London

on the World Today

IT HAS come as a shock to the British public that, less than four years after the end of the war, Germany and Japan are reappearing as trade competitors. The discovery is all the more discomforting for several reasons.

First, German and Japanese exports, still little more than a trickle, are likely to swell into a flood which will offer serious competition to British products in important world markets. Secondly, when British industrialists, merchants, and trade-unions appeal to the Government for help against the potential commercial threal of these two ex-enemies, the Government seems neither able nor willing to do anything. Thirdly, German and Japanese rivalry marks the end of the period during which British trade has been able to spurt ahead without bothering about any traffic at crossroads.

It is only a few years since the British people were reading lurid reports almost daily, describing the ruin of Germany’s productive apparatus. Now a report of the Bizonal military governments mentions that the American and British zones of Germany, including the Ruhr, possess 90 per cent of their pre-war industrial capacity.

A multiplying number of complaints have been reaching the Government concerning German and Japanese competition. What is the nature of these anxieties? How and where are German and Japanese exports starting to challenge British trade? What factual basis is there for believing that this development will grow into a real threat to the British export drive, and hence to the whole British economy, during the next four or five years?

Today it is the shadow of such competition, rather than a present reality, that is worrying Britain. No British factory has yet closed down, nor a single British worker lost his job because of German or Japanese price-undercutting. Some British firms, though, report isolated losses of orders to ex-enemy rivals.

The threat of German competition

British Diesel engine manufacturers are investigating statements that the Germans are selling oil engines 40 per cent below British prices. Sheffield steelmakers are inquiring into news that Ruhr industry is outbidding Britain for customers. The Germans are delivering in four months machine tools which the British can supply only in eighteen months; they are providing such machinery 5.4 per cent more cheaply than their British rivals; and cases are cited in which German machine tools have a 10 to 15 per cent higher productivity than the corresponding British product.

German shipbuilders hope, apparently with reason, for an easing of the restrictions on the building of German seagoing vessels, now limited to 1500 tons. Norwegian shipowners are stated to have made contracts by which a Kiel firm will supply seven motorships of 3000 tons each at a price of $700,000 per unit, compared with world prices of about $1,100,000 for similar craft. British producers of scientific instruments have been emitting anguished cries about German competitors.

The British fears

Reappearance of the German “people’s car,” especially in Switzerland and Belgium, was the incident that started the discussion of competition. At the German mark’s former value of 17 cents, this car is being sold retail at about $1300. After the German currency reform last June the mark was valued at 30 cents, which almost doubled the price of the Volkswagen. Contracts for the sale of the people’s car at the erstwhile 17-cent mark rate are gradually being worked off. Under new contracts, based on the revalued mark, the car will no longer he competitive.

The British Government stressed these special currency conditions in order to soothe the restive British automobile exporters. It was admitted, however, that among German goods which will remain competitive are chemicals, machinery — including heavy engineering and electrical equipment — ships, scientific instruments, cement, glass, clay and stone products.

Two British fears seem justified in this connection. Average wages of German workers are about 40 per cent below the British level. Secondly, industrial Britain is afraid that Germany will revert to dumping with Hjalmar Schacht’s old tricks of multiple exchange-rates, special subsidies, and freight rebates. Both the statute of the International Ruhr Authority and the new Occupation Statute are to give the United States, Britain, and France power to intervene against German unfair commercial practices. In trade rivalry, however, it is sometimes hard to draw the frontier between the fair and the unfair.

No sympathy for the industrialists

The British Government has made clear that it will refuse to regard foreign competition as unfair simply because it is German or because it is successful. Britain’s uneasy industrialists are being told that the right answer to the German and Japanese challenge is to promote their own efficiency. Indeed, British cabinet ministers and other officials have been giving scant sympathy or comfort to the deputations of British commercialists which have been weeping on their bosoms.

The Government’s relentless attitude was most clearly expressed by the British military governor in Germany, General Sir Brian Robertson. The public discussion in Britain, he said, could not influence British economic policy in Germany; he and his administration were not there to serve sectional interests. “Our policy,” General Robertson went on, “is to restore Germany’s economy. The Germans must again become self-supporting and their export trade must be developed as quickly as possible.” If that involves stiff competition for his own countrymen, General Robertson implied, it’s just too bad.

The London Economist, leading British weekly, also cold-shouldered the dismayed British manufacturers and traders. The German economy, it wrote, must not be kept at a pauper standard in order to keep the world safe for British exports. “All the arguments that are used about German competition could immediately be turned against. British export policy. If British exporters say that German wages are too low, may not American exporters make the same complaint against British wages?”

Bizonia’s exports must increase

German competition at the moment is being felt only at isolated spots in Britain’s commerce, but the outlook for the future may well alarm the British. A glance at the four-year plan which the American and British military governments sent to the European Marshall Plan organization (OEEC) suggests the formidable substance behind this shadow.

Output in Western Germany has almost doubled in the past year, but many factories are still working below capacity. Bizonia’s plan says that in these four years “exports must be expanded four times from their present volume.” According to the plan, goods from Bizonia to the value of 2.8 million dollars are to be sold abroad between June, 1952, and June, 1953.

In 1936 German industry was booming, with Hitler’s rearmament program at full blast. Yet at the end of the current four-year plan, German industrial production is to be 10 per cent above the thriving 1936 level, and the volume of German exports 60 per cent higher than in 1936.

A special place is reserved for German engineering products in this immense export campaign, although it is upon the sale of similar machinery that Britain is partly relying for its own recovery. The British textile industry, already harassed by fear of Japan’s competition, has been told that by 1952-1953 German textiles are to be exported at the rate of 200 million dollars’ worth a year.

Vast enlargement of Western Germany’s trade with Russia and with Eastern Europe is foreseen in the Bizonal long-term plan. In 1948 this trade amounted to imports of only 12 million dollars and 20 million dollars’ worth of exports to the Soviet Union and Europe’s East. By 1952-1953, according to the plan, the corresponding figures will be 573 million and 581 million. That such a colossal expansion of Western Germany’s commerce with the U.S.S.R. and its satellites is envisaged is bound to startle British market-seekers.

Japan’s race for textile markets

With one notable difference, the prospect of Japanese competition is similar. Britain’s race for markets with Germany will range over a varied assortment of commodities. What threatens to create bitter Japanese rivalry for Britain, however, is primarily textile exports.

Textiles are not just any old article in Britain’s economy. In value they top the list of all British exports, comprising one fifth of the total. Last year Britain sold abroad 1173 million dollars’ worth of textiles, with machinery and vehicles next in importance. A serious loss of cotton-goods markets would endanger the jobs of some of the 690,000 workers in British textile factories. Lancashire remembers the mid-thirties when Japan was mercilessly crowding Britain off the world’s textile markets.

At a London conference in April, 1948, American and British textile industrialists sounded an alarm about revival of Japanese textile plants. They asked imposition of a limit of 3.5 million spindles in Japan, compared with 13 million before the war (of which 8 million were operating) and 2.25 million now.

The United States rejected the suggestion. Textiles account for 66 per cent of all Japanese exports, and their increased sale abroad is considered essential to lower the 400-milliondollar subsidy which American taxpayers are contributing annually to Japan’s economy.

Loss of Chinese and other foreign customers is impelling Japan to look more covetously at regions in Asia where British cloth and machinery are being sold.

Machinery is expected to develop more rapidly than textiles among Japan’s exports. A few firms in India have canceled orders with British industry and are buying cheaper Japanese machines. Prices of Japanese weaving machinery are 30 per cent below the British figure. Japan’s silk is being sold abroad at prices under British factory costs. The Japanese are also starting to compete with British firms in bicycles, watches, clocks, ceramics, shipbuilding, and ship repairs.

British officials estimate the wages of Japanese textile workers at about one fifth of those paid to equivalent British workers. Japanese competition, however, is a future rather than a present menace.

In the year ending June 30, 1948, Japan sold abroad 280 million dollars’ worth of textile goods. General MacArthur’s four-year plan assesses Japan’s textile exports in 1952-1953 at 675 million dollars; the optimistic Japanese government says their value will reach 906 million. Japan’s total exports, valued at 390 million dollars for the period June, 1947, to June, 1948, are to attain 1200 million dollars in 1952-1953 according to MacArtbur’s plan, or 1646 million dollars if the large! of the Japanese government is hit.

Enter the cotton Senators

Lancashire cotton-mill owners have been noticing a growing interest of American textile manufacturers in export trade. Can these Americans be reckoned as allies in the British effort to cheek Japanese rivalry?

Sueh hopes are offset by the influence in the American Congress of the cotton bloc, which was happy to see almost a million bales of lowergrade cotton from the post-war stock of the Commodity Credit Corporation unloaded on Japan and thus withdrawn as a threat to American prices. The cotton Senators and Representatives will do whatever they can to sustain Japan’s purchases of the American crop and to promote U.S. credits for Japan in order to finance such buying.

Sir Raymond Streal, chairman of Britain’s Cotton Board, has been trying to arrange the dispatch to Japan of an Anglo-American textile mission. Such a mission could have oil her of two aims, or a combination of both. One would be a revival of the scheme to limit the number of spindles Japan is allowed to operate. The other would be a cartel-like agreement to partition markets among U.S., British, and Japanese textile exporters, possibly with an understanding on types of cloth to be sent to each market.

The U.S. makes the choice

Agitated argument in Britain about German and Japanese competition has usually ignored the fundamental truth that the solution of this dilemma, if there he a solution, has been removed from I British Government’s hands. In Western Germany it is the United States which foots the bill for recovery and for most of the occupation costs in the British as well as the American zone.

Nationalization of basic industries in ihe Ruhr, to which the British Government was publicly committed, was shelved at the behest of the United States. And at a single stroke last July, against the will of the British Government, economic controls were lifted from more than 400 commodities in the combined American and British zones of Germany.

As the United States has decided irrevocably to put recovery first in Germany and Japan, the British have no choice other than to face the consequent threat to their export drive in coming years.