Now consider a diagram that simultaneously illustrates the potential equilibria
for both countries
(figure 3). In the zones of mutual gain the two countries’ interests
coincide. In these regions, if the undeveloped country begins to attract industries, this
will help both countries. Also, if the undeveloped trading partner loses industries to
the more developed country, then both countries’ national incomes suffer. A highly
developed country in this region would benefit by the development of its trading part-
ner. This zone, according to Gomory and Baumol, demonstrates why the Marshall
Plan was an enlightened act of self-interest. The U.S. was in this position after World
War II and U.S. aid to Japan and Germany shifted industries out of the U.S. This
industry shifting helped the U.S. economy because the countries were in a zone of
mutual gain.
More important than the zones of mutual gain is the
zone of conflict located in
the middle of the diagram. An improvement in one country’s position due to
increased capital inflows, in this region, results in a reduction in national income for
its trading partner.
This area represents potential trade conflicts, and according to
Gomory and Baumol this explains the trade rivalries between Japan and the U.S.Japan and the U.S. have been competing for capital and gains for one country result
in losses to the other country.
https://mises.org/system/tdf/qjae10_2_6_0.pdf?file=1&type=document
