J0
INTERNATIONAL TRADE
The United States and Germany would both gain if linen went from
3 EE
the United States to Germany. At any terms of trade between
0 and 12 of German cloth for 10 of American linen, both countries
ould gain." ome
Observe that in case (2) linen moves from Germany to the
nited States, to the gain of both countries. In case (3) linen
oves the other way, from the United States to Germany, also to
he gain of both countries. What determines whether one or the
other sort of movement takes place?
he answer is: the outcome depends on the play of demand.
he nature of the trade, and especially the movement of linen, will
depend on the demand of the United States for her own wheat as
compared with her demand for the two commodities which may
onceivably be secured from Germany, cloth and linen; and on the
emand of Germany for her own cloth as compared with her
emand for the two commodities which may conceivably be secured
rom the United States. The barter terms of trade may be so
avorable to the United States that she will find it advantageous to
rocure from Germany both linen and cloth. Or the terms may be
o little favorable to the United States, and her margin of gain so
arrow that, tho it remains advantageous to get from Germany
hat commodity (cloth) which Germany can supply most cheaply,
t will not be advantageous to get from Germany the other com-
odity (linen) which Germany can supply less cheaply. It 1s i
loth that Germany has her greatest effectiveness of labor; itis
ere that she has the least of her inferior disadvantages; and cloth
ill move from Germany to the United States even tho the barter
erms of trade are not favorable to the United States. Nay, as will
e presently shown, those terms may be so unfavorable to the
nited States that she will gain by actually exporting linen to
Germany. Linen may move either way, according as the barter
erms of trade vary. SE.
here are thus three possible cases:
I. Both cloth and linen may move from Germany to the United
tates. As regards the exchange between German cloth and
merican wheat, we have seen that both countries would gain if
