THE TROUBLES OF TRADE
Neumann, William L.
The Troubles of Trade By William L. Neumann TRADE, not aid? Aid, but no increased trade? Or no more aid and no increased trade? These are the key questions for the future of American foreign...
...For the past six years the United States has been selling abroad an average of $5 billion more than it buys...
...and since 1945 their exports have exceeded their imports by $31 billion, of which at least three-fifths, or $18 billion has been paid for by the American taxpayer...
...At the same time, any sizable dropping off of American exports would produce considerable distress in some areas of our economy...
...Many of these industries are flexible enough, however, to produce other articles which would not face foreign competition...
...Such a balance sheet needs to be drawn up for many rural, industrial and mixed areas to illustrate to American producers and their Congressional representatives the degree on which they depend on foreign trade...
...But the district also has wheat farmers who face declining foreign sales due to lack of dollars, hog raisers who exported the lard from every fourth hog, and the Heinz canneries which send canned farm products all over the world...
...From a European point of view, continued solvency based on year-to-year American grants of aid is also neither politically nor economically desirable...
...Many of the strong supporters of the Republican Party of 1953 have become virtual apostles of free trade...
...The alternative of selling less to Europe, reducing sales to the dollar level of American purchases of foreign goods, has also many drawbacks...
...At the same time the high tariff policy of successive Republican administrations was closing the expanding American market to European salesmen...
...An estimate made recently by a Mutual Security study group foresaw the displacement of not more than sixty to ninety thousand industrial workers by a major increase in imported manufactures...
...The Western European nations show increasing restlessness over what they consider to be the excessively high price paid for American aid—intensified rearmament, severance of trade with Eastern Europe, and passive acceptance of U.S...
...In addition there are a variety of industries, almost every one of which sells some of its goods to foreign countries...
...Year after year, since World War I, the United States has been able to sell more abroad than it bought...
...The development of substitutes has reached a point where old sources of supply are no longer needed...
...As a result, a showdown was postponed...
...But its Congressional membership includes both the ardent advocates of more protection who decry the present Trade Agreements Act as well as the exponents of a much more liberal trade policy...
...Foreign butter and cheeses are also potentially major dollar earners if the present parity price support program were eliminated to allow competition...
...This Commission is to make recommendations to the next regular session of Congress...
...In this district there are many dairy farmers who fear foreign cheeses and butter, and a declining coal industry fighting against imports of Venezuelan fuel oil...
...But such a shift in direction of trade will take decades, and for many manufactured commodities it is unlikely that any other area can replace the United States as a major producer...
...It would be to Europe's advantage, for example, if Turkish wheat production, now rising rapidly, could eventually replace much of the high cost wheat imported from the United States and Canada...
...Increased trade with the United States offers a respectable means of closing the dollar gap, ending American charity, and regaining economic independence...
...The most optimistic predictions for the increase of imports, even with the free entry of all foreign goods, do not exceed $2.5 billion yearly...
...But it would also put an end to the small wool-raising industry concentrated in a few Western states which have powerful representatives in Congress...
...Writing in the Atlantic Monthly, Adams pointed out that American coal and steel production was beginning to surpass Europe's while American exports were beginning to deprive Europe of traditional markets for its manufactured products...
...Approximately ten per cent of farm production is now exported, and for the wheat farmer this figure goes up to over thirty per cent...
...In addition to this historic weakening of Europe's economic position, the rapid rise of American prices since the end of the war has added great hardship...
...The answer to this problem for the Eisenhower Administration is supposed to be worked out by a bi-partisan Commission on Foreign Economic Policy made up of members of Congress and Presidential appointees...
...To Europeans the major obstacle to this increase of trade appears to be the American protectionist structure: "Buy American" legislation, the system of quotas or virtual embargoes on certain agricultural commodities, and the tariff...
...With them disappeared the substantial income with which Europe bought a sizable amount of food and raw materials...
...Expanded production and employment from increased foreign sales, lower prices, and eventually lower taxes must be totaled up against the minor dislocations resulting from more imports...
...Fundamentally, however, there are only three answers or combination of answers which they can offer on this problem...
...Compared to 1938, Western Europe has now to pay almost 200 per cent more for its imports while only receiving about ,a 100 per cent rise in the sales price of its exports...
...Until this is done American trade policy will continue to move inconsistently in both directions...
...The widespread popularity achieved by the slogan, "Trade, not Aid," among Europeans is one indication of this restlessness...
...To date President Eisenhower has turned down a Tariff Commission recommendation that he increase the tariff on screen-printed silk scarves, but at the same time ordered a quota imposed on the import of filbert nuts...
...While pressing Congress for a renewal of the reciprocal trade program, the Administration bowed to U.S...
...Congressmen and constituents alike must be able to see that the advantages, economic and political, of greater imports far outweigh the difficulties created by foreign competition...
...The first session of the 83rd Congress delayed a final decision on the whole problem by voting a one-year extension but only after Secretary of State Dulles had pledged that no new tariff agreements would be undertaken during the year, a pledge that dismayed our "Trade, not Aid" friends abroad...
...But at the present level of American exports the complete achievement of this goal seems an impossibility...
...Of these industries only a few would suffer from foreign competition on a free market while almost all would benefit from an expanded overseas market...
...II Although President Eisenhower drew fire from supporters of an Expanded trade program by some of his appointments, his first message to Congress did call for the prompt extension of the Trade Agreements Act, a piece of Democratic legislation which has long been the object of Republican attack...
...Even the protectionist-minded Mc-Kinley had already glimpsed the dangers of continued high tariffs...
...Indefinite continuation of the present level of foreign aid in a period of budget-cutting faces the opposition of economy-minded Congressmen backed by many economy-minded, tax-paying constituents...
...Large import increases are also possible in cane sugar...
...Yet the Congressional representative of this district remains a strong advocate of protectionism, voting in terms of the conditions of over a decade ago instead of today...
...A machine tool factory, a fiber glass plant, a locomotive parts plant all have foreign markets which could be expanded further if dollars were available...
...Henry Ford II, the Detroit Board of Trade, representing an important segment of the automobile industry, and the Committee for Economic Development, representing a major segment of industry and finance, have all come out for sizable increases in American imports...
...This they see as the only alternative to the present aid policy which in effect subsidizes our exports...
...Fifty years and two devastating wars after Brooks Adams' predictions, his warning of trouble ahead is coming true...
...The other two answers are to sell less or to buy more abroad...
...The Commission is, therefore, in for a major battle over its recommendations, a battle which will likely again be repeated on the floor of Congress...
...The problem is: where do we go from here...
...And behind this series of barriers stands the traditionally high tariff Republican Party, returned to power after twenty years...
...Under the present quota system a percentage of the American market is preserved for American beet sugar producers...
...Until the major nations went off the gold standard in the 1930's, this country threatened to accumulate all the world's gold...
...They financed the second World War by means of Lend-Lease...
...Foreign purchases of American goods over that amount would therefore require continued subsidy in one form or another...
...In its first session, the 83rd Congress stabbed fitfully at the answers only to set off a political squabble that threatened to equal the offshore oil dispute in intensity...
...They made loans to Europe amounting to over $10 billion in the 1920's, most of which were subsequently repudiated...
...As early as 1901, Brooks Adams, visionary grandson of John Quincy Adams, was predicting a troublesome future for American trade relations with Europe...
...In the face of these possibilities the fundamental problem of increasing imports remains a political one...
...As stated recently by a British Member of Parliament, Robert Boothby: "The United States have, in fact, made dollars available to their impoverished customers abroad on a colossal scale . . . They financed the first World War to the tune of $17 billion...
...The resulting lack of dollars on the part of our customers is what is known as the dollar gap...
...To close it we have been expending about $5 billion annually on foreign aid...
...He is presently engaged in a research project on the diplomacy of World War II...
...On the other hand, many Democratic Congressmen, North and South, stand ready to fight any program which would open American markets to foreign agricultural competition...
...Both in and out of the Eisenhower Administration there are those who argue that we should help Europe by increasing our imports of European and other foreign goods...
...The same help would have to be promised to cotton, tobacco, and livestock raisers...
...Despite these warnings the Republican Party remained overwhelmingly protectionist...
...Wliile it might be far wiser in the long run for Europe to shift many of its purchases to areas where prices would be lower and where European sales would balance purchases, for many, commodities this may never be possible...
...Congress, with some reluctance, voted over four and a half billion dollars for foreign aid and voted to extend for one year the Trade Agreement Act of the previous Administration...
...In the same period the value of industrial production rose from $75 million to $240 million...
...It was accelerated by World War II and by the postwar concern for the production of all possible vital materials within the United States...
...Japan, for example, can never again hope to sell this country large quantities of silks, nor can Germany regain its prewar markets for dyestuffs...
...History, however, plays strange tricks...
...Each of these three groups has the backing of important economic and political interests, and each is strong enough to make an effective attack on the program of the others...
...As a result all attempts at formulating a clear-cut policy are hampered while America's economic relations with Europe continue to deteriorate...
...Far Eastern policy...
...Removal of present barriers to wool imports might increase British sales of that commodity by a half billion dollars and make available to Americans far cheaper woolen clothes...
...Loss of the export market without a corresponding expansion of the domestic market would force some farmers to make costly conversion to other crops...
...As a survey mission headed by Secretary of Commerce Sawyer concluded in December 1952, "Indefinite dependence on aid destroys self-respect, impairs the real strength of the recipient economy and has a capacity to destroy friendly relations between the giver and the recipient...
...It is becoming more and more important that America's allies be given the opportunity of moving towards self-sufficiency in their relations with this country...
...Two world wars have liquidated Europe's overseas investments...
...Ill Unfortunately all three answers face considerable political opposition since each requires some degree of sacrifice...
...Even to achieve the $2.5 billion increase in imports requires some bold economic planning and some far-sighted political courage...
...Since "World War I, if not before, the center of world economic power has been shifting to the United States from London, Paris, and Berlin...
...A manufacturer of reflective paint for streets and highways now sells his products to nations all over the world, but finds the export market limited by lack of dollars...
...For others it would mean a curtailment of production, putting the less-efficient farmer out of business altogether...
...If these two price levels had risen evenly the present dollar gap would have long since disappeared...
...The issue is certain to be one of the most explosive of the second session of the 83rd Congress...
...Unless wise planning could promise avoidance of disaster for the dairy and beet farmers the Congressional opposition to imports would be overwhelming...
...These facts are not disputed...
...While Europe has been going broke, the international financial position of the United States has been improving...
...The facts of the trade-aid problem are clear...
...sive revisions pushed the tariff steadily upward, culminating in the Smoot-Hawley Act of 1930 which raised the general level of duties to the highest point in tariff history...
...The last and the most desirable answer is to increase American purchases of foreign goods so that the rest of the world can earn enough dollars to pay for the goods they now buy in the United States...
...International friendships must be based on reciprocity between national economies rather than unending charity...
...In his last speech, delivered on his ill-fated trip to Buffalo in September, 1901, McKinley said: "We must not repose in fancied security that we can forever sell everything and buy little or nothing...
...But equally vocal are the protectionists who would prefer to continue foreign economic aid rather than face increased competition for our domestic markets...
...At a time of high employment, like the present, these workers with government help in re-training could be quickly absorbed into other expanding industries...
...When Teddy Roosevelt read the Adams article he was moved to make a mild plea for tariff reciprocity in his first message to Congress...
...Under free imports they would not be able to continue to compete with the cane production of Cuba and the Philippines...
...In the last decade the value of farm products in this district, including those presently enjoying protection and subsidy, rose from $22 million to $50 million...
...Again to quote Boothby, "At the end of it all . . . the peoples of Western Europe and its dependent territories continue to languish in comparative poverty and apparently inextinguishable debt...
...This tariff policy, Adams believed, was rubbing salt in Europe's economic wounds and would create strong anti-American sentiment throughout Europe...
...Some manufacturers would also be affected, but with a continually expanding domestic market their difficulties could be less serious than those of farmers...
...And among the protectionists there are those who want to discontinue foreign aid and are willing to let American exports fall to the present level of our imports...
...The next session of Congress must deal head-on with this critical problem—or run the risk of weakening seriously the ties that bind the western world...
...A balance sheet of this type was recently drawn up by the International Chamber of Commerce for the 18th Congressional District of Pennsylvania...
...Strict party lines along traditional high tariff and low tariff positions have disappeared...
...SuccesWILLIAM L. NEUMANN, an historian specializing in foreign affairs, has served as consultant to a Senate Committee, lectured on American diplomacy at the Pentagon, served as executive director for the Foundation for Foreign Affairs, and has taught at the Universities of Virginia, Maryland, and Hawaii, and Howard University...
...One answer to the problem is the present one, to continue giving enough aid to close the gap...
...Manufacturers of pottery, glassware, gloves, handbags, clocks, watches, bicycles, knives, scissors, and a variety of other consumer goods would also see foreign goods displacing their products...
...These are the key questions for the future of American foreign policy...
...But despite all of this mixture of charity and subsidy the economic relationship of the United States and Europe has changed little...
...wool interests and raised the tariff on wool tops from Uruguay...
...Trade with the rest of the world had to be maintained by finding devices other than trade for getting money back to our customers...
...In the 1930's they raised the dollar price of gold and bought $17 billion of it which they immediately reburied in the vaults of Fort Knox...
...It is now up to the next session of this Congress, which convenes in January, to face these inescapable questions...
...The warning of Brooks Adams still holds true...
...But dairy products, like beet sugar, are raised in a great many states of the union...
...American self-sufficiency is far advanced...
...Friends cannot be bought with dollar grants...
...This economic dilemma has been long in the making...
...Europe's overseas markets and sources of raw materials have been to a large extent absorbed by the United States...
Vol. 17 • October 1953 • No. 10
