A Splendid Exchange: Book Review

A Splendid Exchange: How Trade Shaped the World (2008), William Bernstein. My main interest was how trade affected the start (and continuation) of civilization. My working theory is trade was well established long before the start of settled agriculture and had a major impact on continued developments. The problem is lack of evidence. Who were they? Why trade? Local or widespread? Bernstein with training in economics and finance has a lot to offer as evidence that trade occurred, but not this early period I was most interested in.


Early on, he talks about Europeans in the New World, with an emphasis like Charles Mann: the indigenous peoples died in mass due to smallpox and other diseases: “The Indians died like fish in a bucket” (p. 14). Then the Columbian Exchange as New World foods changed the diets of Europe. “Corn … can grow in ‘in-between’ climates too dry for rice but too wet for wheat. An impoverished swath of southern Europe stretching from Portugal to the Ukraine filled this bill precisely. By 1800 it had become one of the world’s largest corn-growing regions” (p. 14). The impact stretched to China. Globalization became a continuous process. “The recent wealth of the modern world was underpinned by the development of property rights, rule of law, capital market mechanisms, and scientific rationalism” (p. 14).


The start date of civilization was the Fertile Crescent. “Mesopotamian records tell of the exportation of surplus grain and cloth from the rich land between the Tigris and Euphrates rivers, as well as the importation of strategic metal, particularly copper, utterly lacking in its alluvial soil. This earliest axis of trade ran 3,000 miles from the hills of Anatolia, through Mesopotamia, out the Persian Gulf, across the shores of the Indian Ocean, and up the Indus River. The hubs of this trade were the successive great centers of Ur, Akkad, Babylon, and Nineveh (all located in modern Iraq” (p. 16). Then the “spread of the religion of trade. … Islam provided the glue that held together an advanced system of great commercial ports. … to trade, to raid, or to protect” (p. 16). Then the Portuguese outflanked the Muslim by sailing around Africa to the Far East, then the Dutch and English. Marco Polo documented much of Medieval trade across the Silk Road, from Italy to China.


Chapter 1: Sumer. Herodotus talked of the “silent trade” between Carthaginians as successful sea faring traders and west Africans. Obsidian (produced at a few volcanic sites) proved trading when found in Jericho and other spots, most likely in exchange for salt. Obsidian fell off by distance from sources. Farmers would transfer grain and livestock for animal skins and other hunter gatherer wares. Warships were narrow and fast, while merchant ships round and holders more goods.


Copper was mined in Anatolia by 6,000 years ago and shipped to Uruk and other Sumerian city-states, traded for grain. Cuneiform texts recorded shipments of barley into the Arabian Pennsylvania at Dilmun around 4,800 years ago for copper. Dilmun would become a large walled city. Fertile Crescent metallurgists combined copper with imported tin to produce bronze by 3500 BC. Bronze was turned into weapons, cooking utensils, and farming tools. Tin was expensive, later derived from Brittany and Cornwall. Other trade goods included linen, frankincense, myrrh and others.

Mesopotamia had water and soil for barley, emmer wheat, fish, and wool, but no metals, timber, and stone. Metals came through Oman and Sinai, granite and marble from Anatolia and Persia, and lumber from Canaan. Similar activity happened in the Indus Valley. Silver became a currency for commerce. “Historical fragments suggest a system of roadways and sea-lanes along a 3,000-mile arc extending from the mountains of Anatolia, southeast throughout Mesopotamia and the Persian Gulf, eastward through the near-shore waters of the Indian Ocean, and northeast up present-day Pakistan’s Indus Valley” (p. 30).


Egyptian trade was by the state, while in private hands in Sumeria by 4,000 years ago. Foreign merchants set up permanent trade colonies. “A cache of seals, uncovered in Mesopotamia, of a sort commonly used in the Indus Valley, and animal-headed pins, native to Mesopotamia, found in the Indus Valley. … The seal informed the purchaser that the merchant had guaranteed the contents of the container” (p. 31). Ditto Anatolia with Uruk stone seals, possibly related to the start of the copper industry. Trade flowed down the Red Sea through Yemen (Punt”) into the Indian Ocean. Phoenicians developed much of the Red Sea trade. Greek and Phoenician states traded and colonized much of the Mediterranean and Black Sea.


The Pax Roman beginning with Augustus extended trade as far as China through India and the Silk Road. Pepper and silk became major trade goods to Rome, while Rome traded mainly bulk goods like cereals, wine, and lumber. The Eastern trade drained Rome’s gold and silver. Civil engineering gave Rome advances in mining. The end of Rome slowed world trade, which expanded under Islam.


Chapter 2: The Straits of Trade. Greece had to trade because of its need for imported grain. Greece could grow oils and grapes given its mountains and poor soil and trade went by sea. The people also focused on fishing, manufacturing (pottery, textiles, and craft goods), and trade. Greece colonized Sicily and other areas around the Mediterranean. Naval strategy emphasized security of sea routes (later, it would be Venice, Holland, and England). Islam would shut down sea routes to India.


Chapter 3: Camels, Perfumes, and Prophets. Camels came from the Horn of Africa and southern Arabia, which are still kept for their milk. Camels were used for transport beginning about 3,500 years ago, using a frame saddle. The camels were in demand along the Silk Road. The most fertile area of the Arabian Peninsula was Arabia Felix in the southwest, Yemen, with about 10 inches of rain a year. Settled Arab farmers shifted increasingly to the camel trade. Frankincense, myrrh, and other aromatics were grown here (ancient Punt, which included Somalia). Myrrh oil could be applied to the body to hide smells. These would find buyers in Babylon, Egypt, and Greece.


Trading hubs expanded out (Palmyra, Shiraz, Uzbekistan, and Iran). Nabatean temples at Petra indicate the importance of trade. Plundering also was an Arab occupation. Plundering increased closer to the finished product and during transport. Thus, incense trade became important to the rise of Islam. The decision was whether to trade, raid, or protect.

Christianity and Judaism spread into Arabia, encouraging their own one God and ideology, which was provided by Mohammed in Mecca. The other two were associated with unliked foreign powers. Mecca was a trading center, in part because of the importance of the Kaaba stone and nearby shrines. Likely trade goods were “dates, raisins, and leather from nearby Taif; frankincense from Yemen; and textiles from Egypt” (p. 70). Mohammed’s cousin and son-in-law became the fourth successor; his murder led to a split in Islam with a Shiite minority (followers of Ali) and a Sunni majority, following strong leaders. Muslim armies took over much of the Ancient World, from western Africa into Spain to the Far East and later, Pacific Islands like Indonesia based on trading rather than attack. Muslim armies defeated Chinese armies and discovered paper. This created a single integrated logistic system. Muslims would add commercial advances like bills of exchange, lending practices, and futures.

Chapter 4: The Baghdad-Canton Express: Asia on Five Dirhem a Day. Genoese naval commander Marco Polo was captured by the Venetians in 1292 and dictated his memoir to a fellow prisoner. Polo had gone with his father and uncle into Mongol-ruled Asia, arriving at the court of Kublai Khan in 1265. The trade of the day went from Portugal in the west as far as Canton in China, down East African coast as far as Mozambique, across the Indian Ocean beyond India to the Spice Islands, into India to Delhi, with potential stops on the Eurasian steppe.


Muslims dominated much of the trade from Damascus and Baghdad. Arab merchants made it from Baghdad to Canton (which included a Muslim community as did Zaitun) by the mid-9th century. Much of the merchandise would sail west under various flags. One new commodity for the west was tea. Other valuable trade goods were silk, porcelain, musk, and jewelry. Bribery was required along the way. Slaves were part of the cargo. Arabian and African goods desired by the East included horses, incense, cottons, grains, and ivory. The Mongols conquered and slaughtered in the 13th century, but eventually converted to Islam. Indonesia converted to Islam based on trade in the 14th century (“believers” were charged lower customs duties). Islam was great at uniting far-flung peoples in one system with efficient trade policies but limited in its interest in considering and borrowing from others.


“Adam Smith … would have approved … the essential recipe for free-market success: an auction process conducted with well-known rules at a single point in time by a large number of well-informed participants, back by government institutions considered honest by the participants” (p. 108). This was a process at Malacca. “Islam’s backbone is a system of law covering all areas of conduct, including commerce … especially attractive to those engaged in any organized economic activity that flourished wherever rules were plainly visible and vigorously enforced by disinterested parties—again, as in more secular English common law” (p. 108).


Chapter 5: The Taste of Trade and The Captives of Trade. Weekly markets in the European countryside were common for gatherings of traveling merchants in towns which couldn’t support permanent merchants. The spice market would sell cinnamon, nutmeg, mace (the outer layer of nutmeg), and cloves. Venetian galleys carried them between medieval Alexandria (also Cairo and Tyre) back to Italy and beyond. Europe produced linen and wool garments. Venetians made fine glass, and slaves filled the major demand—mainly for Muslim armies. Bay leaves, thyme, rosemary, marjoram, and oregano originated in Europe. Supply lines tended to be long and costly. Sea routes were controlled by Muslims, outside the control of Italian merchants. Muslim had slave armies using the mamluk system with the potential for freedom, developing power and wealth. The Crusades made changes. They did capture Jerusalem for a time, and sacked Byzantium.


Chapter 6: The Disease of Trade. William McNeill about 1955 determined that the chaos of the Aztecs when Cortez attacked in earlier in Europe where the same, pandemic bringing chaos. Trade and travel will do that. The Black Death helped create the Dark Ages in Europe, which had little effect on Arabs and early Muslims and a reason they were effective in their invasions and cut off the Silk Road from Europe: “Plague is a disease of trade” (p. 139). The Black Death hit Italy in 1347. Records for the Middle and Far East are lacking, but it certainly hit there. It particularly ravaged the port cities, losing half or more of the population. The same should have happened in the dense Muslim trade cities. It hit Tunis but the tent-dwelling Bedouins were little affected. Some 14 epidemics happened between 1441-1541. The Mongols may have been the primary human vectors. The Chinese were able to throw them out, creating the Ming Dynasty in 1368.


“Before the Common Era, trade was neither rapid enough nor direct enough to allow the widely separated ‘disease pools’ of Asia, Europe, and Africa to interact; plague was isolated by time and distance to its probable birthplace in the Himalayan foothills, as were smallpox and measles to their origin in the Fertile Crescent. With the explosion of long-distance commerce during the Roman-Han era, and later under Islamic and Mongol influence, these diseases savaged distant, defenseless populations. Over the ensuing 1,500 years, the once-separated disease pools of the Old World collided and coalesced catastrophically, and in the end largely immunized Asians and Europeans. The first Western migrants to the New World could not even begin to comprehend the devastation they were about to visit on the native populations … [according to William McNeill] ‘Europe had much to give and little to receive in the way of new human infections” (p. 150). The plague disappeared from England after the Great Fire of London in 1666, suggesting the importance of brink building which replaced the wood did not harbor lots of rats. Modern sanitation and medicine reduced the threat.


Chapter 7: De Gama’s Urge. Crusaders built forts between Egypt and Syria to raid Arab shipping. Powerful Asian states included Aden, Hormuz, Calicut, and Malacca (in Sumatra). The Arab traders had to deal with customs/bribes, pirates, and the elements. Portuguese Captain Vasco de Gama entered Calicut in 1498 (Portugal became independent in 1385) using the greater speed and cargo-carrying capacity of the caravel. De Gama kept detailed record (and his crew developed scurvy, fewer than half returned), noting the peoples and fellow traders. De Gama acted close to piracy in his dealings (“trade negotiations”) because he was heavily armed and could.


Columbus got Spanish funding to head west for the Spice Islands starting at the Canaries. Columbus returned with fool’s gold and chilis he mistook for pepper. Genocide followed Columbus. “Much of the prosperity was due to trade, such as that from the sugar plantations of the Caribbean, the primary work of the settlers was mining, agriculture, and, later, manufacturing” (p. 166). Pope Alexander VI divided the New World between Spain and Portugal in 1494, effectively giving Brazil to Portugal and the rest to Spain. Portugal was a small country and thinly stretched and their crewed often had Asians or slaves.


Portuguese sailor Pedro Cabral in 1500 made a wide sweep of the Atlantic and discovered Brazil. More voyages were made by De Gama and others with many ships and brutal tactics included sacking ports. Albuquerque took Hormuz and Goa in 1510. Ferdinand Magellan went around the world. He did not make it and only 31 of the original crew of 265 did and only one of five vessels. Both Spain and Portugal managed to go broke through wars and royal extravagance. People made wealth, but the countries remained poor and in debt.


Chapter 8: A World Encompassed. Dutch Jews arrived in New Amsterdam in 1654, controlled by the West India Company. The joint-stock company would be a big part of the trade and colonization strategies around the world. “Within a few decades of Columbus’s second voyage in 1493, the exchange of crop species such as corn, wheat, coffee, tea, and sugar between continents had revolutionized the world’s agricultural and labor markets” (p. 199). The discovery of massive silver mines in Mexico and Peru created a silver coin-based monetary system.

Europeans tried to create silkworm industries with mixed success. Wind systems in the temperate zone determined how and where ships moved over the seasons. In the Pacific it was more northerly going east and southernly going west, the opposite in the Atlantic, and different going around Africa and into the Indian Ocean. The annual “Manila galleons” sailed from Mexico with silver west using the equatorial route bound for Manila to exchange for oriental luxury goods, especially Chinese silk.


Sugar cane required a warm climate plus large and steady amounts of rain, then harvesting and refining sugar is difficult work requiring substantial equipment. “The natives of New Guinea were probably the first to domesticate sugarcane, sometime around 8000 BC. Its cultivation spread rapidly to southern China, Indochina, and India, where it flourished in their warm climates. Solid sugar does not appear in the historical record until it’s mention in Indian religious documents from AD 500. Later, Muslim conquerors and traders exported both the cane plant and the techniques for refining it to the Middle East and Europe. … When Europeans took over many of these areas after AD 1000, they inherited cane cultivation and the craving for sugar. The Portuguese transplanted production to their newly discovered tropical Atlantic colonies: first to the Atlantic Island of Madeira, then to the Azores, and later to Sao Tome. … These fertile islands had easy access to slave labor and provided plantation owners with far better conditions than those in the Middle East” (p. 206). The Americas were even better, with the vast forests needed to process the sugarcane. The sugar plantation explosion began in the Caribbean and beyond.


The Dutch West Indies Company (WIC) was established in 1627 as a joint stock company to dominate the sugar market and the slave trade, with limited success. They established New Amsterdam. Other settlements were mainly trade operations. The Dutch East India Company (VOC) reached Indonesia (Java) in 1611, by rounding the Cape of Good Hope, heading east for 7,000 miles and turn north. The Spanish silver dollars became the de facto world currency, legal tender in the US until 1857. The VOC was successful until challenged by the English East India Company (EEIC). The EEIC gained a major foothold in India when Robert Clive defeated a native force at Plassey in Bengal.


Chapter 9: The Coming of the Corporations. Francis Drake started his trip around the world in 1577, including plundering Spanish ships and setting up trade in the Spice Islands: explore, trade, and raid. “Tudor England was a nation of bankrupt monarchs, crown monopolies distributed to court favorites, and royal letters of marque granting freebooters a piece of the action” (p. 215). Drake learned about celestial navigation in the southern hemisphere from a Portuguese navigator. The trading part would become England’s key to success through the English East India Company. The Tudors granted trading monopolies beginning early in the 16th century: Merchant Adventurers in 1505, Muscovy Company 1535, and the Levant Company in 1581. A key point was the monopolies would cost the monarchs nothing, but they would share in the profit.


The VOC was different than the English companies. Holland was a lowland province inherited by the Habsburg king in 1506. Five provinces declared independence in 1579, now the Netherlands. Antwerp was northern Europe’s trading hub, with Dutch herring and sophisticated textiles, then grain and timber from the Baltic. Amsterdam was capital of Holland, expanded because of Protestant refugees. Spurred on by Spice Islands’ pepper the Company of Far Lands was formed in 1594. Multiple ships were sent out by various groups around the Cape of Good Hope and perhaps half returned. The VOC was created to include the competing groups, behaving like a sovereign nation in aggressive ways.

The English followed the success of the Dutch who had cornered the pepper market in 1599. The EEIC followed. The Dutch West India Company (WIC) was chartered in the 1620s. The WIC and VOC picked off settlements in Brazil, Asia, and Africa, being successful in India and Indonesia. The VOC established an outpost as the Cape Colony. They were adept at finance, including the idea of permanent capital. Their success was not based on size but political, legal, and financial systems by 1600. They were still fighting Spain for independence (until 1648).


The other key countries (Spain, Portugal, England, and France) were suffering from bankruptcy, religious intolerance, and wars. They were also economically poor. The Netherlands had farmland below sea level and struggled with reclamation. They succeeded through technology including windmills and dikes. They also developed good maritime tech, like round, slow, trade-efficient ships. Finance was part of the solution, based on entrepreneurs and risk diversification (e.g., fractional shares of ships, futures, maritime insurance, double-entry bookkeeping).


The Dutch processed sugar, tobacco, soap, paper, and diamonds. They eliminated the Italian advantages in trading across the Mediterranean. Much of their trade (and profit) remained in Asia, with their hub in Java, trading as far as China and Japan. Only the most expensive goods sailed to Europe (spices, silk, porcelain, gold, and precious jewels). Given the small size, most sailors came from other countries. This golden age included Rembrandt and Vermeer. The VOC declined in part because of corruption. They did create coffee plantations around the world.


It took England decades to catch up. The major wars had to wait for the 17th and 18th centuries. The Navigation Act of 1651 prohibited third-party trade into England (increasing smuggling), then started seizing Dutch ships causing the Anglo-Dutch Wars (1652 to 1672). Colbert, the finance minister of France, started their own shipping company in 1667. The countries would shift from spices to cotton, tea, sugar, and slaves.


Chapter 10. Transplants. The Boston Tea Party was in December 1773, “the first American anti-globalization rally” (p. 241). A reason was Britain’s budget difficulties and expectation of revenue from the colonies. The EIC also was in dire straits, leading to the Tea Act which reduced the price of tea in the US and cut out smugglers and tea merchants.

Coffee, sugar, tea, and cotton were the new products shipped. Coffee became a part of life through specialized coffee houses. Parliament became supreme in England when William & Mary became sovereigns, creating a strong rule of law. A crown excise tax was added.


Java became a major source of coffee, in addition to other spots. Now common people could afford coffee. Of course, Muslims insisted on Mocha coffee (from Yemen). Cotton became a major British export mainly from India, including Indian textile centers—textiles were the major manufactured product. Like sugar, it was easy to grow but took considerable labor to process. Mercantilists opposed Indian textiles, because in their theory wealth was measured by accumulated gold: exporting more than importing, mainly exporting finished goods. These days, it’s the realization that wealth comes from improved industrial and agricultural productivity.


Britain limited importing manufactured textiles, followed by better equipment like John Kay’s flying shuttle in 1721, Paul and Wyatt’s mechanical spinning machine, then improved machines by Hargraves, Arkwright, and Crompton (spinning jenny, water frame, and the mule). Cotton started the Industrial Revolution. More cotton was imported, textiles were exported (plus more domestic sales because of reduced prices). British colonists would plant cotton, including the Southern US, using slaves. Eli Whitney’s cotton gin improved the productivity of harvesting cotton. The South would export cotton to the North, Britain, and beyond. The EIC turned to China and the tea trade. China was centralized and kept Western merchants at arm’s length. The VOC started buying tea in 1610. Tea became increasingly cheap by 1800. High taxes were levied, leading to smuggling. This was reduced in 1784.


The Europeans turned the Caribbean into “a Hobbesian maelstrom of avarice and barbarity” (p. 267). Britain planted crops on Barbados beginning in 1627. Cotton and tobacco were soon planted, then shifted to sugar cane. They became the largest producer of sugar by 1660, supplying about two-thirds of England’s consumption. Brazil used sharecropping model of small farmers sending the cane to the landowner’s mills. Rum became a big product with the molasses “waste.” Jamaica came in the 1650’s, driving out the Spanish. Barbados depleted their soil by the end of the century. Many of the colonists settled in South Carolina, recreating the plantation system. Africans were accomplished farmers and accustomed to yellow fever and malaria. Less than 5% of the 10-12 million (fewer than 10 million survived the trip) Africans came to the American colonies.


Atlantic commerce was coffee, cotton, sugar, rum, and tobacco from the New World to Europe; textiles and other manufactured goods from Europe to Africa; and slaves from Africa to the New World.


Chapter 11: The Triumph and Tragedy of Free Trade. The Manchus overthrew the Mings in 1650. Letting the EIC run India was a disaster, included resulting famine from restrictions on trade. The monopoly ended in 1813 as Britain took over. The tea from China had to be paid mainly in silver, which they tried to alleviate through the opium trade. This led to the Opium War in 1842, which opened Canton and other Chinese ports. Hong Kong became a permanent colony. The Second Opium Wat ended in 1858.


Britain started the Corn Laws in the 15th century, some 127 laws until 1846. Agriculture was efficient. Only after 1789 did Britain become a net importer of grain. Corn Laws benefitted the landed aristocracy, hurting the peasants. David Ricardo became an advocate of free trade and opponent of the Corn Laws. Ricardo described the law of comparative advantage. Cheap grain benefited the manufacturers, who challenged the landed aristocracy. The penny post was passed in 1840 and the use of stamps using gum (adhesive postage stamp). “Cheap postage enabled the League to blanket England’s pitifully small number of voters—just 7% of adult males after the Reform Act of 1832.


Cheap imports of grain aided laborers with cheap bread and increase productivity. Tories railed against the mills, Whigs against the landed aristocracy. The Corn Laws were finally repealed in 1846 after a poor harvest. By 1913 England imported 80% of its wheat.


Chapter 12: What Henry Bessemer Wrought. Mining became important to Wales and western England, including coal, copper, tin, and iron. Reverberating smelters were invented by 1820 to separate the raw metals. Coal dust had the bad habit of exploding. The 19th century saw the steamship, railroad, telegraph, and refrigeration, made better with steel. Hamilton started the American System to develop a national infrastructure paid for with import duties, justified by the infant industry argument. The duties also financed the government. The South wanted free trade to facilitate selling cotton and receiving cheaper finished goods. New York City became the financial capital by 1825 and the shipping point from Eric Canal goods. John Calhoun from South Carolina favored free trade and pushed the right of state nullification of federal statutes, like the Tariff Act of 1832. Henry Clay favoring protection was a leader of the new Whig Party. A compromise tariff in 1833 put off the Civil War.


Lincoln picked up the higher tariff platform. When the South seceded, Northern tariffs went up and new legislation was passed including the intercontinental railroads bills.


Henry Bessemer invented a blast furnace in the 1850s to made higher quality steel, which led to better machines and efficiency.


The Suez Canal decreased the sailing distance from Bombay to London from 11,500 to 6,200 miles. Sailing ships were still useful on many long voyages.


“Ice ships” moved ice and later perishables since early in the 19th century. Frederic Tudor was an early entrepreneur, going from the east coast to the Caribbean, then Europe. Sawdust insulation and ventilation worked reasonably well. Seasonal fruits and fish were early shipments. Meat packer Gustavus Swift used Chicago as a packing hub, then Philip Armour using crushed ice and salt. Mechanical cooling happened over time using evaporation, then compressors sucking ammonia to cool a jacket of brine. Marketeer Edward Bernays added “doctors recommend …” adds and eating a big bacon and egg breakfast.


Chapter 13. Collapse. The Smoot-Hawley Tariff in the 1930s was the highest tariffs of protectionism, creating winners and losers. The repeal of the Corn Laws had pushed to free trade, aided by cheaper shipping. The Stolper-Samuelson theorem predicted that protection benefitted those who owned a relatively scarce factor and harmed those who owned an abundant one. The opposite with free trade (land, labor, and capital). Free trade helped farmers when land was abundant. Their theorem could also be extended to shipping costs. When the US had abundant land, free trade helped farmers (and Southern plantation owners). Free trade helped capitalists and laborers after the Industrial Revolution.

Stolper-Samuelson explained political alliances. In the US with abundant land, capitalists and laborers combine for high tariffs. “Between 1720 and 1998, world real GDP grew by an average 1.5% per year, while the real value of trade grew by 2.7% per year” (p. 349). The US favored protectionism under Republicans and free trade under Democrats after the Civil War, e.g., under FDR in the 1930s. After World War II the US did not have to worry about any of the factors of production and favored low tariffs. The General Agreement on Tariffs and Trade (GATT) attempted lower tariffs. The use of stacked shipping containers (by Malcolm McLean) lowered shipping substantially.


Chapter 14: The Battle of Seattle. “By the end of the 19th century, most of the features we consider peculiar to modern global commerce—instantaneous communication, long-distance trade in bulk commodities and perishables, and an intercontinental manufacturing cycle—were well established. … Ships have always been, and for the foreseeable future will be, the most efficient method of long-distance transport” (p. 367). Oil is the most critical product.


Stolper-Samuelson can consider only one factor. Divide labor into high-skilled and low-skilled. In high-skilled labor countries, free trade would hurt low-skilled labor (e.g., rich countries). The Gini coefficient measures income inequality. A zero means everyone has the same income. The Gini for developed countries runs from Sweden at .25 to .41 for the US. It should be the skill premium for the US, but tax policy is a major factor. This results in jobs paying less and without benefits.