Global trade debates often get mired in complex policy talk and nationalistic rhetoric. But what if the case for free trade could be made using nothing more than elementary math?

photo credit: Markus Winkler / Pexels

In this thought-provoking explanation, we revisit a classic business school example that reveals a fundamental economic truth: even when one country (or business) is better at everything, trade can still make everyone better off. It’s a simple yet powerful insight that every small business owner—and policymaker—should grasp.

CTO Larsson has just published an interesting take on tariffs, explaining the basic concept of trades and how tariffs are misunderstood.  Here’s the recap and lessons learned from the video.  The video can be found at the end of this article.

The Baseline Scenario: Who’s the Better Farmer?

Imagine two farmers: Larsson and Donald. Each has two plots of land. Both grow potatoes and olives. But Donald is better—at everything.

• Larsson:

  • 120 potatoes per plot

  • 150 olives per plot

• Donald:

  • 150 potatoes per plot

  • 300 olives per plot

After farming their land without trading or specializing, they end up with:

• Larsson: 120 potatoes, 150 olives

• Donald: 150 potatoes, 300 olives

Donald is clearly the “better farmer.” But that’s not the point.

Enter Comparative Advantage

Even though Donald outperforms Larsson across the board, he’s massively better at olives (2x better), while only slightly better at potatoes.

This opens the door to specialization.

Let’s say:

• Larsson focuses 90% of his land on potatoes, 10% on olives

• Donald focuses 72% of his land on olives, 28% on potatoes

Production becomes:

• Larsson:

  • 216 potatoes

  • 30 olives

• Donald:

  • 432 olives

  • 84 potatoes

They Trade:

• Larsson sends 80 potatoes to Donald

• Donald sends 126 olives to Larsson

New totals after trade:

• Larsson: 136 potatoes, 156 olives

• Donald: 164 potatoes, 306 olives

Both have more of everything.

Wait—How Is That Possible?

This is the magic of comparative advantage. Donald was already better at everything, yet trade still made him even richer. And Larsson, despite being less productive, also came out ahead. They both win.

The Real-World Lesson

This basic model applies to countries just as it does to farms. China, for instance, has become highly efficient at manufacturing—not just in cost, but in speed and quality. Meanwhile, the U.S. dominates in software and services. Each nation has its strengths. Trying to be “self-sufficient” or “better at everything” isn’t just inefficient—it’s self-defeating.

A Second Example (Larsson Has the Advantage Now)

Let’s flip the script. Now Larsson is better at potatoes, Donald better at olives.

• Larsson:

  • 300 potatoes max, or 100 olives

• Donald:

  • 120 potatoes max, or 360 olives

They specialize 70% of their capacity on their strength, and trade.

• Larsson: 210 potatoes, 30 olives

• Donald: 252 olives, 36 potatoes

They trade:

• Larsson sends 40 potatoes to Donald

• Donald sends 40 olives to Larsson

Post-trade outcome:

• Larsson: 170 potatoes, 70 olives

• Donald: 76 potatoes, 212 olives

Again, both are better off. Donald gains 26% more potatoes and 17% more olives. Larsson gets 40% more olives and more potatoes too.

Here’s the full explanation made by CTO Larsson in his video:

Why Tariffs Disrupt This Balance

Tariffs, by design, block this natural flow of goods. They act like taxes on collaboration, penalising businesses and consumers alike. If Larsson and Donald had tariffs between them, their efficient trade would be disrupted. Each would be forced to be self-reliant, producing everything at lower efficiency, leading to fewer total goods—and both would be worse off.

This is precisely what’s playing out on the global stage. The U.S.–China trade war, for example, stems from perceived imbalances and the desire to regain control over domestic manufacturing. But instead of levelling the playing field, tariffs often lead to higher consumer prices, disrupted supply chains, and retaliatory measures that harm exports. As the video points out, “China is massively better at manufacturing,” not just in cost, but in speed, scale, and quality. Conversely, the U.S. dominates in internet services. These are not weaknesses to defend against—but strengths to leverage.

A Dangerous Escalation

The video warns that without a reversal, tariff wars may soon spill into services—areas like cloud computing, digital infrastructure, and software where American companies currently lead. The result? A fragmented global economy, with duplicate systems, reduced efficiency, and higher costs for everyone.

Such a fragmentation would hit small businesses especially hard. SMEs often lack the capital to reconfigure supply chains or absorb tariff-induced cost increases. Their margins are thinner, their operations more vulnerable to uncertainty, and their customers more price-sensitive.

Conclusion: Tariffs Don’t Make Sense in a World of Trade-Offs

If this simple math holds true, then protectionist tariffs do more harm than good. Even when one player is “superior,” trade creates more value for everyone. For business owners, this is a critical reminder: partnerships—even with stronger players—can unlock mutual growth.

For policymakers, the message is even clearer: instead of doubling down on trade wars and tariffs, lean into cooperation and specialization. It’s the one equation that adds up for everyone.