Trading in baseball is essentially a zero-sum game. Yes, a franchise will often swing a deal for the future or to balance its budget, but the bottom line is that if a trade benefits Team A, it will usually do so at the expense of Team B.
With that in mind, why do so many teams have a problem with trading within the division? After all, if a trade makes your team better, it should make the other team worse, giving you an even easier road to the playoffs.
In fact, it can be even better than that. Let's say you have a stud pitcher--let's call him John St. Ana--who's projected to be worth six wins in 2008 but is only under contract for that one year. Afterward, he will probably leave as a free agent*.
In return for St. Ana, you get a package of prospects worth two wins in 2008, three in 2009, and four from 2010-2013. You can take these prospects either from a divisional rival or a team in the other league. Why wouldn't you choose the package that will not only make your team four wins stronger for the future, but also make your rival four wins weaker?
Maybe it's just me, but if I know I'm making a move that helps my team, I want to hurt the competition at the same time. I think what's really going on is that teams are afraid the trade will "come back to haunt" them, just like dealing a top prospect away. Fortune favors the bold; teams should get over their fears and take risks that maximize their chances of winning.
Here's one relevant example: The Orioles have virtually no chance of contending before 2010, and Erik Bedard's contract is up after '09. The Blue Jays are interested, but the O's don't want to trade within the division. Why? Sure, there's some miniscule chance that Baltimore makes an improbable run at glory in 2008, only to have Bedard thwart them as a Blue Jay. There's a much better chance that in 2011, the Orioles have a legitimately good team, but Dustin McGowan puts up a big season for Toronto because Baltimore didn't want to "help out" its rival.
This is an even more senseless bias, because the Blue Jays aren't going to be the best team in the AL East anyway in 2008 or 2009. The Orioles should not be worried one bit about the team Toronto fields for the next two years; if they're really playing for 2008, they should focus on Boston and New York.
Major League GMs: If you're really worried that your trades will help your rivals more than they hurt them, either make a different offer or find a new job.
* Yes, I know the real Johan will likely sign an extension with his new team. That changes the math a little for the Twins in this specific case, but not for most teams, like the Orioles with Bedard or the Cardinals with Scott Rolen.