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Rh xxvi Gontents. Chapter VII. Foreign CoviTnerce or International Trade. Foreiffn commerce enables the capital and labour of a country to be applied to those branches of inaustry for which it possesses special advantages — The advantages of foreign commerce were, while the mer- cantile system prevailed, estimated by the amount of money brought into the country — Hence exports were encouraged by bounties and various restraints were imposed upon imports — A system of protec- tion was the natural development of the mercantile system— If two countries produce commodities at a different relative cost, foreign trade becomes profitable to them both — Hence, it is possible that foreign trade may be profitable to two countries, although all the commodities exchanged might be produced cheaper in one country than in the other — The bargain of international trade is adjusted by equalising the supply of a commodity to the demand for it — The profit arising from foreign commerce is shared between two trading countries in the inverse ratio of the demand which each has for the commodities imported from the other — If England exports iron to France, and imports wheat, and if the cost of producing iron is cheapened in England, but not in France, the terms of the inter- national trade must be again adjusted, so as to equalise the demand to the supply — It is quite possible, under the circumstances just supposed, that the cost to f'rance of the iron she imports may be reduced by an amount exceeding the diminution in the cost of produc- ing this iron in England — The gain which results from international trade is distributed amongst the consumers of the commodities im- ported, and cannot be appropriated, either by the producers of exported commodities, or by the merchants who carry on foreign trade — Foreign trade will generally cause the price of a commodity which is exported to rise in the home market — The home producers of a commodity may temporarily suffer loss, if the price of a com- modity is reduced in consequence of foreign importations — But ine(][ualitie8 in the rate of profit in any industry will always be ultimately removed by the competition of capital — The rent oi land may be permanently reduced, if agricultural produce is cheapened by foreign importations— Foreign trade affects the price, both of the im- ported and exported commodity — The equation of international trade, therefore, requires a very complicated process of adjustment, since the price both of the imported and exported commodity must be such as to equalise the supply to the demand for these commodities in both the trading countries — Foreign commerce raises the price of the commodities exported, and reduces the price of those imported — It may appear that if the commodities exported are necessaries, the labourers may be injured by the rise in their price, but they are more than compensated by an increase in their money wages, because foreign commerce economises labour and capital, and therefore enables higher wages to be paid without encroaching upon profits — A consideration of the arguments in favour of protection which are current in the United States and in Australia— The fallacy explained of what is called * reciprocity in free trade' — Commercial treaties involve a certain departure from the principles of free trade — The cost of exporting and importing commodities may be borne in different Digitized by Google