The Basic Laws of Trade: Reconstructing the Theory of International Trade

Abstract

We develop hypothetical basic laws of trade that could reconstruct the theory of international trade and optimize gains of trade for all nations. According to the theory of comparative advantage of David Ricardo and Ohlin-Heckscher, countries with different resources and technology will benefit from trading, regardless of competitiveness. However, in the real world, this theory does not always work well. Some countries may gain a lot from trading, some only a little, and some may even lose. The total gain for all parties is also not optimal. The basic laws can fix this problem from the foundation. The laws restore the trade balance at the very heart of international trade. In that way, the basic laws make all countries benefit from trading, regardless of competitiveness and cost. Gains from trade are also optimal for all parties. To demonstrate the workability of this hypothesis, we make trade simulations 2x2 and 5x20.

A Conceptual Model For a Decentralized Central Bank Digital Currency

“…Trade competitiveness or comparative advantages between member countries are relatively balanced. Simulations in (Rahman, 2022b) proved this.…”

“…If they trade, the trade is relatively balanced too, with not excessive surplus and not excessive deficit. Simulations in (Rahman, 2022b) proved this.…”

Proposal for a Balanced and Stable International Monetary System

“…A detailed description of how this equation developed is in (Rahman, 2022a, pp. 323-347) and (Rahman, 2022c). The equation is as follows: Our simulations will prove the above two hypotheses.…”