IMPORT DUTIES AND TERMS OF TRADE 147 
They continue to come in free; and as regards them, the better 
terms of trade become more advantageous in consequence of the 
exclusion of the protected goods. And even as regards the latter, 
the same result may endure in part; that is, so far as the goods 
continue to be imported. The duty may be so nicely adjusted 
to the difference in money cost between domestic and foreign pro- 
ducers that domestic production is stimulated, while some imports 
nevertheless continue. A result of this kind is aimed at by per- 
sons who contend for a “competitive tariff” — one which shall 
leave a precise balance between domestic producers and their 
foreign competitors. A division between imported and domestic 
supplies also takes place, as has been elsewhere indicated, where 
the domestic industry is carried on under the conditions of dimin- 
ishing returns.! All in all, a rigorous and effective system of 
protection may yet permit a large volume of goods to come in from 
foreign countries. Those goods which continue to be imported 
are then obtained on the better terms of trade. There does exist 
this gain, to be reckoned as offsetting the direct loss caused by 
the protective duties. 
A different ground for questioning whether in the end the attain- 
ment of any gain whatever will persist is that every country can 
play the same game. If the United States can get better barter 
terms of trade by imposing duties on goods coming from foreign 
countries, those other foreign countries can do the same by duties 
on goods coming from the United States. The application of the 
process on both sides not only increases the loss arising from the 
protective duties in themselves, but lessens the total gain from the 
division of labor that continues between the two sets of countries. 
True, some among them may perhaps retain a larger share of the 
remaining gain than others. But this preferential position, 
depending as it must on the elusive conditions of reciprocal demand, 
is neither easy to make sure nor easy to keep if once attained. 
Considering the trading world as a whole, and having in mind all 
the possibilities of retaliation, the quest of this sort of gain must 
be admitted to be highly hazardous. And if one finds the ordinary 
1See Chapter 8, p. 87.