Better Trade

The traditional approach to proving the usefulness of trade is through absolute and relative advantages. The usual issue with this approach is that some numbers only demonstrate partial benefits mathematically. The other issue is that this approach requires abstract thinking, typically needed by senior researchers. We tried to develop a better approach for elementary schools and busy decision makers.

Imagine two cities, such as Los Angeles and Shanghai. Each has its own steel mill and construction firms. To build two office buildings in each city, the firms calculate using a steel tonnage price of $2,000. This is their budget. The steel mill is usually large and a monopoly to local businesses. Their cost is $1,000, but they sell the steel for $2,000. As a result, only half of the buildings are built.

Let's introduce trade. A shipping company like Amazon or Mercado Libre can now ship a ton of steel for $100 overseas. Each city can afford almost double the steel for a price of $1,100, since the local mill now has a remote competitor at this price.

Remember, this scenario does not require an absolute or even relative edge in steel production. Not just that, the shipping company can rely on the extra savings of $900 by the construction companies to invest in more ships to sell more steel. The steel mill gains extra customers and a safer supply chain portfolio, resulting in lower interest rates.

This example clearly explains the benefits of non-exclusive agreements. The traditional approach of describing trade for relative and absolute advantages comes from the Victorian age. It assumed scarcity, limited education, and hard work. The new approach without exclusive agreements allows higher outputs, better universal government services, and lower prices.

Trade exists without disparities. Unions thrive.

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