anything, the pandemic highlighted how sensitive progress can be to disruptions in markets. Countries with greater economic freedom generally proved more resilient. In contrast, prolonged lockdowns and restrictions often imposed heavy costs on poorer populations, particularly in countries where remote work and online schooling were not viable options for most people.

The broader lesson is that global convergence is neither automatic nor guaranteed, but instead depends on certain conditions such as undisturbed markets, even as long-term progress has proven more robust than critics often assume.

Mistaken narratives about global inequality have real consequences. They shape public opinion and influence policymakers to embrace sweeping interventions. A more accurate assessment of recent history suggests a need for caution.

COVID-19 tested the global economy in ways few events in modern history have. It slowed human progress and exposed vulnerabilities. At the same time, it demonstrated the durability of the long-term trend toward lower global inequality. Preserving and strengthening the policies and institutions that made that progress possible, including economic and political freedoms, remains a better bet than assuming they have already failed. The gains of recent decades have left the world both better off and more equal.

This article was published in the Orange County Register on 2/1/2026.

Demography | Personal Income

Generational Progress on Income Growth Continues in US

Apr 24, 2026

“Whether each generation of Americans continues to economically surpass the previous one has recently been called into question. We construct a posttax, posttransfer income measure from 1963 to 2023 based on the Current Population Survey Annual Social and Economic Supplement that allows us to consistently compare the economic well-being of five generations of Americans at ages 36–40. We find that Millennials had a real median household income that was 20% higher than that of the previous generation, a slowdown from the growth rate of the Silent Generation (36%) and Baby Boomers (26%), but similar to that of Generation X (16%). The slowdown for younger generations largely resulted from stalled growth in work hours among women. Progress for Millennials younger than 30 has also remained robust, though largely due to greater reliance on their parents. Additionally, lifetime income gains for younger generations far outweigh their higher educational costs.”

From Demography.