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If there's no money to squeeze from the node then you're wasting your time effectively blocking it from going anywhere except for choking the value of nodes upstream. End nodes should be provincially strong with markets so you can focus your navies mainly on just pushing money into it like a big net.
EI - production & making more manufactories, investing into more valuable goods, especially the new ones in the patch with early farm estates.
The more production a province has does improve the local trade power but they are not connected in that way and are two seperate systems. Total made goods will increase with (roughly 0.20 at 0 autonomy) development and that'll net you bonuses.
Send it downstream, This is literally why trade ships are for: stealing trade from nodes where you dont dominate.
and I suppose you meant upstream? downstream is where a node sends value to. upstream is where it receives value from. You use ships upstream and on home nodes so you divert as much value as possible towards your main trading port and then take as much of it as possible for yourself.
I would use the english channel as the counter example to what you claim about propagation being insignificant in any nodes significant. The english channel has the north sea and chesapeake bay (?) feed into it both of which will typically be relatively low trade power nodes. A marketplace in Holland or London wont be significant propogation (it never is) but at the point where you have 100% control over the english channel none of this matters since 100 ducats is peanuts to you, you should already have a marketplace in these provinces and its well worth maximising your trade power in the other nodes since its 100% gain to you.
The same argument you make about 1 marketplace not having a huge impact can be applied even to centres of trade in nodes like genoa. A marketplace in Florence might not even increase your trade power by 1% of the node but its still worth building one there even as a minor. Nodes where 1 trade power isnt very much compensate (generally) by being very rich and the opposite is also true. There can be exceptions to this on account of manufactories but even then it will usually hold.
The point you make about merchant republics isnt really related to this in my opinion and i would add lucca producing 50% more goods isnt going to make you as much money as you owning lucca regardless of how much of the node you control. The same can likely be said for anywhere besides perhaps places like Brazil if there are hundreds of manufactories but this is rarely the case.
I may have gotten the terms wrong but the idea should be clear (since doing the opposite is pointless).
Conquer upstream. Let trade guide your expansion. It is the fastest, strongest, guaranteed way to wealth and power in EU4.