How is trade profitable for both countries involved? Surely one loses out in the end.
In: Economics
This is a short video that explains this from a basic theoretical standpoint (Ricardian model) this is probably the foundation of macroeconomic studies
[https://www.youtube.com/watch?v=tPcBIlSj0zg](https://www.youtube.com/watch?v=tPcBIlSj0zg)
The general statement is that trade is “beneficial” to both economies because “profitable” might have a different meaning. In this sense “beneficial” means that, after trade, both countries can consume more goods than they otherwise would if no trade occurred.
But it should be pointed out that “beneficial” is defined in terms of the ENTIRE economy. But there is definitely no guarantee that EVERY MEMBER of the economy benefits or benefits in the same way with trade. I.e. there will be individual winners and losers within a country when trade occurs.
Trade only occurs when both parties require one thing and have excess of another. For example if a farmer and a blacksmith live in a village, the farmer would trade wheat to the blacksmith for a sickle or something. Both parties profit. But when it comes to countries it is usually because of a lack of resources.
I’m very good at making baskets. I can make 10 baskets each day. You’re very good at making chairs. You can make 10 chairs each day. We both want to have baskets *and* chairs.
I’m not so great at making chairs. I can make 4 per day if I put all my effort into chairs. But if I do that, I’m not making baskets. So on my own, I could maybe manage 2 chairs, and 5 baskets. Likewise, you on your own could do 2 baskets, and 5 chairs.
But if I make 10 baskets, and you make 10 chairs, and we then give each other half of our product, we both have 5 baskets and 5 chairs, and are thus both ahead.
Because value is relative, not absolute.
If one country has a lot of oil but little food, food is more valuable to them and oil is less valuable to them. If they trade oil for food with a country that has the opposite situation, both countries benefit because countries have traded something less valuable for something more valuable.
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