Who's our largest trading partner? Canada. Now, honestly, what does Canada produce that a) we can't make here for the same or lower cost and b) is worth 224 billion dollars?
You're not entirely wrong about that...
Often things are made somewhere simply because that's where they were made in the past, and, as you said, it's easier to ship the goods than to set up shop somewhere else. In the case of trade between the United States and Canada, most of the relevant comparative advantages occur on the level of firms and individuals, not nations.
I agree, but I don't see how that supports free trade in quite the way Krugman used it. When the countries are outwardly similar, the partner's "comparative advantage" is then often an economy of scale, which is a good reason to centralize, or a capital investment, which isn't necessarily. Then free trade is made a bit more transparent and we can start arguing about what we want to maximize - efficiency or [insert metric here].
But sadly, I'm pretty sure that sometimes there's no comparative advantage at all. Sometimes trade is profitable even ...
I would like to learn more about economics but I don't know where to start. Can lesswrong suggest specific areas of economics that are particularly useful for understanding and optimising the world? Specific suggestions such as reading lists and resources would also be much appreciated.