The Basis of International Trade

Abstract

arises because a country specializes in the production of certain goods and services and thus produces more than enough to supply the domestic demand. Obviously it must export the surplus to continue the specialization. To receive a return for its exports, a country must ultimately import either goods or services. Imports pay for exports -both of which may consist of services as well as of goods. Services, the socalled invisible items of international trade, have occasioned confusion in the minds of many because until recently only the commodities actually exchanged have appeared on the national trade balances. While the bases of foreign and domestic commerce are thus the same, international trade is far more complicated because of new factors which enter into the transactions. False theories, nationalism, differences in language and customs, so complicate exchange of goods between nations as to make impossible a comparison with domestic trade. In no field of economics have more misleading theories prevailed than in international trade. The doctrine of caveat emptor long prevailed in domestic trade; it still persists in foreign commerce. Men for years insisted that what a buyer gained by purchase, the seller must necessarily lose. The argument appealed to reason as a most logical deduction under the law of compensation. It later became evident that values might not be the same for any one good to two different people-in other words, that the marginal utility of a commodity differed for different people according to their need at the particular time, or to their supply relative to this demand. Both seller and buyer may, and usually do, actually gain from a trade because of the differing utility of the purchase to each of them. But national boundaries seem to vitiate this argument of gain to both parties. It seems untrue when one party is a foreigner.