362 INTERNATIONAL TRADE

but less only to a slight degree. And that the terms change so little is clearly
due to the different conditions of demand in the two countries, the British demand
 being inelastic, the American elastic.
(5) A definitive stage will be reached when cotton has reverted (risen) in the
United States to the price which prevailed before the disturbing factor entered,
and steel in turn has reverted (fallen) in Great Britain to its former prevailing
price. Until such a stage is reached, cotton sells in the United States at a price
less satisfactory to its producers than with other American products; while steel
sells in Great Britain at a price more satisfactory. The tendency must be for
the production and export of cotton to diminish in the United States, for the
production and export of steel to rise in Great Britain. The following figures
indicate the nature of the stage which will finally be reached, and will be stable.
They are illustrative figures only ; they indicate not what stage will necessarily
be reached, but in what manner a definitive outcome will be brought about.
The price of cotton in New York reverts (rises) to the original figure of $0.20.
[The price of eottonin' London rises to (gay). .  . . o's » a. = 6d.
The price of steel in London reverts (falls) to the original figure of . 4.84.
The price of steel in New York fallsto (say) . . . . . . . . ..%0.16

At these prices, the merchandise transactions may be supposed to be :

U. S. exports 45 million cotton @ 6d. = £1,125,000
G. B. exports 70 million steel @ $0.16 = $11,200,000

Sterling bills on sale in New York are :
From cotton £1,125,000
From loans 250,000.  .: . . £1,375,000
Whereas the demand (on steel account) is oo. S11 200,000
Sterling exchange is £1 = $8.15.

The gross barter terms of trade are 45 cotton for 70 steel; having regard to
these, the United States evidently gains much more from the trade than she
did at the outset. Making allowance, as before, for the steel that provides for
the loan remittances of £250,000 (12% million of steel at $0.16, with exchange
at $8.15), we get as the net barter terms of trade 45 of cotton for 55% of steel.
The new terms have finally become distinctly more advantageous to the
United States than they were before the remittances set in.