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Global Business Today Tenth Edition Chapter 6
International Trade Theory
Chapter Outline
OPENING CASE: The Trans Pacific Partnership
INTRODUCTION
AN OVERVIEW OF TRADE THEORY
The Benefits of Trade

The Pattern of International Trade
Trade Theory and Government Policy
MERCANTILISM
Country Focus: Is China a Neo-Mercantilist Nation?
ABSOLUTE ADVANTAGE
COMPARATIVE ADVANTAGE
The Gains from Trade

Qualifications and Assumptions
Extensions of the Ricardian Model
Country Focus: Moving U.S. White-Collar Jobs Offshore
HECKSCHER-OHLIN THEORY
The Leontief Paradox
THE PRODUCT LIFE-CYCLE THEORY
Product Life-Cycle Theory in the Twenty-First Century
NEW TRADE THEORY
Increasing Product Variety and Reducing Costs

Economies of Scale, First Mover Advantages, and the Pattern of Trade
Implications of New Trade Theory
NATIONAL COMPETITIVE ADVANTAGE: PORTER’S DIAMOND
© 2018 by McGraw-Hill Education.

This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
1
Factor Endowments
Demand Conditions
Related and Supporting Industries
Firm Strategy, Structure, and Rivalry
Evaluating Porter’s Theory
FOCUS ON MANAGERIAL IMPLICATIONS: Location, First-Mover Advantages, and

Government Policy
KEY TERMS
SUMMARY
CRITICAL THINKING AND DISCUSSION QUESTIONS
globalEDGE RESEARCH TASK
CLOSING CASE: Creating the World’s Biggest Free Trade Zone
APPENDIX: INTERNATIONAL TRADE AND THE BALANCE OF PAYMENTS
Balance-of-Payment Accounts
Does the Current Account Deficit Matter?
Learning Objectives
6.1 Understand why nations trade with each other.
6.2 Summarize the different theories explaining trade flows between nations.
6.3 Recognize why many economists believe that unrestricted free trade between nations will raise
the economic welfare of countries that participate in a free trade system.
6.4 Explain the arguments of those who maintain that government can play a proactive role in
promoting national competitive advantage in certain industries.
6.5 Understand the important implications that international trade theory holds for management
practice.
Chapter Summary
This chapter focuses on the benefits of international trade and introduces several theories that help
explain the patterns of international trade that are observed in practice. The discussion begins with
an explanation of the theory of mercantilism, and then proceeds to discuss the theories of absolute

2
advantage and comparative advantage. Four additional theories are discussed, including the
Heckscher-Ohlin theory, the product life cycle theory, the new trade theory, and the theory of
national competitive advantage. Each of these theories helps explain why certain goods are (or
should be) made in certain countries. The chapter ends by discussing the link between the theories
of international trade and (1) a firm’s decision about where (in the world) to locate its various
productive activities, (2) the importance of establishing first-mover advantages, and (3)
government trade policies.
Chapter Activity
In groups of four or five, give each group ten minutes to share their ideas about one of the several
theories discussed in this chapter (e.g., mercantilism, absolute advantage, comparative advantage,
Heckscher-Ohlin, product life cycle, new trade, and Porter’s diamond).
Then, ask a student representative from each group to explain their theory using a few main points.
Suggest the group create one or two PowerPoint slides to illustrate, or draw a graphic illustration
on the board. This is a way to create some enthusiasm about theories by tackling them
interactively, instead of putting them to sleep with a lecture on trade theories.
The Trans Pacific Partnership

opening case
Summary
The opening case provides an overview of a free trade deal called the Trans Pacific Partnership
(TPP). The agreement, signed by twelve governments on February 4, 2016, is expected to reduce
tariffs considerably in a variety of industries across the countries involved with the TPP. In fact,
the trade pact is expected to add about $285 billion to global GDP by 2025. Many of the tariff
changes will take place in countries outside the United States. Even though there is considerable
support in the United States for the TPP from some companies in the agriculture, manufacturing,
and technology industries, other firms and elected as well as aspiring politicians are hesitant to
support the deal. Depending on studies of the impact of the TPP on the United States economy,
estimates do not seem to indicate a massive drop in employment as a result of the pact’s
implementation.
Discussion Questions
QUESTION 1: Do you agree with the characterizations of the TPP as “a terrible deal” and
“disastrous”? Discuss the pros and cons for the United States of enacting the trade agreement?
ANSWER 1: Many companies and experts support the TPP as it will provide more business
opportunities for companies located in the United States. As agricultural tariffs would be reduced

3
considerably in foreign markets, firms such as Cargill support the deal. In addition, other
companies see the possibility of being more price competitive in the aerospace and technology
industries, as well. However, some companies (such as Ford) do not like the TPP as it reduces
tariffs on imports into the United States. Labor unions and many politicians are against the deal
based on the concern of lost jobs as a result of the agreement. Several studies indicate that, at
worst, the reduction of jobs in the United States workforce would be minimal.
QUESTION 2: What are the differences across the studies focusing on the TPP’s impact on the
United States economy? What is your assessment of the trade deal’s influence on United States
workers?
ANSWER 2: Three studies are presented from the World Bank, the Institute of International
Economics (IIE), and Tufts University. The World Bank and IIE studies indicate a slight increase
in wages upon comparison of a situation without the TPP. In addition, the IIE estimated that
United States exports would increase by $357 billion by 2030. Though some sectors will
experience job loss in the IIE study, overall there would not be widespread job loss. However, the
Tufts University indicates that 450,000 jobs would be lost in the United States over ten years.
Video Note: For excerpts of an interview concerning the Trans Pacific Partnership, go to
{http://www.cnn.com/2016/09/06/politics/obama-tpp-politics-congress/index.html}.
Chapter Outline with Lecture Notes, Video Notes, and Teaching Tips
Introduction
A) According to economists and experts, the role of free trade is to stimulate economic growth.
The free trade of goods and services across borders has been the driving force behind the
formation of the World Trade Organization, the European Union, and the North American Free
Trade Agreement.
B) This chapter has two goals. The first goal is to review the theories that explain why it is
beneficial for a country to engage in international trade. The second goal is to explain the pattern
of international trade that is observed in the world economy.
Lecture Note: It is often worth asking students before discussing the theories why countries trade
the products they do. They will frequently, with a little prompting, hit upon many of the ideas
presented in this chapter and consequently relate better to the various theories that are discussed.
An Overview of Trade Theory

A) Free trade refers to a situation where a government does not attempt to influence through
quotas or duties what its citizens can buy from another country or what they can produce and sell
to another country.

4
THE BENEFITS OF TRADE

B) The great strength of the theories of Smith, Ricardo, and Hecksher-Ohlin is that they identify
with precision the specific benefits of trade. Common sense suggests that some trade is beneficial.
The theories of Smith, Ricardo and Hecksher-Ohlin go beyond common sense to show why it is
beneficial for a country to engage in international trade even for products it is able to produce for
itself. The gains arise because international trade allows a country to specialize in the manufacture
and export of products that can be produced most efficiently in that country, while importing
products that can be produced more efficiently in other countries.
Did You Know Video Clip:

The video clip asks: “Did you know that sugar prices in the United States are much higher than
sugar prices in the rest of the world?”
Suggested Questions
Question 1: Why are sugar prices in the U.S. nearly double the average world price of sugar?
Answer 1: There are two sugar futures markets―world sugar #11 and U.S. sugar #16. U.S. sugar
#16 is priced much higher that the world sugar prices, often twice as high. Sugar is the same
around the world, and the price difference is due to subsidies and a tariff program that supports
U.S. sugar farmers.
True, sugar has been produced in the U.S. for over 200 years, but the climate is not ideal and it
costs more to produce it in the U.S. than in, say, Brazil and India. But U.S. sugar lobbyists have
gotten U.S. sugar farmers a lucrative price for their sugar, and limited sugar imports from other
nations. So U.S. companies pay inflated prices for sugar.
Question 2: Do you agree that U.S. taxpayers should protect U.S. sugar farmers against less
expensive imports?
Answer 2: Students will probably answer no, unless perhaps they are from farming families that
may have experienced the benefits of subsidies. Remind students of earlier discussions about free
and fair trade. Subsidies on U.S. sugar are an example of fair, not free, trade. Subsidies are
exceptions to free trade policies such that certain products produced domestically are protected
from foreign competition by tariffs, quotas, duties, and subsidies. Since many leading sugar
producing nations are emerging markets with lower GDPs and per-capita incomes, a moral
argument may be made against U.S. agricultural subsidies because they create artificial trade
barriers that prohibit more efficient producers from less affluent countries from competing in
markets.
Question 3: Do you agree that U.S. consumers should keep paying twice as much for sugar than
people in other parts of the world?
Answer 3: This is an extension to the second question, and many students will answer no. Since
U.S. companies pay inflated prices for sugar, U.S. consumers are hit twice: once by taxpayer-
funded subsidies that keep sugar prices high, and again by higher consumer product prices that are
passed on to them.

5
Learn about the two sugar futures markets:

https://www.thebalance.com/markets-for-us-and-world-sugar-809301
THE PATTERN OF INTERNATIONAL TRADE

C) Some patterns of trade are easy to explain. It is obvious why Saudi Arabia exports oil, Ghana
exports cocoa, and Brazil exports coffee. Yet others are not so obvious or easily explained. Why
does Switzerland export chemicals, pharmaceuticals, watches, and jewelry? Why does Japan
export automobiles, consumer electronics, and machine tools?
D) New trade theory stresses that in some cases countries specialize in the production and export
of particular products not because of underlying differences in factor endowments, but because in
certain industries the world market can support only a limited number of firms. So a country’s
pattern of trade may be a reflection of the ability of firms in that nation to capture first-mover
advantages.
E) Michael Porter suggested that a country’s factor endowments as well as domestic demand and
domestic rivalry are important in explaining a nation’s dominance in the production and export of
particular products.
TRADE THEORY AND GOVERNMENT POLICY

F) While all the trade theories discussed in the text agree that international trade is beneficial to a
country, they lack agreement in their recommendations for government policy. Mercantilism
makes a crude case for government involvement in promoting exports and limiting imports. Smith,
Ricardo, and Heckscher-Ohlin all promote the notion of unrestricted free trade. The argument for
unrestricted free trade is that both import controls and export incentives (such as subsidies) are self
defeating and result in wasted resources. Yet both the new trade theory and Porter’s theory of
national competitive advantage can be interpreted as justifying some limited and selective
government intervention to support the development of certain export-oriented industries.
Mercantilism
A) The first theory of international trade emerged in England in the mid-16th century. Referred to
as mercantilism, its principle assertion was that it is in a country’s best interest to maintain a trade
surplus, to export more than it imports. Consistent with this belief, the mercantilist doctrine
advocated government intervention to achieve a surplus in the balance of trade.
Teaching Note: A historical perspective of mercantilism is available at

{http://www.referenceforbusiness.com/encyclopedia/Man-Mix/Mercantilism.html}.
B) The flaw of mercantilism was that it viewed trade as a zero-sum game, one in which a gain by
one country results in a loss by another. It was left to Adam Smith and David Ricardo to show the
shortsightedness of this approach and to demonstrate that trade is a positive-sum game. As an
economic philosophy, mercantilism is problematic and not valid. Yet many political views today
have the goal of boosting exports while limiting imports by seeking only selective liberalization of
trade.

6
country FOCUS: Is China a Neo-Mercantilist Nation?

Summary
This feature analyzes claims that China is a neo-mercantilist nation. Exports are largely
responsible for China’s recent rapid economic growth. The country, capitalizing on its cheap labor
force, has focused on converting raw materials into products that are exported to developed
countries like the United States. In 2008, China’s trade surplus was a record $280 billion before
dropping to $155 billion in 2011. Even so, some critics have suggested that China is following a
neo-mercantilist policy. That stated, in 2015 and early 2016, there was a relative withdrawal
among investors from the Chinese economy.
1. Are the claims that China is following a neo-mercantilist policy valid? Why or why not?
Discussion Points: Some critics claim that China’s deliberate steps to maintain a low currency
relative to the dollar is indicative of the country’s neo-mercantilist policy which tries to
simultaneously increase exports and limit imports. Many students will probably note that China’s
impressive growth in recent years is largely export led, which would support the claims of the
critics. China’s trade surplus in 2008 was $280 billion, and the country had foreign exchange
reserves of more than $1.95 trillion, 70 percent of which were in U.S. dollars. At the same time,
the country appears to have implemented an import substitution policy as it now produces products
such as steel and paper that had been formerly imported.
2. What incentive does China have to open its markets to foreign products? Why might China
resist such a move?
Discussion Points: China is under significant pressure from many countries including the United
States to open its markets to foreign goods. Students will probably recognize that if the country
does open its markets, the impressive economic growth the country has been experiencing would
probably be affected. However, students may also note that the country may have to make some
changes to its policies if only to appease other nations and prevent retaliatory trade measures.
Already the country, in response to pressure from the United States, has allowed its currency to
appreciate relative to the dollar.
3. Is there evidence that China is pursuing an import substitution policy? How would this type of
policy benefit the country?
Discussion Points: Countries following an import substitution policy try to substitute domestic
production for products that were previously imported, regardless of whether it is more efficient to
produce them domestically or not. Most students will probably suggest that in China’s case, this
certainly appears to be occurring. The country used to import steel, aluminum, and paper, but now
produces those products domestically, and in doing so, avoids the cash outflows that would
accompany imports. With its greater reserves of foreign currencies, China gains economic power

7
over other nations.
Lecture Note: For more information on China’s currency policy and its interrelationship with the
U.S. economy, go to {http://www.bloomberg.com/news/articles/2016-01-14/the-market-thinks-
china-s-currency-policy-drives-u-s-monetary-policy}.
Absolute Advantage
A) In his 1776 landmark book The Wealth of Nations, Adam Smith attacked the mercantilist
assumption that trade is a zero-sum game. Smith argued that countries differ in their ability to
produce goods efficiently, and that a country has an absolute advantage in the production of a
product when it is more efficient than any other country in producing it. According to Smith,
countries should specialize in the production of goods for which they have an absolute advantage
and then trade these goods for the goods produced by other countries. The text provides a
numerical example of Smith’s theory.
B) When each country has an absolute advantage in one product, it is clear that trade is beneficial.
But what if one country has an absolute advantage in both products?
Comparative Advantage
A) David Ricardo took Adam Smith’s theory one step further by exploring what might happen
when one country has an absolute advantage in the production of all goods. Smith’s theory of
absolute advantage suggests that such a country might derive no benefits from international trade.
In his 1817 book Principles of Political Economy, Ricardo showed that this was not the case.
According to Ricardo’s theory of comparative advantage, it makes sense for a country to
specialize in the production of those goods that it produces most efficiently and to buy the goods
that it produces less efficiently from other countries, even if this means buying goods from other
countries that it could produce more efficiently itself. The textbook provides a detailed example to
explain the rationale of this theory.
B) The simple example of comparative advantage presented in the text makes a number of
assumptions: only two countries and two goods; zero transportation costs; similar prices and
values; resources are mobile between goods within countries, but not across countries; constant
returns to scale; fixed stocks of resources; and no effects on income distribution within countries.
While these are all unrealistic, the general proposition that countries will produce and export those
goods in which they are most efficient has been shown to be quite valid.
Teaching Tip: For more on the ideas and philosophies of David Ricardo, go to
{http://www.econlib.org/library/Enc/bios/Ricardo.html}.
THE GAINS FROM TRADE

C) The theory of comparative advantage argues that trade is a positive sum gain in which all
benefit. It provides a strong rationale for encouraging free trade.

8
QUALIFICATIONS AND ASSUMPTIONS

D) The simple example of comparative advantage presented in the text makes a number of
assumptions: only two countries and two goods; zero transportation costs; similar prices and
values; resources are mobile between goods within countries, but not across countries; constant
returns to scale; fixed stocks of resources; and no effects on income distribution within countries.
While these are all unrealistic, the general proposition that countries will produce and export those
goods in which they are most efficient has been shown to be quite valid.
EXTENSIONS OF THE RICARDIAN MODEL

E) The text explores the effects of relaxing the assumptions that resources are mobile between
goods within a country, and that trade does not change a country’s stock of resources or the
efficiency with which those resources are utilized.
Immobile Resources
F) As illustrated by the example in the text, resources do not always move freely from one
economic activity to another.
Diminishing Returns
G) The model of comparative advantage assumes constant returns to specialization (the units of
resources required to produce a good are assumed to remain constant no matter where one is on a
country’s production possibility frontier). However, it is more realistic to assume diminishing
returns to specialization (more units of resources are required to produce each additional unit).
H) Diminishing returns are more realistic because not all resources are of the same quality, and
because different goods use resources in different proportions. Diminishing returns to
specialization suggest that the gains from specialization will probably be exhausted before
specialization is complete. Still, unrestricted free trade makes sense even if the gains are not as
great as suggested by the constant returns case.
Dynamic Effects and Economic Growth

I) Opening an economy to trade is likely to generate dynamic gains of two types. First, trade might
increase a country's stock of resources as increased supplies become available from abroad.
Second, free trade might increase the efficiency of resource utilization, and free up resources for
other uses.
The Samuelson Critique

J) Samuelson argues that in some cases, the dynamic gains from trade may not be so beneficial.
He argues that the ability to off-shore services jobs that were traditionally not internationally
mobile may have the effect of a mass inward migration into the United States, where wages fall,
effectively negating the gains of international trade.

9
country FOCUS: Moving White-Collar Jobs Offshore

Summary
This feature goes to the heart of a debate that has been played out many times over the past half
century—the transference of jobs from the United States to lower-wage countries. The difference
now however, is that rather than blue-collar jobs being transferred, the new trend is for white-
collar jobs to move, jobs associated with the knowledge-based economy.
1. Will the United States suffer from the loss of highly skilled and high paying jobs? What does
the transference of white-collar jobs mean to the average American?
Discussion Points: This hot issue is a highly sensitive one for many Americans—especially those
who have seen their once secure jobs being shipped offshore. Many students will probably know
someone who has suffered from this very situation, and may claim that companies have lost all
loyalty to their employees and simply become profit seekers. Other students, however, may point
that companies are in business to make a profit, and do well for other stakeholders such as
investors. Some students will simply argue that the loss of white-collar jobs is merely a
manifestation of companies viewing the world as a borderless market—where they seek resources
wherever they are cheapest, produce in the optimal location, and sell wherever there is demand.
2. What does the transference of white-collar jobs mean to recipient countries such as India and the
Philippines?
Discussion Points: For developing countries like India and the Philippines, the transference of
white-collar jobs from the United States not only generates new jobs, it also brings new skills and
knowledge that could be vital to the countries as they continue on the path toward greater
economic development. Students should recognize that greater employment levels will of course
have the effect of pushing wages up, and creating greater economic prosperity in these nations.
This in turn should be beneficial for American companies as new export markets develop.
3. Why do American companies transfer white-collar jobs to countries like India and the
Philippines?
Discussion Points: India offers companies a well-educated workforce that is willing to work for a
fraction of what companies would pay in the United States. By transferring skilled jobs to India or
the Philippines, American companies increase their global competitiveness and profitability.
Students will probably note that the trend to outsource is likely to continue as companies seek an
edge wherever they can find one. Already, the trend is being seen in new industries such as
healthcare where not only paperwork but even radiology services are now being routinely
outsourced.

10
Lecture Note: Outsourcing call centers and other white collar jobs is common in many industries
today, however it can also be controversial. To extend the discussion of outsourcing to include this
angle, consider {http://www.bloomberg.com/news/articles/2016-02-05/uaw-president-bemoans-
work-moving-to-mexico-to-cut-labor-costs}.
Lecture Note: To extend this discussion, consider

{http://www.bloomberg.com/news/articles/2012-03-15/outsourcing-a-passage-out-of-india}. This
multi-country analysis explores the advantages and drawbacks of outsourcing to several different
locations.
Lecture Note: Outsourcing is not always beneficial for companies. To extend this discussion,
consider {http://www.bloomberg.com/news/articles/2013-10-28/more-companies-see-advantage-
to-manufacturing-in-the-u-dot-s} and {http://www.bloomberg.com/news/articles/2012-02-02/for-
some-u-dot-s-dot-manufacturers-time-to-head-home}.
Evidence for the Link between Trade and Growth

K) Studies exploring the relationship between trade and economic growth suggest that countries
that adopt a more open stance toward international trade enjoy higher growth rates than those that
close their economies to trade.
Heckscher-Ohlin Theory
A) Heckscher and Ohlin argued that comparative advantage arises from differences in national
factor endowments (land, labor, and capital). As a result, the Heckscher-Ohlin theory predicts
that countries will export goods that make intensive use of those factors that are locally abundant,
while importing goods that make intensive use of factors that are locally scarce.
Teaching Tip: To learn more about Bertil Ohlin go to

{http://www.econlib.org/library/Enc/bios/Ohlin.html}.
THE LEONTIEF PARADOX

B) Using the Heckscher-Ohlin theory, Leontief, in 1953, postulated that since the United States
was relatively abundant in capital compared to other nations, the United States would be an
exporter of capital intensive goods and an importer of labor-intensive goods. To his surprise,
however, he found that U.S. exports were less capital intensive than U.S. imports. Since this result
was at variance with the predictions of the theory, it has become know as the Leontief Paradox.
Teaching Tip: A more extensive discussion of Wassily Leontief is available at

{http://www.econlib.org/library/Enc/bios/Leontief.html}.
C) Recent research suggests that the Heckscher-Ohlin theory gains predictive power if the impact
of differences in technology on productivity is controlled for.

11
The Product Life-Cycle Theory

A) Raymond Vernon initially proposed the product life-cycle theory in the mid-1960s. According
to the theory, as products mature, both the location of sales and the optimal production location
will change affecting the flow and direction of trade.
B) According to Vernon, early in the life cycle of a typical new product, while demand is starting
to grow in the United States, demand in other advanced countries is limited to high-income groups.
The limited initial demand in other advanced countries does not make it worthwhile for firms in
those countries to start producing the new product, but it does necessitate some exports from the
United States to those countries. Over time, however, demand for the new product starts to grow in
other advanced countries. As it does, it becomes beneficial for foreign producers to begin
producing for their home markets. In addition, U.S. firms might set up production facilities in
those advanced countries where demand is growing. Consequently, production within other
advanced countries begins to limit the potential for exports from the United States.
C) As the market in the United States and other advanced nations matures, the product becomes
more standardized, and price becomes the main competitive weapon. One result is that producers
based in advanced countries where labor costs are lower than the United States might now be able
to export to the United States.
D) If cost pressures become intense, the process might not stop there. The cycle by which the
United States lost its advantage to other advanced countries might be repeated once more as
developing countries begin to acquire a production advantage over advanced countries.
E) The consequence of these trends for the pattern of world trade is that the United States (and
other advanced countries) switches from being an exporter of the product to an importer of the
product as production becomes more concentrated in lower-cost foreign locations.
PRODUCT LIFE-CYCLE THEORY IN THE TWENTY-FIRST CENTURY

F) While the product life cycle theory accurately explains what has happened for products like
photocopiers and a number of other high technology products developed in the United States in the
1960s and 1970s, the increasing globalization and integration of the world economy has made this
theory less valid in today's world. In fact, the product life-cycle as introduced by Vernon could be
considered ethnocentric, as well. As such, this approach may be best suited to explain the pattern
of international trade during the period of American global dominance.
New Trade Theory

A) New trade theory suggests that the ability of firms to realize economies of scale (unit cost
reductions associated with a large scale of output) may help explain international trade patterns.
B) New trade theory makes two important points. First, trade can increase the variety of goods
available to consumers and decrease the average cost of those goods. Second, in industries where
the output necessary to attain economies of scale is significant relative to total world demand, only
a few companies may be able to survive. Being a first mover in these industries is important.

12
INCREASING PRODUCT VARIETY AND REDUCING COSTS

C) According to new trade theory, with trade a nation may be able to specialize in producing a
narrower range of products than it would in the absence of trade. By buying goods that it does not
make from other countries, each nation can simultaneously increase the variety of goods available
to its consumers and lower the costs of those goods.
ECONOMIES OF SCALE, FIRST-MOVER ADVANTAGES, AND THE PATTERN OF

TRADE
D) A second theme in new trade theory is that the pattern of trade we observe in the world
economy may be the result of first-mover advantages (economic and strategic advantages that
accrue to early entrants into an industry) and economies of scale.
IMPLICATIONS OF NEW TRADE THEORY

E) New trade theory suggests that nations may benefit from trade even when they do not differ in
resource endowments or technology. The theory also suggests that a country may predominate in
the export of a good simply because it was lucky enough to have first mover firms.
F) New trade theory is at variance with the Heckscher-Ohlin theory, which suggests that a country
will predominate in the export of a product when it is particularly well endowed with those factors
used intensively in its manufacture. New trade theory does not contradict the theory of
comparative advantage, but instead identifies a source of comparative advantage.
G) An obvious and controversial extension of new trade theory is the implication that governments
should consider strategic trade policies. Strategic trade policies would suggest that governments
should nurture and protect firms and industries where first mover advantages and economies of
scale are likely to be important, as doing so can increase the chance that a firm will build
economies of scale and eventually end up a winner in the global competitive race.
National Competitive Advantage: Porter’s Diamond

A) Porter’s 1990 study tried to explain why a nation achieves international success in a particular
industry. This study found four broad attributes―factor endowments, demand conditions, relating
and supporting industries, and firm strategy, structure, and rivalry―that promote or impede the
creation of competitive advantage. These are shown as a diamond in Figure 6.5. Porter argues that
firms are most likely to succeed in industries where the diamond is favorable.
FACTOR ENDOWMENTS
B) A nation's position in factors of production such as skilled labor or infrastructure necessary to
compete in a given industry can be critical. These factors can be either basic (natural resources,
climate, location) or advanced (skilled labor, infrastructure, technological know-how). While
either can be important, advanced factors are more likely to lead to competitive advantage.
DEMAND CONDITIONS
C) The nature of home demand for the industry’s product or service influences the development of
capabilities. Sophisticated and demanding customers pressure firms to be competitive.

13
RELATING AND SUPPORTING INDUSTRIES

D) The presence of supplier and related industries that are internationally competitive in a nation
can spill over and contribute to other industries. Successful industries tend to be grouped in
clusters in countries; having world class producers of semi-conductor processing equipment can
lead to (and be a result of having) a competitive semi-conductor industry.
FIRM STRATEGY, STRUCTURE, AND RIVALRY

E) The conditions in the nation governing how companies are created, organized, and managed,
and the nature of domestic rivalry impact firms’ competitiveness. Firms that face strong domestic
competition will be better able to face competitors from other firms.
EVALUATING PORTER’S THEORY

F) In addition to these four main attributes, government policies and chance can impact any of the
four. Government policy can affect demand through product standards, influence rivalry through
regulation and antitrust laws, and impact the availability of highly educated workers and advanced
transportation infrastructure.
G) The four attributes of the diamond work as a reinforcing system, complementing each other and
in combination creating the conditions appropriate for competitive advantage. To date, Porter’s
theory has not been subjected to detailed empirical testing.
FOCUS ON MANAGERIAL IMPLICATIONS: Location, First-

Mover Advantages, and Government Policy
A) There are at least three main implications of the material discussed in this chapter for
international businesses: location implications, first-mover implications, and policy implications.
Location
B) One way in which the material discussed in this chapter matters to an international business
concerns the link between the theories of international trade and a firm’s decision about where to
locate its various productive activities. Underlying most of the theories is the notion that different
countries have particular advantages in different productive activities. Thus, from a profit
perspective, it makes sense for a firm to disperse its various productive activities to those countries
where, according to the theory of international trade, they can be performed most efficiently.
First-Mover Advantages
C) Being a first mover can have important competitive implications, especially if there are
economies of scale and the global industry will only support a few competitors. Firms need to be
prepared to undertake huge investments and suffer losses for several years in order to reap the
eventual rewards.
Government Policy

14
D) The theories of international trade also matter to international businesses because business
firms are major players on the international trade scene. Because of their pivotal role in
international trade, business firms can and do exert a strong influence on government trade policy.
Government policies with respect to free trade or protecting domestic industries can significantly
impact global competitiveness.
E) One of the most important implications for businesses is that they should work to encourage
governmental policies that support free trade. If a business is able to get its goods from the best
sources worldwide, and compete in the sale of products into the most competitive markets, it has a
good chance of surviving and prospering. If such openness is restricted, a business’s long-term
survival will be in greater question.
Teaching Tip: For information about foreign governments and their approaches to international
trade, visit the Electronic Embassy at {http://www.embassy.org/}. This site provides links to all of
the foreign embassies located in Washington D.C.
Critical Thinking and Discussion Questions

1. Mercantilism is a bankrupt theory that has no place in the modern world. Discuss.
Answer: Mercantilism, in its purest sense, is a bankrupt theory that has no place in the modern
world. The principle tenant of mercantilism is that a country should maintain a trade surplus, even
if it means that imports are limited by government intervention. This policy is bankrupt for at least
two reasons. First, it is inconsistent with the general notion of globalization, which is becoming
more and more prevalent in the world. A policy of mercantilism will anger potential trade partners
because it will exclude their goods from free access to the mercantilist country’s markets.
Eventually, a country will find it difficult to export if it imposes oppressive quotas and tariffs on its
trading partners. Second, mercantilism is bankrupt because it hurts the consumers in the
mercantilist country. By denying its consumers access to either “cheaper” goods from other
countries or more “sophisticated” goods from other countries, the mercantilist country’s ordinary
consumers suffer.
2. Is free trade fair? Discuss!
Answer: This question is designed to stimulate class discussion. Trade theory suggests that
specialization and free trade benefits all countries. However, a case can be made in some situations
for imposing trade barriers. For example, if a developing country is trying to establish a new
industry, trade barriers may be needed in the short term until the industry can become competitive.
While it could be argued that another country could make the product more efficiently already, is it
fair to limit a country’s ability to develop its industrial base?

15
3. Unions in developed nations often oppose imports from low-wage countries and advocate trade
barriers to protect jobs from what they often characterize as “unfair” import competition. Is such
competition “unfair?” Do you think that this argument is in the best interests of (a) the unions, (b)
the people they represent, and/or (c) the country as a whole?
Answer: The theory of comparative advantage suggests that a country should specialize in
producing those goods that it can produce most efficiently, while buying goods that it can produce
relatively less efficiently from other countries. Furthermore, the theory suggests that opening a
country to free trade stimulates economic growth, which creates dynamic gains from trade.
Therefore, it would follow that if low-wage countries can make certain products more efficiently
than high wage countries, the low wage countries should produce and export those products.
While trade barriers may protect workers and companies, they are a short-term fix at best.
Moreover, by protecting industries, the government is not encouraging companies to become more
efficient. Instead, they are promoting inefficiency. Consumers lose out because they have higher
prices and less choice.
4. What are the potential costs of adopting a free trade regime? Do you think governments should
do anything to reduce these costs? What?
Answer: Students will probably be divided on this question, and a lively debate should ensue. For
example, students will probably recognize that by adopting a free trade regime, jobs will be lost in
some industries, however they may not agree on exactly what should be done about the jobs losses.
Some students might suggest that the government provide retraining programs while others may
argue that people lose their jobs everyday and do not get government assistance to find new ones.
5. Reread the Country Focus on “Is China a Neo-Mercantilist Nation?”

a) Do you think China is pursuing an economic policy that can be characterized as neo-
mercantilist?
b) What should the United States, and other countries, do about this?
Answer: Many students will probably suggest that indeed, China appears to be following a neo-
mercantilist philosophy. China has run a trade surplus for years. In fact, in 2008, the country hit a
record trade surplus of $280 billion. Some critics have suggested that China is limiting its imports
by following an import substitution policy. Other students however, may note that in 2008, the
growth in China’s imports actually exceeded the growth in its exports. Students may argue that this
indicates a change in China’s policy, and note that in 2011, China’s trade surplus had dropped to
$155 billion. Even so, most students will probably suggest that in order to continue to correct the
country’s massive trade surplus, foreign countries like the United States should continue to
pressure China to allow its currency to appreciate, and maintain open markets.
6. Reread the Country Focus feature on moving U.S. white-collar jobs offshore.
a) Who benefits from the outsourcing of skilled white-collar jobs to developing nations? Who
are the losers?
b) Will developed nations like the United States suffer from the loss of high-skilled and high-
paying jobs?

16
c) Is there a difference between the transference of high paying white-collar jobs such as
computer programming and accounting, to developing nations, and low paying blue collar
jobs? If so, what is the difference, and should government do anything to stop the flow of
white-collar jobs out of the country to countries like India?
Answer: This question is likely to generate a lively debate. Many students will suggest that the
outward flow of white-collar jobs is indeed a serious issue, one that should be the focus of
government attention. Students taking this perspective are likely to suggest that white-collar jobs
are more important to the nation’s future, and therefore they should remain at home. Other
students however, may argue that companies cannot afford to pay the higher wages commanded by
white-collar jobs and still remain profitable. Therefore, the argument might be that by taking these
jobs outside the country, the company is able to remain viable, and keep other people employed.
7. Drawing upon the new trade theory and Porter’s theory of national competitive advantage,
outline the case for government policies that would build national competitive advantage in
biotechnology. What kind of policies would you recommend that the government adopt? Are these
policies at variance with the basic free trade philosophy?
Answer: Porter’s theory of national competitive advantage argues that four broad attributes of a
nation shape the environment in which local firms compete, and that these attributes promote or
impede the creation of competitive advantage. These attributes are: factor endowments, demand
conditions, related and supporting industries, and firm strategy, structure, and rivalry. Porter goes
on to argue that firms are most likely to succeed in industries in which the diamond (which are the
four attributes collectively) is favorable. Porter later added two factors to the list of attributes
described above: chance and government policy. The New Trade theory addresses a separate issue.
This theory argues that due to the presence of substantial scale economies, world demand will
support only a few firms in many industries. Underpinning this argument is the notion of first-
mover advantages, which are the economic and strategic advantages that accrue to early entrants
into an industry. One could argue that when the attributes of a nation are conducive to the
production of a product, and when the manufacturers of that product have experienced some
“chance” events that have provided them first-mover advantages, the governmental policies of that
nation should promote the building of national competitive advantage in that particular area. This
could be accomplished through government R&D grants, policies that favor the industry in capital
markets, policies towards education, the creation of a favorable regulatory atmosphere, tax
abatements, and the like. Ask students whether they think this policy is at variance with the basic
free trade philosophy. One could argue that it is, because the government intervention is creating
the basis for comparative advantage. Conversely, one could argue that if a country establishes a
comparative advantage in a particular area that is based on a unique set of attributes (such as Swiss
production of watches), world output will be favorably impacted by letting that country pursue its
area of comparative advantage.
8. The world’s poorest countries are at a competitive disadvantage in every sector of their
economies. They have little to export. They have no capital; their land is of poor quality; they
often have too many people given available work opportunities; and they are poorly educated.
Free trade cannot possibly be in the interests of such nations. Discuss.

17
Answer: This is a difficult question. Certainly, most students will recognize that these countries are
in dire straights and need assistance from richer countries. Most students will probably be
sympathetic to their cause and suggest various aid programs including education and monetary
support to help the countries develop. However, others may be more cautious and promote the
notion that assistance would have to come in an organized form with multiple nations working
together. The question is an interesting one that should provide students with an eye-opening
discussion.
Creating the World’s Biggest Free Trade Zone

closing case
Summary
The closing case describes the benefits of a new free trade deal between the United States and the
European Union. The agreement, expected to be finalized in 2019 or 2020, should reduce or
eliminate the already low tariffs between the United States and the European Union effectively
leaving both in a better position. Many are hailing the proposed agreement as acting as a cost-free
stimulus package that will help to create new jobs and economic growth in both European Union
counties and in the United States. Discussion of the case can revolve around the following
questions:
QUESTION 1: Supporters of the proposed new trade deal between the United States and the
European Union claim that it will make all countries involved better off. Do you agree? Who
stands to lose as a result of the trade pact?
ANSWER 1: Free trade agreements like the proposed pact between the United States and the
European Union are generally recognized as positive sum games bringing benefits to all countries
involved usually in the form of lower tariffs, more choice for consumers, lower prices, increased
jobs, economic growth, and so on. However, for those that have benefitted from government
intervention, free trade deals are typically viewed with less enthusiasm. Students may note for
example that agriculture may experience some negative effects as a result of the U.S.-EU trade
deal. Tariffs on agricultural products have been higher than many products traded between the
countries and their elimination, while opening new markets for some, are likely to have negative
consequences for others.
QUESTION 2: What does the proposed agreement between the United States and the European
Union mean for U.S. companies selling to the European Union? Will consumers benefit?

18
ANSWER 2: Most students will probably suggest that U.S. companies currently doing business
with the European Union will welcome the new trade agreement between the countries. Students
may note for example, that in the auto industry, the proposed deal should eliminate the double set
of regulations that companies must adhere to. For consumers, this should be good news as the
reduced costs of doing business are passed on in the form of lower prices. In addition, some
students may agree that the new trade deal creates a greater interdependency among the countries,
which could reduce the potential for future government intervention.
Teaching Tip: For more information on the on the trade deal, go to

{http://www.bloomberg.com/news/articles/2016-02-26/eu-u-s-push-for-trans-atlantic-trade-deal-
before-end-of-2016}.
Continuous Case Concept

In the last few decades, the auto industry has shifted from one in which a few, large companies
primarily manufactured in their domestic markets and sold in their domestic markets, to one in
which a few large companies serve the world market, manufacturing around the globe to capture
competitive advantages wherever they can.
• Ask students to reflect on the changes in the industry. Why do companies like Toyota and
Nissan have large operations in the U.S. market? Why don’t American companies have a
large presence in Japan?
• Next, consider why BMW and Mercedes have established manufacturing operations in the
U.S. market, while American companies are shifting their production to places like
Mexico. Similarly, reflect on the new agreement between Toyota and Mazda whereby
Mazda will produce cars at its plant in Mexico for Toyota to sell in the United States.
• Finally, ask students to use the theories presented in the chapter to explain the changes in
the industry, and to predict what may occur in the next decade. Volkswagen, for example,
has just committed to opening a new factory in Tennessee where wage rates are relatively
low, and the Chennai region of India is now being referred to as the Detroit of India
because so many automakers and suppliers have established operations there.
The first two parts of this exercise can be used either at the beginning of a discussion of trade
theory, or threaded through the discussion of the material. The last question works well as a way
of applying the theories to a real world situation, and makes a nice conclusion to the discussion of
the theories.

19
globalEDGE Exercises
The resources for each exercise can be easily located by using the search box at the top of the
globalEDGE website at http://globalEDGE.msu.edu
Exercise
Search phrase: World Trade Organization International Trade Statistics
Resource Name: World Trade Organization (WTO): International Trade Statistics
Website: https://www.wto.org/english/res_e/statis_e/statis_e.htm
globalEDGE Category: Global, Statistical Data Sources, Publications
Additional Info:
There are several ways to get a list of Top 10 exporters and importers in the world from this
website. The easiest is to access the interactive “International Trade and Market Access Data” tool.
You can get a ranking of the countries at the bottom of this tool. The default is for exports, but
there is a drop-down at the top to allow you to switch the data for imports.
Additional Readings and Sources of Information

WTO Rejects U.S. Appeal of Meat Labeling in Canadian Win
http://www.bloomberg.com/news/articles/2015-05-18/wto-rejects-u-s-appeal-of-meat-labeling-in-
canadian-win
U.S. Urges Japan to be Bolder in Opening Markets

http://www.dailymail.co.uk/wires/ap/article-2801181/US-urges-Japan-bolder-opening-
markets.html
The Indian Outsourcing Issue is Back

http://www.bloomberg.com/news/articles/2012-05-18/the-indian-outsourcing-issue-is-back
From Outsourcing to Consulting

http://www.bloomberg.com/news/articles/2015-12-03/from-outsourcing-to-consulting-cognizant-
tries-to-take-on-ibm
Indian Outsourcers Settlement with the U.S. May Hurt Indian Outsources in the U.S.
http://www.bloomberg.com/news/articles/2013-10-29/indian-outsourcers-settlement-with-the-u-
dot-s-dot-may-hurt-indian-outsourcers-in-the-u-dot-s
Why Some Global Tech Startups Are Offshoring to Delaware

http://www.bloomberg.com/news/articles/2016-06-21/why-some-global-tech-startups-are-
offshoring-to-delaware

20
U.S. Reaches Deal With Brazil Ending Cotton Dispute

http://www.bloomberg.com/news/articles/2014-10-01/u-s-reaches-deal-with-brazil-ending-cotton-
trade-dispute
Canada’s Freeland Blames U.S. Protectionism for Lumber Dispute

http://www.bloomberg.com/news/articles/2016-09-04/canada-s-freeland-blames-u-s-
protectionism-for-lumber-dispute
WTO Leaders Agree to End Farm Subsidies as Doha Unresolved

http://www.bloomberg.com/news/articles/2015-12-19/wto-trade-leaders-agree-to-end-farm-
subsidies-as-doha-unresolved
How Nebraska is Winning Foreign Business

http://www.bloomberg.com/news/articles/2012-08-23/how-nebraska-is-winning-foreign-business
China’s Export Machine Is Grabbing More of the Global Market

http://www.bloomberg.com/news/articles/2016-09-06/china-export-machine-defying-gravity-
grabs-global-market-share
Japan Joins World Trade Organization Case on China Aircraft Tax

http://www.bloomberg.com/news/articles/2016-01-05/japan-joins-world-trade-organization-case-
on-china-aircraft-tax
World’s Biggest Shipping Firm Warns Against U.S. Protectionism

https://www.bloomberg.com/news/articles/2016-08-14/world-s-biggest-shipping-firm-warns-
against-u-s-protectionism

21
Another random document with
no related content on Scribd:
with the Association. After Burr’s arrival, and under his influence, the
scheme of disunion was made a part of the Mexican plan; and these
projects soon became so well known in New Orleans as to reach the
ears of the Spanish agents and excite their suspicions, until Clark
two months later complained to Wilkinson that Burr’s indiscretion
was bringing them all into danger.[155] Clark’s letter was written as
though he were an innocent bystander annoyed at finding himself
included in an imaginary conspiracy against the Spanish
government. In truth it seemed also to be written as a warning to
Burr against trusting a certain “Minor of Natchez”:—
“Were I sufficiently intimate with Mr. Burr, and knew where to direct
a line to him, I should take the liberty of writing to him. Perhaps,
finding Minor in his way, he was endeavoring to extract something
from him,—he has amused himself at the blockhead’s expense,—and
then Minor has retailed the news to his employers. Inquire of Mr. Burr
about this and let me know on my return [from Vera Cruz], which will
be in three or four months. The tale is a horrid one if well told.
Kentucky, Tennessee, the State of Ohio, the four territories on the
Mississippi and Ohio, with part of Georgia and Carolina, are to be
bribed with the plunder of the Spanish countries west of us to
separate from the Union.”
This letter, written by Clark, Sept. 7, 1805, showed that Burr’s
plans were notorious at New Orleans, and that his indiscretion
greatly annoyed his friends. Two years afterward, Wilkinson
reminded Clark of the letter.[156]
“You will recollect,” wrote Wilkinson, “you desired me to write Burr
on the subject, which I did, and also gave his brother-in-law, Dr.
Brown, an extract of your letter to transmit him.”
Burr’s reply has been preserved:—
“Your letter of November,” he wrote to Wilkinson,[157] Jan. 6, 1806,
“which came, I believe, through J. Smith, has been received and
answered. Your friend [Clark] suspects without reason the person
[Minor] named in his letter to you. I love the society of that person; but
surely I could never be guilty of the folly of confiding to one of his
levity anything which I wished not to be repeated. Pray do not disturb
yourself with such nonsense.”
Daniel Clark and Wilkinson were therefore assured, not that the
tale was untrue, but that Burr had not confided to Minor, or “to one of
his levity” anything which Burr “wished not to be repeated.”
Nevertheless Clark, whose abilities were far greater than those of
Burr, and whose motives for secrecy were stronger, knew that Burr
must have talked with extreme indiscretion, for his plans had already
come to the ears of the Spanish agents in Louisiana. Many residents
of New Orleans knew of the scheme,—“many absurd and wild
reports are circulated here,” wrote Clark; and whether they shared it
or not, they certainly did not denounce it.
No plea of ignorance could avail any of Burr’s friends. His
schemes were no secret. As early as Aug. 4, 1805, more than a
month before Daniel Clark sent his warning to General Wilkinson,
the British minister was so much alarmed at the publicity already
given to the plot that he wrote to Lord Mulgrave a panic-stricken
letter, evidently supposing that the scheme was ruined by Burr’s
indiscretion:[158]—
“He or some of his agents have either been indiscreet in their
communications, or have been betrayed by some person in whom
they considered that they had reason to confide; for the object of his
journey has now begun to be noticed in the public prints, where it is
said that a convention is to be called immediately from the States
bordering on the Ohio and Mississippi for the purpose of forming a
separate government. It is, however, possible that the business may
be so far advanced as, from the nature of it, to render any further
secrecy impossible.”
The French minister was hardly less well informed. Feb. 13,
1806, Turreau wrote to his government,[159] mentioning Miranda’s
departure, and adding,—
“The project of effecting a separation between the Western and
Atlantic States marches abreast with this one. Burr, though displeased
at first by the arrival of Miranda, who might reduce him to a secondary
rôle, has set off again for the South, after having had several
conferences with the British minister. It seems to me that the
Government does not penetrate Burr’s views, and that the difficult
circumstances in which it finds itself, and where it has placed itself,
force it to dissimulate. This division of the confederated States
appears to me inevitable, and perhaps less remote than is commonly
supposed; but would this event, which England seems to favor, be
really contrary to the interests of France? And, assuming it to take
place, should we not have a better chance to withdraw, if not both
confederations, at least one of them, from the yoke of England?”
That Burr should have concealed from his principal allies—the
creoles of New Orleans—plans which he communicated so freely
elsewhere, was not to be imagined. Burr remained only about a
fortnight at New Orleans; then returned on horseback through
Natchez to Nashville, where he became again the guest of Andrew
Jackson. He passed the month of August in Tennessee and
Kentucky; then struck into the wilderness across the Indiana Territory
to St. Louis in order to pass a week more with General Wilkinson
and Secretary Brown. He found Wilkinson discouraged by the
rebuffs he had met in attempting to seduce his subordinate officers
and the people of the territory into the scheme. Although Wilkinson
afterward swore solemnly that he had no part or parcel in Burr’s
disunion project, his own evidence proved that the subject had been
discussed between them, and that his fears of failure had at the time
of their meeting at St. Louis checked his enthusiasm:[160]—
“Mr. Burr, speaking of the imbecility of the government, said it
would moulder to pieces, die a natural death,—or words to that effect;
adding that the people of the Western country were ready to revolt. To
this I recollect replying that if he had not profited more by his journey
in other respects, he had better have remained at Washington or
Philadelphia; for ‘surely,’ said I, ‘my friend, no person was ever more
mistaken. The Western people disaffected to the government! They
are bigoted to Jefferson and democracy.’”
Wilkinson afterward claimed to have written at that time a letter to
the Secretary of the Navy warning him against Burr; but the letter
never reached its supposed address. He certainly gave to Burr a
letter of introduction to Governor Harrison, of the Indiana Territory,
which suggested decline of sympathy with the conspiracy; for it
urged Harrison to return the bearer as the Territorial delegate to
Congress,—a boon on which the Union “may much depend.”[161]
Burr reached St. Louis Sept. 11, 1805; he left it September 19, for
Vincennes and the East. Two months afterward he arrived at
Washington and hurried to the British legation. His friend Dayton,
who had been detained by a long illness in the West, arrived and
made his report to Merry only two days before.
The conspiracy counted on the aid of Great Britain, which was to
be the pivot of the scheme; but Burr’s hopes were blasted by
learning from Merry that no answer had been received from the
British government in reply to the request for money and ships.
Merry explained that an accident had happened to the packet-boat,
but both had reason to know that hope of aid from the British
government had vanished.
“These disappointments gave him, he [Burr] said,[162] the deepest
concern, because his journey through the Western country and
Louisiana as far as New Orleans, as well as through a part of West
Florida, had been attended with so much more success than he had
even looked for, that everything was in fact completely prepared in
every quarter for the execution of his plan; and because he had
therefore been induced to enter into an engagement with his
associates and friends to return to them in the month of March next, in
order to commence the operations. He had been encouraged, he said,
to go such lengths by the communications he had received from
Colonel Williamson, which gave him some room to hope and expect
that his Majesty’s government were disposed to afford him their
assistance.... He was sensible that no complete understanding on the
subject could well take place without verbal communication; but he
flattered himself that enough might be explained in this way to give a
commencement to the business, and that any ulterior arrangements
might safely be left till the personal interviews he should have with the
persons properly authorized for the purpose, whom he recommended
to be sent with the ships of war, which it was necessary should cruise
off the mouth of the Mississippi at the latest by the 10th of April next,
and to continue there until the commanding officer should receive
information from him or from Mr. Daniel Clark of the country having
declared itself independent. He wished the naval force in question to
consist of two or three ships of the line, the same number of frigates,
and a proportionable number of smaller vessels.”
The British minister was curious to know precisely the result of
the Western tour; but on this subject Burr talked vaguely, and,
contrary to his usual custom, mentioned few names.
“Throughout the Western country persons of the greatest property
and influence had engaged themselves to contribute very largely
toward the expense of the enterprise; at New Orleans he represented
the inhabitants to be so firmly resolved upon separating themselves
from their union with the United States, and every way to be so
completely prepared, that he was sure the revolution there would be
accomplished without a drop of blood being shed, the American force
in that country (should it not, as he had good reason to believe, enlist
with him) not being sufficiently strong to make any opposition. It was
accordingly there that the revolution would commence, at the end of
April or the beginning of May, provided his Majesty’s government
should consent to lend their assistance toward it, and the answer,
together with the pecuniary aid which would be wanted, arrived in time
to enable him to set out the beginning of March.”
From Pitt, besides the naval force, Burr wanted a credit for one
hundred and ten thousand pounds, to be given in the names of John
Barclay of Philadelphia, and Daniel Clark of New Orleans. In his
report to Merry on the results of the Western tour he said no more
than he had a right to say, without violent exaggeration. He barely
hinted at complicity on the part of Wilkinson, Smith, Adair, and
Andrew Jackson. He gave Merry clearly to understand that the heart
of his plot was not in the Ohio Valley, but at New Orleans. He laid
little weight on the action of Kentucky or Tennessee; with him, the
point of control was among the creoles.
“Mr. Burr stated to me—what I have reason to believe to be true
from the information I have received from other quarters—that when
he reached Louisiana he found the inhabitants so impatient under the
American government that they had actually prepared a
representation of their grievances, and that it was in agitation to send
deputies with it to Paris. The hope, however, of becoming completely
independent, and of forming a much more beneficial connection with
Great Britain, having been pointed out to them, and this having
already prevailed among many of the principal people who are
become his associates, they had found means to obtain a suspension
of the plan of having recourse to France.”
Burr impressed Merry with the idea that West Florida was also to
be taken within the scope of his scheme. “The overture which had
been made to him at New Orleans from a person of the greatest
influence in East and West Florida, and the information he had
otherwise acquired respecting the state of those countries,” were
among the reasons which he pressed upon the British government
as motives for aiding the conspiracy with a naval force. England was
then at war with Spain.
One more argument was pressed by Burr, for no one knew better
than he the use to which New England might be put.
“He observed—what I readily conceive may happen—that when
once Louisiana and the Western country became independent, the
Eastern States will separate themselves immediately from the
Southern; and that thus the immense power which is now risen up
with so much rapidity in the western hemisphere will, by such a
division, be rendered at once informidable.”
Whatever may have been Merry’s sympathies or wishes, he
could do no more than report Burr’s conversation to Lord Mulgrave
with as much approval as he dared give it. Meanwhile Burr was
thrown into extreme embarrassment by the silence of Mulgrave.
Burr’s report showed that the creoles in New Orleans, with Daniel
Clark as their financial ally, were induced to countenance the
conspiracy only because they believed it to be supported by
England. Without that support, Burr could not depend on creole
assistance. Had he been wise, he would have waited; and perhaps
he might in the end have brought the British government to accept
his terms. If Pitt intended to plunder American commerce and to
kidnap American citizens, he must be prepared to do more; and Burr
might calculate on seeing the British Tories placed by their own acts
in a position where they could not afford to neglect his offers.
Burr stayed a week in Washington; and although the object of his
Western journey was so notorious that even the newspapers talked
about it, his reception at the White House and at the departments
was as cordial as usual. About Dec. 1, 1805, he returned to
Philadelphia, where he began the effort to raise from new sources
the money which till then he hoped to provide by drafts on the British
treasury. The conspirators were driven to extraordinary shifts. Burr
undertook the task of drawing men like Blennerhassett into his toils,
and induced Dayton to try an experiment, resembling the plot of a
comic opera rather than the seriousness of historical drama.
Dec. 5, 1805, as Miranda was leaving New York to entrap
Madison, three days after Burr had returned to Philadelphia from his
unsatisfactory interview with Merry, the Marquis of Casa Yrujo, as
yet innocent of conspiracy, and even flattering himself upon having
restored friendly relations with the Government, received a secret
visit at his house in Philadelphia from Jonathan Dayton, whom he
had known at Washington as the Federalist senator from New
Jersey. Dayton, in a mysterious manner, gave him to understand that
the Spanish government would do well to pay thirty or forty thousand
dollars for certain secrets; and finding the marquis disposed to listen,
Dayton recited a curious tale.
“This secret,” said he,[163] “is known at the present moment to only
three persons in this country. I am one of them; and I will tell you that
toward the end of the last session and near the end of last March
Colonel Burr had various very secret conferences with the British
minister, to whom he proposed a plan not only for taking the Floridas,
but also for effecting the separation and independence of the Western
States,—a part of this plan being that the Floridas should be
associated in this new federative republic; England to receive as the
price of her services a decisive preference in matters of commerce
and navigation, and to secure these advantages by means of a treaty
to be made as soon as she should recognize this new republic. This
plan obtained the approval of the British minister, who sent it and
recommended it to his Court. Meanwhile Colonel Burr has been in
New Orleans, in the Mississippi Territory, in the States of Tennessee,
Kentucky, and Ohio, to sound and prepare their minds for this
revolution. In all these States he has found the most favorable
disposition, not only for this emancipation, which the Western States
evidently desire, but also for making an expedition against the
kingdom of Mexico. This is an idea that occurred to us after sending
the first plan to London; and having given greater extension to the
project, Colonel Burr sent to London a despatch with his new ideas to
Colonel Williamson,—an English officer who has been many years in
this country, and whose return he expects within a month or six
weeks. The first project was very well received by the English Cabinet,
and more particularly by Mr. Dundas, or Lord Melville, who was the
person charged with this correspondence; but as he had reason to
fear dismission from office for causes well known through the debates
of Parliament, this plan has suffered some delay; but Mr. Pitt has
again turned his attention to it.”
On the strength of this information Dayton seriously proposed to
terrify Yrujo and Don Carlos IV. into paying the expenses of Burr’s
expedition. An idea so fantastic could have sprung from no mind
except Burr’s; but, fantastic as it was, he pursued it obstinately,
although by doing so he betrayed to Spain the followers whom he
was striving to inveigle into an imaginary assault on Spanish empire.
Dayton asserted that the revolution would begin on the appearance
of the British squadron off the coast of West Florida in February or
March, 1806; that to make this revolution more popular, after the
Floridas were taken, the expedition against Mexico would be
attempted; that they feared no opposition from a government so
weak as the Federal; that the United States troops were all in the
West, and that Colonel Burr had caused them to be sounded in
regard to the expedition against Mexico; that they were all ready to
follow him, and he did not doubt that there existed in them the same
disposition to sustain the rights of the Western States, in which they
lived, against the impotent forces of the Federal government; that
Mexico was to be assailed, in co-operation with the English fleet, by
troops to be disembarked at Tampico or thereabout; and that the
revolutionized Spanish possessions would be made republics.
To reveal such a plan was to destroy its chance of success; and
in thus presenting himself before the Spanish minister Dayton
appeared as a traitor not only to the Union, but also to the
conspirators with whom he was engaged. Such a character was not
likely to create confidence. Yrujo instantly saw that Burr stood behind
Dayton; that England could not have encouraged the conspiracy, for,
had she done so, the conspirators would never come to beg a few
thousand dollars from Spain; and that the Mexican scheme, if it ever
existed, must have been already abandoned, or it would not have
been revealed. Dismissing the ex-senator with civility and a promise
to talk with him further, Yrujo wrote to his Government a long
account of the interview. He pointed at once to Clark as the person
through whom Burr drew his information about Mexico. Yrujo was
perplexed only by Jefferson’s apparent blindness to the doings in the
West. The marquis was a Spaniard; and for twenty years the people
of the United States had talked of Spaniards with contempt. Even
Jefferson freely assumed their faithlessness and paltriness; but
surely if Yrujo had cared to concentrate in a few words his opinion of
American political character, no American could have wondered if
these few words, like a flash of lightning, left no living thing where
they struck.
“I am sure,” he wrote to Cevallos, “that the Administration will not
let itself be deceived by Colonel Burr’s wiles; but I know that the
President, although penetrating and detesting as well as fearing him,
and for this reason, not only invites him to his table, but only about five
days ago had a secret conference with him which lasted more than
two hours, and in which I am confident there was as little good faith on
the one side as there was on the other.”
The assertion could not be denied. The White House rarely saw,
within a few days’ interval, two less creditable guests than Aaron
Burr, fresh from confiding his plans to Anthony Merry, and Francesco
de Miranda, openly engaged in a military attack from the port of New
York upon the dominions of Spain.
Yrujo was at first inclined to distrust Dayton; but Miranda’s
undertaking, which crossed Burr’s plans, gave to the ex-senator the
means of proving his good faith. Indeed, in a few days more, Dayton
made a clean breast, admitting that England had disappointed Burr’s
expectations, and that Burr had authorized the offer to sell his
services to Spain.
“I have had with him two very long conferences,” wrote Yrujo three
weeks later,[164] “in which he has told me that Colonel Burr will not
treat with Miranda, whom he considers imprudent, and wanting in
many qualities necessary for an undertaking of such magnitude as he
has on hand. Miranda has returned to New York, much piqued at
finding that Colonel Burr was very determined to have nothing to do
with him. He also told me that Colonel Williamson, who was sent to
London with the plan for the British ministry, not finding Mr. Pitt so
warm as Lord Melville for the project of raising the Western States,
had turned to plans in that capital, and showed, by the want of
exactness in his correspondence, that he was not following up the
object with the same zeal as at first he undertook it; that in
consequence they were disposed to despatch to London a New York
gentleman named Warton, well known for his intimacy with Burr, but
that on the verge of his departure another plan suggested itself to
Burr, which he seems rather inclined to execute. This plan, excepting
the attack on the Floridas, has the same object, which he, as well as
his chief friends, hope may be put in execution even without foreign
aid. For one who does not know the country, its constitution, and,
above all, certain localities, this plan would appear almost insane; but
I confess, for my part, that in view of all the circumstances it seems to
me easy to execute, although it will irritate the Atlantic States,
especially those called central,—that is, Virginia, Maryland, Delaware,
Pennsylvania, New Jersey, and New York. It is beyond question that
there exists in this country an infinite number of adventurers, without
property, full of ambition, and ready to unite at once under the
standard of a revolution which promises to better their lot. Equally
certain is it that Burr and his friends, without discovering their true
object, have succeeded in getting the good-will of these men, and
inspiring the greatest confidence among them in favor of Burr.”
The “almost insane” plan which Dayton unfolded to the Spanish
minister was nothing less than to introduce by degrees into the city
of Washington a certain number of men in disguise, well armed, who,
at a signal from Burr, were to seize the President, Vice-President,
and the President of the Senate,—the substitute always named at
the beginning of each session, in case of the death, illness, or
absence of the two first. Having thus secured the heads of
government, the conspirators were to seize the public money
deposited in the Washington and Georgetown banks, and to take
possession of the arsenal on the Eastern Branch. Burr hoped by this
blow to delay or paralyze opposition, and perhaps to negotiate with
the individual States an arrangement favorable to himself; but in the
more probable case that he could not maintain himself at
Washington, he would burn all the national vessels at the Navy Yard,
except the two or three which were ready for service, and embarking
on these with his followers and the treasure, he would sail for New
Orleans and proclaim the emancipation of Louisiana and the
Western States.
Wild as this scheme was, it occupied Burr’s mind for the rest of
the winter, and he made many efforts to draw discontented officers
of the government into it. He sounded Commodore Truxton, without
revealing his whole object; but to William Eaton, the hero of Derne,
he opened himself with as much confidence as to Merry and Yrujo.
Eaton was at Washington in January and February, 1806, sore at the
manner in which his claims were treated by Congress, and
extravagant in ideas of his own importance. To him Burr laid open
the whole secret, even in regard to the plan for attacking
Washington. The story was the same which had been told to Merry
and Yrujo.[165] He spoke of Wilkinson as his second in command; of
his son-in-law, Allston, as engaged in the enterprise; and of New
Orleans as the capital of his Western empire, whence an expedition
would be sent for the conquest of Mexico. The line of demarcation
was to be the Alleghany Mountains; and although he expressed
some doubts about Ohio, he declared himself certain of Kentucky
and Tennessee.
“If he could gain over the marine corps and secure to his interests
the naval commanders Truxton, Preble, Decatur, and others, he would
turn Congress neck and heels out of doors, assassinate the President
(or what amounted to that), and declare himself the protector of an
energetic government.”
The scheme of attacking Washington was merely an episode due
to Burr’s despair of British or Spanish aid. Burr was reduced to many
devices in order to keep his conspiracy alive. December 12,
immediately after the disappointing interview with Merry, and
Dayton’s first advance to Casa Yrujo, Burr wrote to Wilkinson a letter
evidently intended to conceal his diplomatic disaster and to deceive
his friend. He said that there would be no war with Spain, and
foretold the peaceful course of Government.[166] “In case of such
warfare, Lee would have been commander-in-chief. Truth, I assure
you. He must you know come from Virginia.” As to the conspiracy, he
reserved it for a few short lines, intelligible enough to those who
knew that New Orleans was to declare its independence on the
arrival of a British squadron in February, and that the revolutionary
government would at once send a delegation to Natchez or St. Louis
to make a formal tender of military command to General Wilkinson.
“On the subject of a certain speculation it is not deemed material to
write till the whole can be communicated. The circumstance referred
to in a letter from Ohio remains in suspense. The auspices, however,
are favorable, and it is believed that Wilkinson will give audience to a
delegation, composed of Adair and Dayton, in February.”
Meanwhile the Government asked no questions. Denunciation of
Burr and Wilkinson was dangerous; it was tried again and again with
disastrous results. Major Bruff, at St. Louis, who suspected the truth,
dared not bring such a charge against his superior officer:[167] but a
certain Judge Easton, to whom Burr confided at St. Louis, ventured
to write a letter to a senator of the United States charging Wilkinson
with being concerned in Miranda’s expedition; and was told in reply
that the letter was burned, and that the writer should mind his own
business, and take care how he meddled with men high in power
and office. So thick an atmosphere of intrigue, especially in Spanish
matters, was supposed to pervade the White House; men’s minds
were so befogged with public messages about a Spanish war and
secret messages about peace, with private encouragement to
Miranda and public punishment of Miranda’s friends, with John
Randolph’s furious charges of duplicity and Madison’s helpless
silence under these charges,—that until the President himself should
say the word, Burr, Wilkinson, Dayton, and their associates were
safe, and might hatch treason in the face of all the world.
President Jefferson had already too many feuds on his hands,
and Burr had still too many friends, to warrant rousing fresh reprisals
at a time when the difficulties of the Administration were extreme.
The President continued to countenance Burr in public, alleging in
private that the people could be trusted to defeat his schemes.
Doubtless the people could be trusted for that purpose, but they had
instituted a government in order to provide themselves with proper
machinery for such emergencies, and the President alone could set
it in action. General Eaton made an attempt to put the President on
his guard. He first consulted two leading Federalist Congressmen,—
John Cotton Smith and Samuel Dana,—who advised him to hold his
tongue, for his solitary word would not avail against the weight of
Burr’s character.[168] Nevertheless, in March, 1806, he called at the
White House and saw the President.
“After a desultory conversation, in which I aimed to draw his
attention to the West, I took the liberty of suggesting to the President
that I thought Colonel Burr ought to be removed from the country,
because I considered him dangerous in it. The President asked where
he should send him. I said to England or Madrid.... The President,
without any positive expression, in such a matter of delicacy, seemed
to think the trust too important, and expressed something like a doubt
about the integrity of Mr. Burr. I frankly told the President that perhaps
no person had stronger grounds to suspect that integrity than I had;
but that I believed his pride of ambition had so predominated over his
other passions that when placed on an eminence and put on his
honor, a respect to himself would secure his fidelity. I perceived that
the subject was disagreeable to the President; and to bring him to my
point in the shortest mode, and in a manner which would point to the
danger, I said to him, if Colonel Burr was not disposed of, we should in
eighteen months have an insurrection, if not a revolution, on the
waters of the Mississippi. The President said he had too much
confidence in the information, the integrity, and attachment of the
people of that country to the Union, to admit any apprehensions of
that kind.”
If the President had confidence in the people of New Orleans, he
had not shown it in framing a form of government for them; and if he
admitted no apprehensions in March, 1806, he admitted many
before the year closed. In truth, he deceived himself. That he was
afraid of Burr and of the sympathy which Burr’s career had excited,
was the belief of Burr himself, who responded to Jefferson’s caution
by a contempt so impudent as to seem even then almost incredible.
Believing that the President dared not touch him, Burr never cared to
throw even a veil over his treason. He used the President’s name
and the names of his Cabinet officers as freely as though he were
President himself; and no one contradicted or disavowed him. So
matters remained at Washington down to the close of the session.
“I detailed,” said Eaton,[169] “the whole projects of Mr. Burr to
certain members of Congress. They believed Colonel Burr capable of
anything, and agreed that the fellow ought to be hanged, but thought
his projects too chimerical, and his circumstances too desperate, to
give the subject the merit of serious consideration.”
CHAPTER XI.
The death of Pitt destroyed all immediate possibility of drawing
England into conspiracy with Burr,—if indeed a possibility had ever
existed. The attempt to obtain money from Spain was equally
hopeless. Except for Madison’s conduct in receiving Miranda and
refusing to receive Yrujo, Dayton would probably have obtained
nothing from Spain; but the information he was able to give Yrujo in
regard to Miranda’s plans and proceedings deserved reward, and
Dayton received at different times sums of money, amounting in all to
about three thousand dollars, from the Spanish treasury. Dayton’s
private necessities required much larger sums.
Burr was also ruined. He could not return to New York, where an
indictment hung over his head. Conspiracy was easier than poverty;
but conspiracy without foreign aid was too wild a scheme for other
men to join. Jefferson might at that moment have stopped Burr’s
activity by sending word privately to him and his friends that their
projects must be dropped; but Jefferson, while closing every other
path, left that of conspiracy open to Burr, who followed it only with
much difficulty. In order to retain any friends or followers he was
obliged to deceive them all, and entangle himself and them in an
elaborate network of falsehood. Dayton alone knew the truth, and
helped him to deceive.
April 16, 1806, a few days before the adjournment of Congress,
Burr wrote to Wilkinson a letter implying that Wilkinson had required
certain conditions and an enlargement of the scheme; Burr assured
him that his requirements, which probably concerned aid from
Truxton, Preble, Eaton, and Decatur, had been fully satisfied:—
“The execution of our project is postponed till December. Want of
water in Ohio rendered movement impracticable; other reasons
rendered delay expedient. The association is enlarged, and comprises
all that Wilkinson could wish. Confidence limited to a few. Though this
delay is irksome, it will enable us to move with more certainty and
dignity. Burr will be throughout the United States this summer.
Administration is damned which Randolph aids. Burr wrote you a long
letter last December, replying to a short one deemed very silly.
Nothing has been heard from the Brigadier since October. Is Cushing
and Porter right? Address Burr at Washington.”[170]
Burr’s letters to Wilkinson were always in cipher, and
mysteriously worded; but in this despatch nothing was unintelligible.
Wilkinson afterward explained that he was himself the “Brigadier,”
and the two names were those of officers under his command.
The same western mail which carried this letter to Wilkinson
carried another to Blennerhassett, inviting him to join in a
“speculation,” which would “not be commenced before December, if
ever.” Probably Burr made many other efforts to obtain money from
petty sources; he certainly exerted himself to delude the Spanish
government into lending him assistance. Hitherto he had left this task
to Dayton, his secretary of state, but May 14, 1806, the Spanish
minister wrote to Don Pedro Cevallos,[171]—
“The principal [Burr] has opened himself to me; and the
communications I have had with him confirm me in the idea, not only
of the probability, but even of the facility, of his success, under certain
circumstances. To insure it, some pecuniary aid on our part and on
that of France is wanted. I have been careful to be very circumspect in
my answers, and have not compromised myself in any manner; but
when I return to Spain next spring I shall be bearer of the whole plan,
with the details that may be wanted. There will also arrive in Spain
before long, more or less simultaneously with me though by different
ways, two or three very respectable persons, both from Louisiana and
from Kentucky and Tennessee, with the same object. They all
consider the interests of these countries as united and in conformity
with those of Spain and France; but the principal, or more correctly the
principals, here do not wish to open themselves to the Emperor
Napoleon’s minister [Turreau], as they lack confidence in him.
Consequently, it will be proper either not to communicate the matter at
all to that government, or to do it with the intimation that its
representative here shall not have the least notice of it; for, I repeat,
they have no confidence in him, and this has been a condition
imposed on me in the communications I have received.”
Finding Yrujo obstinate in refusing to advance money, Burr tried
to alarm him by pretending to take up again the scheme of attacking
Florida and Mexico. June 9, 1806, Yrujo wrote another long
despatch on the subject. Burr, he said, had suddenly ceased to visit
him as frequently as usual, and Dayton had explained the coldness
as due to Burr’s belief that the new Administration in England would
be more liberal and zealous than that of Pitt. Dayton added that Burr
was drawing up new instructions for Williamson; that he had even
decided to send Bollman to London to invite co-operation from the
British government in an attack on the Spanish possessions. Dayton
professed to have acted as the protector of Spain from Burr’s
unprincipled ambition.
“Dayton told me[172] he had observed to Burr that although he
(Burr) was assuredly the principal, yet a plan of this nature ought to be
put in deliberation in the cabinet council which certain chiefs are to
hold in New Orleans in the month of December next, and that for his
own part he thought this idea unjust and impolitic; to which Burr
answered that they would always be able to alter the plan as
circumstances should require, and that in fact this point, or at least the
direction to be given to it, would be determined in New Orleans.
Dayton told me that he would oppose with all his strength measures of
this nature, and that he knew General Wilkinson, who was to be a
member of the Congress, would make the same opposition; and that
in order to drive the idea of such a temptation out of Burr’s head, and
of other people’s also, it would be well for us to reinforce our garrisons
at Pensacola and Mobile, and that then the circumstance of our
respectable condition of defence might be used as a weighty
argument for abandoning such a project. After holding this conference
with me, Dayton returned to his residence; and before starting, wrote
me a note to say that the night before Burr had read him the
instructions to be given to Bollman, and that they were of the tenor
indicated to me.”
Godoy and Cevallos were hardly so imbecile as to pay for
creating at New Orleans a new American empire more dangerous to
Spanish possessions than the peaceful republic over which
Jefferson presided at Washington. Don Pedro Cevallos read Yrujo’s
despatches with great interest. At first he even hinted that if the
United States were bent on forcing a war with Spain, these
adventurers, in case of actual hostilities, might be made useful;[173]
but this suggestion was accompanied by many warnings to Yrujo not
to commit himself or to contribute money, and at last by a flat
announcement that the King would not in any way encourage Burr’s
designs.[174]
The conspirators were in a worse position as regarded England.
By a fatal stroke of ill-luck, Merry’s despatch of Nov. 25, 1805, written
to be read in secrecy by the Tory Lord Mulgrave, was received at the
Foreign Office Feb. 2, 1806, ten days after Pitt’s death, and was
probably opened by Charles James Fox,—almost the last man in
England to whom Merry would have willingly shown it. The only
answer received by Merry reached Washington about June 1, 1806,
and consisted in the dry announcement that his Majesty had been
pleased to listen favorably to Mr. Merry’s request for a recall, and
had appointed the Hon. David Montague Erskine as his successor.
Merry complained piteously that he had never suggested a wish
to be recalled, that he had indeed the strongest desire to remain,
and felt himself greatly aggrieved at his treatment; but Fox was
remorseless, and Merry could only prepare for Erskine’s arrival.
Smarting under this sudden reproof, Merry held his parting interview
with Burr. Doubtless it was as little cheerful on one side as on the
other; but Merry did not think himself required to give an immediate
or a minute account of it to Fox. He waited until Erskine’s arrival, and
then, in one of his last despatches, Nov. 2, 1806, after Burr had
begun his operations in the West, Merry wrote,[175]—
“I saw this gentleman [Burr] for the last time at this place
[Washington] in the month of June last, when he made particular
inquiry whether I had received any answer from my Government to
the propositions he had requested me to transmit to them, and
lamented exceedingly that I had not, because he, and the persons
connected with him at New Orleans, would now, though very
reluctantly, be under the necessity of addressing themselves to the
French and Spanish governments. He added, however, that the
disposition of the inhabitants of the Western country, and particularly
Louisiana, to separate themselves from the American Union was so
strong that the attempt might be made with every prospect of success
without any foreign assistance whatever; and his last words to me
were that, with or without such support, it certainly would be made
very shortly.”
After receiving this rebuff from England, Burr and Dayton needed
singular impudence to threaten Yrujo with the terror of Charles
James Fox; but impudence had become their only resource. Every
step taken thenceforward by the conspirators was taken by means of
a new imposture; until at last they became petty swindlers who lived
from day to day by cheating each other. How flagrant their imposture
was, has been partly shown in their attempt to deceive Yrujo; but
their treatment of Wilkinson was far more dishonest.
Toward the end of July, 1806, Burr had accomplished all that
could be done in the East, and prepared to begin his campaign to
New Orleans. By strenuous efforts money had been raised to set the
subordinate adventurers in motion. Among these were Erick
Bollman, famous for an attempt to rescue Lafayette from
confinement at Olmütz; a French officer named De Pestre, or
Dupiester; Samuel Swartwout, a younger brother of Robert; and
finally young Peter V. Ogden, a nephew of Dayton. The time had
come when each actor must take his place, and must receive orders
as to the rôle he was to play.
Of all Burr’s intimates, Wilkinson was not only the most important,
but also the most doubtful. He had hung back and had made
conditions. Since October, 1805, nothing had been heard from him,
and his last letter had contained objections “deemed very silly.” At
last a letter, dated May 13, arrived. This letter never saw the light;
afterward, at the trial, Wilkinson challenged its production, and
accused Burr of falsehood in asserting that it had been destroyed at
Wilkinson’s request or with his knowledge. Only one conclusion
might be taken as certain in regard to its contents,—they did not suit
the situation of Dayton and Burr.
Dayton’s reply was dated July 24, 1806, and was sent by his
nephew, Peter V. Ogden, to Wilkinson.
“It is now well ascertained that you are to be displaced in next
session,” wrote Dayton, working on his old friend’s pride and fears.
“Jefferson will affect to yield reluctantly to the public sentiment, but
yield he will. Prepare yourself, therefore, for it. You know the rest. You
are not a man to despair, or even despond, especially when such
prospects offer in another quarter. Are you ready? Are your numerous
associates ready? Wealth and glory! Louisiana and Mexico!”
Together with this exhortation from Dayton, Burr sent a cipher
despatch, afterward famous as the key to the whole conspiracy.
Published at different times with varying versions, as suited
Wilkinson’s momentary objects, the correct reading probably ran
very nearly as follows:—
“July 29, 1806. Your letter, postmarked 13th May, is received. At
length I have obtained funds, and have actually commenced. The
Eastern detachments, from different points and under different
pretences, will rendezvous on the Ohio 1st of November. Everything
internal and external favors our views. Naval protection of England is
secured. Truxton is going to Jamaica to arrange with the admiral on
that station. It will meet us at the Mississippi. England, a navy of the
United States, are ready to join, and final orders are given to my
friends and followers. It will be a host of choice spirits. Wilkinson shall
be second to Burr only; Wilkinson shall dictate the rank and promotion
of his officers. Burr will proceed westward 1st August, never to return.
With him goes his daughter; the husband will follow in October, with a
corps of worthies. Send forthwith an intelligent and confidential friend
with whom Burr may confer; he shall return immediately with further
interesting details; this is essential to concert and harmony of
movement. Send a list of all persons known to Wilkinson west of the
mountains who could be useful, with a note delineating their
characters. By your messenger send me four or five commissions of
your officers, which you can borrow under any pretence you please;
they shall be returned faithfully. Already are orders given to the
contractor to forward six months’ provisions to points Wilkinson may
name; this shall not be used until the last moment, and then under
proper injunctions. Our object, my dear friend, is brought to a point so
long desired. Burr guarantees the result with his life and honor, with
the lives and honor and the fortunes of hundreds, the best blood of
our country. Burr’s plan of operation is to move down rapidly from the
Falls, on the 15th of November, with the first five hundred or a
thousand men, in light boats now constructing for that purpose; to be
at Natchez between the 5th and 15th of December, there to meet you;
there to determine whether it will be expedient in the first instance to
seize on or pass by Baton Rouge. On receipt of this, send Burr an
answer. Draw on Burr for all expenses, etc. The people of the country
to which we are going are prepared to receive us; their agents, now
with Burr, say that if we will protect their religion, and will not subject

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FOCUS ON MANAGERIAL IMPLICATIONS: Location, First-Mover Advantages, and

CRITICAL THINKING AND DISCUSSION QUESTIONS

globalEDGE RESEARCH TASK

CLOSING CASE: Creating the World’s Biggest Free Trade Zone

APPENDIX: INTERNATIONAL TRADE AND THE BALANCE OF PAYMENTS

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The Trans Pacific Partnership

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An Overview of Trade Theory

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THE BENEFITS OF TRADE

Did You Know Video Clip:

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Learn about the two sugar futures markets:

THE PATTERN OF INTERNATIONAL TRADE

TRADE THEORY AND GOVERNMENT POLICY

Teaching Note: A historical perspective of mercantilism is available at

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country FOCUS: Is China a Neo-Mercantilist Nation?

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over other nations.

THE GAINS FROM TRADE

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QUALIFICATIONS AND ASSUMPTIONS

EXTENSIONS OF THE RICARDIAN MODEL

Dynamic Effects and Economic Growth

The Samuelson Critique

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country FOCUS: Moving White-Collar Jobs Offshore

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Lecture Note: To extend this discussion, consider

Evidence for the Link between Trade and Growth

Teaching Tip: To learn more about Bertil Ohlin go to

THE LEONTIEF PARADOX

Teaching Tip: A more extensive discussion of Wassily Leontief is available at

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The Product Life-Cycle Theory

PRODUCT LIFE-CYCLE THEORY IN THE TWENTY-FIRST CENTURY

New Trade Theory

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INCREASING PRODUCT VARIETY AND REDUCING COSTS

ECONOMIES OF SCALE, FIRST-MOVER ADVANTAGES, AND THE PATTERN OF