04
INTERNATIONAL TRADE
Me
i Og
Consider now the barter terms of trade which obtain under these
circumstances. In both countries wheat sells for $1.00 and cloth
for $0.66%, these being the “world prices.” In terms of commodities,
10 of wheat exchange for 15 of cloth. The five days’
labor which in the United States produce 10 of wheat would yield,
if applied to cloth, 10 of cloth also; the United States, getting
15 of cloth for her 10 of wheat, gains 5 of cloth. Germany, on the
other hand, gains 3 of cloth. With 10 days’ labor she could produce
18 of cloth or 10 of wheat; with only 15 of cloth she gets 10 of
wheat.
Linen sells for $0.80 in both countries; with wheat at $1.00
the terms of trade are 12% of linen for 10 of wheat. The
United States gets 12% of linen for 10 of wheat, the product of
5 days’ labor, whereas that labor would produce at home only
10 of linen. The gain is 2; of linen for the United States.
And Germany gains the same: the difference between 15 of
linen and 121%.
(2) Next, assume barter terms of trade between the two countries
which are more favorable to Germany ; the evidence of the more
favorable terms being higher money wages in that country. Suppose
German wages to be not at a figure somewhat low ($1.20),
but much higher, say $1.60. Wages in the United States we
assume to remain at $2.00. Then we have :
In the U. S.
» )) U. S
)) » i. S.
”’ Germany 1
”’ Germany 10
” Germany 10
10 devs’ lahor
BD)
7)
J
J)
))
9
7)
1»
WAGES
PER DAY
$2.00
$2.00
$2.00
$1.60
$1.60
$1.60
ToTAL
WAGES
$20
$20
$20
$16
$16
$16
PRODUCE
20 wheat
20 linen
>) cloth
10 wheat
15 linen
18 cloth
DowMmesTic
SuppLy PRICE
$1.00
$1.00
$1.00
$1.60
$1.062
$0.89
Both wheat and linen are now cheaper in the United States than
in Germany. The difference, of course, is greater for wheat, whose
domestic supply price in Germany is $1.60, whereas it can be got
from the United States for $1.00. Linen can be produced in Germany
at a money cost of $1.06%; but it is obtainable from the
United States at a slichtly lower figure — $1.00. Cloth still moves
