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A Tale of Two Islands – Part II: The Negotiation January 20, 2014 7:59 AM | Tagged as Comparative Advantage, Trade

WSJ January 6, 2014 Page A11:  NAFTA at 20: A Model for Trade Policy by Mary Anastasia O’Grady

WSJ January 13, 2014, Page A15:  Leading from the Front on Free Trade by Robert B. Zoellick

With our two islands now trading, both islands are better off. But then something goes awry. The Apple Island makes an accusation that they are getting the worse part of the trading deal. They are getting one bushel of oranges for one bushel of their apples. The apple island knows oranges need to be peeled. The food content is less and it is a bother. The apple island proposes that they bring one bushel of apples and get in return two bushels of oranges.

The orange island begs to differ. The apple island has a health problem. The apple island suffers from malaise, spots on their skin, and bleeding.  The orange island has no such health issue. It is clear to the orange island seaman that the apple island outrigger seamen are now looking more healthy since the advent of the trading relationship. (This is scurvy which is cured by the vitamin C in citrus.) They demand that they bring one bushel of oranges and receive two bushels of apples.

After some deliberation, the two islands agree that the apple island will bring three bushels and receive two bushel of oranges.

Question: Who lost?

Answer: Neither island lost. The orange island will receive more benefit from this trading relationship, but both islands are better off than before trading began.

Negotiating skills are important in trade. One partner may do better than the other, but neither loses.

[The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.]


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