Trade is a Win, Win, Win

January 21, 2018

I trade with my local grocery store.  Yesterday I bought three strip loin steaks for $22.  Why did this trade happen?  I valued the three strip loan steaks at more than $22 cash and my grocery store valued my $22 cash more than they valued the steaks.  Trade is voluntary.  I didn't have to buy the steaks and they didn't have to sell them.  At a $22 price, we both benefit from the trade. 

 

This is true when nations trade.  Both sides benefit.  There will be winners and losers within each country but both countries are net beneficiaries.  There is a much talk in the US about the negatives of trade with threats of ripping up trade agreements.  Trade agreements should be updated periodically and the bluster may be only pre-negotiation but it would be foolish to end or even reduce trade.  

 

One thing I would point out to the Trump administration is that trade is measured by the price of the good being traded; not the profit of the sale of the good being traded.  China exports roughly 4 times more to the US than it imports from the US.  This sounds bad for the US.  However, we don't know the profit margin of the trade. If the profit  margin is 4 times higher on US exports than China exports, the profit from the trade is roughly equal.   It isn't difficult to imagine that the US exports more higher margin products than most other countries.  The profit margin on a Boeing 767 is substantially higher than the profit margin on t-shirts.  

 

Canada runs a trade surplus with the US.  We perennially export approximately 10% more than we import.  This threatens no one.  Trade is a win - win.

 

The third "Win" in the title is that nations that trade with each other don't go to war with each other.  There is more to lose in a war between nations that trade with each other compared to nations that don't.  More citizens will pressure a home government to settle tensions when nations trade.  International trade makes the world safer.  

 

 

 

 

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