The motive of individual gain in foreign trade
1. International trade is exchange between individual men, and has the same object as other exchange of goods. The term international trade should not be misunderstood as meaning that nations rather than individuals engage in it. International trade differs from domestic trade only in the fact that the parties are citizens of different sovereign states. Exchanges between men in the same village, between those in neighboring villages, and between those in different countries, are prompted by essentially the same economic motive—the wish to increase the want-gratifying power of goods. In every such case both parties gain or think they are gaining. In international trade there is the same chance for mistake as in domestic trade, but no more. In a single transaction in either domestic or foreign trade one party may be cheated, but the continuance of trade relations is dependent on continued benefits. The once generally accepted maxim that the gain of one in trade is the loss of another, is rarely applied now except to international trade. The starting point for the consideration of this subject is in this proposition: Foreign trade is carried on by individuals, for individual gain, with the same motives and for the same benefits as are found in other trade.
Natural differences affecting foreign trade
Political boundaries and trade
2. As commerce has grown, the territorial division of labor has correspondingly increased. Although economic motives have had influence in political affairs and have helped to determine political groupings and the limits of modern nations, there is to-day no very close correspondence between political and economic boundary lines. Both industrial and political conditions have changed so rapidly that the lines often have tended to diverge rather than to agree. It is common for two portions of a nation to exchange far less than do two portions of entirely different nations. The great territorial divisions of industry are determined first and mainly by differences of climate, soil, and natural resources. Thus trade arises easily between north and south, between warm and frigid climes, between new countries and old, between regions sparsely and regions densely populated. Foreign trade with distant lands is as old as history. In medieval times the luxuries of the temperate zone were mostly articles produced in the tropics. Political divisions usually have not been large enough to embrace widely varied soils and climates, the Roman Empire being an exception in marked contrast with the comparatively small political units of the Middle Ages. Before modern methods of transportation, a large free federal state like our republic was impossible. As in recent centuries the large political units have been formed, the question has arisen, Shall the political boundary be likewise the economic boundary marking the limits of trade? The firm constitutional Union of the American states arose out of difficulties with regard to trade. The German Zollverein, the forerunner of the modern German Empire, had a similar origin. The Australian Federation consummated within the last few years has grown out of the need of adjusting tariffs and tariff boundaries. These larger political units containing such varied resources can in larger measure, but never completely, become independent of the rest of the world if they will.
Differences in culture and industry
Territorial division of trade is determined secondly by differences in the accumulation of wealth, in the development of capital, of invention, and of organization, in the degree of intelligence of the workers, and in the grade of civilization. It is mainly trade due to this second group of causes, and carried on between old and new countries of about the same latitude, that is the subject of discussion in economic treatises on international trade.
Comparative costs as between individual workers
3. The doctrine of comparative costs is that relative, not absolute, advantages of production determine for a country the benefits of international trade. The free-trade question in any country is whether it is for its interests as a whole to permit trade between its citizens and the citizens of other countries. The question appears especially difficult where both countries have natural resources of about the same character (as iron and coal in the case of England and America), and where, therefore, both can produce the things that are exchanged. If American labor can produce as much iron in a day as English labor,—or more,—is it not foolish and wasteful, it is asked, not to produce that wealth? Now, exactly the same case is presented in simple neighborhood exchanges. The merchant may be able to keep his books better than does the bookkeeper whom he employs. The proprietor may be able to sweep out the store better than the cheap boy does it. The carpenter may be able to raise better vegetables than can the gardener from whom he purchases, and yet the merchant and the carpenter do not quit their better-paying work and turn to clerking or to raising vegetables.
As between communities differing in advantages