4. American balance of trade.—In comparing the trade of different countries the acceptance of the figures at their face value sometimes leads to er roneous conclusions. Methods of collecting these statistics are not always uniform. In some countries the statistics are based upon the exporters' declara tions; in other countries they include the added cost of trade, insurance, profit and commission, so that accurate comparisons of the foreign trade of different countries can be made only after a careful considera tion of the basis of the figures. While it is true that under normal conditions the exports from the United States overbalance the imports, it should be carefully borne in mind that such figures as are given in the preceding section relate to visible exports only. There are other factors which enter into international commercial relations and which affect the settlement of balances between countries. The United States has long been the recipient of capital from foreign lands, and consequently there are interest and divi dend payments to be made annually. Many tourists make their way to Europe each year from the shores of America, and their expenses for travel, subsistence and purchases are also to be paid. Securities are sold and money is borrowed; these obligations must then be met by payments on the part of the borrowing country. Other items, like freight, insurance, profits and the expenses of fleets in foreign waters, are all balanced against the surplus of exports over imports.
A few years ago a celebrated expert in the field of trade, Sir George Paish, showed that the total excess of merchandise and gold and silver exports over imports for the -year was $411,000,000, but that the people of the United States had trans mitted in interest and dividend payments, tourists' expenditures, remittances to friends and in the pay Ment of freight, a sum not less than $595,000,000. This means that about $184,000,000 was left to be liquidated by permanent or temporary investment of capital in the United States by foreign countries.
With the fiscal year 1915 new conditions entered into the foreign trade of the United States. -For the first time perhaps in a generation the United States reached the point where it could make payments upon the principal of the debt abroad. Not only have large amounts of American securities held abroad been returned to this country, but large sums have been loaned to foreign governments and to foreign enterprises.
5. Reason for international trade.—When all the different factors are taken into consideration, it is apparent that the exports of a nation must balance its imports, but the trade of our nation with another does not show such a balance. No country trades with only one other country. International trade is carried on among groups of' countries, and the imports and exports among these different groups balance each other. Thus, the exports of grain. from the
United States to Europe pay for the imports of coffee from Brazil, and the credit created in Brazil by the export of coffee to the United States is used to pay for Brazilian importation of British goods.
In international trade, goods are sold at nearly the same prices in all the trading countries, as. for ex ample, in the case of wheat, coffee, sugar, steel rails, to say nothing of other commodities. An ar ticle, it is true, is somewhat cheaper in the exporting countries, but no international trade would develop unless the importing country had some advantage. Consequently the goods of international trade are those commodities in which some comparative ad vantage eXists.
This trade does not differ essentially from domestic trade. Within the nation the people of one commun ity exchange to their best advantage the commodities which they have made, for those of other communities. Each section is engaged in producing those commodi ties which it can produce to the best advantage, and with the money gained by sale it buys the commodities of other districts. The same thing is true in the ex change of commodities between nations. So long as there is no interference in the form. of trade restric tions, commerce moves along the lines of the greatest advantage.
6. Lau: of comparative costs.—It is impossible for a country permanently to sell goods for money alone. Consequently it must be willing to exchange its own goods for the commodities of other lands. The law of comparative costs develops from this condition. The difficulty in the movement of labor from country to country, the ties of language, national life and reli gion, and the various obstacles that the laborer finds in his lack of knowledge and funds, all these factors tend to bold the labor of a country within districts and maintain the variance in the cost of production.
The gain from international trade thus comes from the advantage which a nation has in the production of the commodities that it exchanges for those of other lands. One country may continue to purchase the commodities of another country by exchanging cer tain articles that it manufactures to great advantage, even tho it could produce at a lower cost the com modities from the other countries. The reason for this seeming departure from business prudence is the fact that a larger return is secured from the produc tion of the first commodity than could be gained from the production of the article purchased abroad. In other words, the exports of a country are the means by which it purchases the imports of some other country more cheaply than the same commodities could be se cured by manufacturing them at home.