In 1776, Adam Smith famously asked: “Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?” It was his way of ridiculing the idea of economic protectionism. His solution? Let countries do what they do best, and let trade do the rest.
That single thought launched what would become the foundation of global trade for centuries. Smith believed in “absolute advantage”—that if a country could produce something more efficiently than others, it should do that and import the rest. A tailor should make clothes, not shoes, and vice versa. Why should a nation be any different?
But Smith wasn’t the only early architect of the modern global economy. David Ricardo came along not long after and refined the idea further with “comparative advantage.” Even if one country was better at making everything, it still made sense to specialize. He explained it through a simple example: Portugal and England, wine and cloth. Even if Portugal could produce both more efficiently, it would still benefit from trading wine for England’s cloth, as it had a relative edge in making wine.
These ideas—the twin pillars of free trade—ushered in centuries of increasingly borderless commerce. They were the guiding principles behind what we now call “globalization.” And for the most part, the world bought into the idea—until recently.
The Globalization Boom—and Bust
From the early 1990s to the mid-2010s, the world saw an explosion in global trade, manufacturing integration, and cross-border investments. Factories in China churned out everything from smartphones to socks. India became a digital back office for the planet. The U.S., Europe, and others imported what they needed, trusting in global supply chains to deliver efficiently and affordably.
This was the era of hyper-globalization. It wasn’t just about trade anymore—it was about building a world where national borders mattered less in business. Where wine came from France, microchips from Taiwan, and software from Bangalore. Where, as Ricardo envisioned, countries didn’t try to do everything—they just did what they were best at.
But those rules started to shift, gradually at first, then suddenly.
Enter Trump, Tariffs, and the Semiconductor Shock
When Donald Trump came to office, he wasn’t interested in playing by the Smith-Ricardo playbook. He questioned free trade agreements, slapped tariffs on allies and adversaries alike, and promised to bring manufacturing back to American soil. For many economists, this was heresy. For much of Washington, it was politics. But underneath the headlines, something deeper was happening.
Trump’s trade moves weren’t just about economics—they were about power, sovereignty, and control. And nothing illustrated that better than semiconductors.
For decades, the U.S. was content to let other countries manufacture its chips. Taiwan became the beating heart of this industry, with the Taiwan Semiconductor Manufacturing Company (TSMC) controlling more than half of the global chip market and a staggering 90% of the most advanced chips used in artificial intelligence and military technology.
Under the old rules of comparative advantage, this was fine. Taiwan made chips better and cheaper. Why not let them?
But what happens when geopolitics enters the chat?
The Fragility of Global Supply Chains
As Taiwan’s importance grew, so did global anxiety. What if China moved on Taiwan? What if tensions escalated in the Taiwan Strait? The world had placed a bet—one that now looked dangerously risky. If that bet failed, everything from iPhones to fighter jets could be at stake.
The pandemic only made things worse. COVID-19 broke supply chains in ways no one saw coming. Then came the Russia-Ukraine war, which reminded everyone how fast international norms could be upended. Suddenly, relying on distant partners didn’t feel smart—it felt reckless.
Washington got the message.
Biden Picks Up the Baton
Surprisingly, the shift didn’t stop with Trump. When Joe Biden took office, he doubled down. In 2022, his administration passed the CHIPS and Science Act, a sweeping law aimed at rebuilding America’s domestic chip-making capabilities. TSMC, the crown jewel of Taiwan’s semiconductor industry, agreed to build massive factories in Arizona—three of them—pumping over $65 billion into the project.
By the end of 2024, the first plant was up and running, producing high-end 4nm chips. More fabs are coming, with promises of even more advanced 2nm chips by the decade’s end. Washington also backed this effort with $6.6 billion in subsidies.
Make no mistake: this is industrial policy in action. It’s not about efficiency anymore. It’s about resilience, control, and national interest.
Goodbye Ricardo, Hello Realpolitik
So what does all this mean?
The Smith-Ricardo worldview assumes the world is rational, peaceful, and economically motivated. But we now live in a world where war, pandemics, and political risk can disrupt the flow of goods overnight. Comparative advantage doesn’t look so appealing when your most critical technologies come from one island, one company, or one region.
Globalization hasn’t ended—but it’s evolving. Trade is no longer just about price and efficiency. It’s about who controls what, where it’s made, and how secure those supply chains are.
In this new era, governments aren’t just encouraging trade—they’re picking winners, funding factories, and drawing lines on the map that never mattered before. Economists might cringe, but policymakers see no choice.
The New Playbook
We’ve come full circle, in a way. The wine in Smith’s analogy might still be imported—but not the chips that run your car, your phone, or your defense systems.
Tariffs, subsidies, and state intervention are back. Globalization’s golden age may be over, replaced by something messier, more cautious, and deeply strategic.
And maybe, just maybe, Adam Smith’s Scottish wine might finally have a chance.