International Trade & Wealth (Pt. 2)

International Trade & Wealth (Pt. 2)

Lets assume that the production possibility of country A is 100 units of item c or 50 units of item d. Country B has a production possibility of 100 units of item d and 50 units of item c. If neither country does trades they could each produce some of each item and come up with a net production of about 70 units depending on what it needs of each item.

By trading with each other each county could have a net gain in production of about 30 units or almost 43%. This is a gross over simplification and does not take into account the possibilities of increased production from economies of scale. This suggests that each country is at least 43% richer because of the trade. The reality is greater because the increased efficiency in production makes the items cheaper for the citizens of each county. This allows them to buy more and further increase production somewhere and increase profits at every stage of the manufacturing and distribution system.

Duties and tariffs do not actually stop trade. What they do is “skim” the profits and reduce the effects of savings and efficiency in the market. Protective tariffs are often counterproductive. The USA tried to protect the steel industry which had about 200,000 jobs with a protective tariff. The result was to drive the steel using industries which employed 10’s of millions offshore. Eventually this hurt the steel industry as well.




David Segrest is a REALTOR in Charlotte NC. His website is http:www.segrestrealty.com .