Economists suggest that multilateral trade between many countries is preferable to bilateral trade between two countries.
Why is this?
1 )
Bilateral trade means that trade diversion is always greater than trade creation.
Bilateral trade misses the benefit of trade with third countries.
3 )
Gains from bilateral trade are less than the harm done to third countries.
4 )
Gains from comparative advantage cannot apply in the case of bilateral trade.
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