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AN
Vidg

INTERNATIONAL TRADE

vantage. The returns to labor and capital in the newly stimulated
 industry are not higher than those current in the country
at large. They may indeed be unusually large for a time after
the first imposition of the duty; but if the industry be open to
competition, they will come to the same level as elsewhere. That
level, however, cannot be maintained unless prices of the goods
are higher than they would be if imported ; and to the community
at large this difference in price represents pure loss.
In the case of a protective duty, then, there is a balancing of
loss against gain; a loss which is overt and obvious, in the higher
price of the goods whose domestic production is stimulated by the
duty, and a gain, much less obvious, thru the more favorable
terms of trade. There is no way of ascertaining which is the
greater — whether the net result is positive or negative. Eventually
 the outcome would be affected on the one hand by the extent
to which a disadvantageous domestic industry is brought into
existence, on the other hand by those conditions of demand which
determine the barter terms of trade in general.
In the exposition of this subject at the hands of the younger
Mill, it was said that no gain at all accrues to a country from protective
 duties; these being believed to be “purely mischievous,
both to the country imposing them and to those with whom it
trades.” ! This seems to be an error. If indeed all taxes on imports
 were protective, and if all were pushed so high as to attain
unflinchingly the object of protection — domestic production of
everything, all imports completely shut out — there would obviously
 be no gain from international trade, since the trade would
cease once for all. But protection is never carried so far. As
regards a particular article or group of articles, importation may
indeed be entirely stopped. But other articles continue to come
in, perhaps in large volume. There are many goods, such as the
tropical products extensively used by the people of temperate
zones, which it is so difficult to produce at home that an application
 of the protective policy to them is admittedly preposterous.
1 See Mill’s Essays on Some Unsettled Questions, pp. 21 seq., and his Political
Economy, Book 5, Ch. 4, section 6.