The Clamor for Protection

by DAVID L. HURWOOD

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A DANGEROUS paradox has bedeviled our foreign relations for the past eight years — a paradox lying in the reluctance of our country to shape its foreign trade policies in terms of its overwhelming economic strength. At a time when so many world issues rest on the uncertain purposes and tactics of the Soviet Union, it is refreshing to note that here, at least, no intransigent foreign power stands in the way.

The economic strength of a country lies only partly in its ability to produce. It is no less an index of its capacity to consume. The productive genius of America goes unquestioned, but in recent years we have acted as if we were not sure of our ability to consume—as if the American market were small and shrinking rather than broad and growing.

Since the Second World War we have piled up huge export surpluses year after year, and now we display an unwillingness to see a balance restored. At first this lopsided trade could not be helped; a disorganized and devastated Europe had to buy far more from us than she could possibly repay. More recently her productive and export powers have grown to the point where she is ready and eager to send an increasing flow of payment in kind to our shores. But, to her surprise, she finds in America a nervous reluctance to accept such payment.

As the world’s one great creditor nation, we have a logical course of action open to us. That is to encourage an expanding volume of imports from abroad and at the same time undertake a sound program of foreign investment. This was the policy affirmed by the Administration after the war; the purpose of the Marshall Plan was to increase the productivity of the member nations and enable them to sell more of their output in foreign markets, particularly America.

Europeans, however, have become increasingly disturbed by inconsistencies in our principles and practices. They have seen demands for protection multiply in this country, as various domestic interests have complained of real or threatened injury from foreign competition. Two years ago, for example, a rider was attached to the Defense Production Act permitting quotas to be placed on imports of certain agricultural products. Quotas wore imposed on cheese and other dairv products, imports of winch had, in many cases, not exceeded 5 per cent of domestic production. The quotas represented a 40 per cent cut in the import of an item that for several North Atlantic Treaty countries was a major export. The Danes, who were especially hard hit, pointed to the irony of our exhortations, on the one hand, to produce more blue cheese, and our imposition, on the other, of an import, quota just when their drive was beginning to bear fruit. One Danish official said, “To the man in the street it is incomprehensible that the United States prefers to continue to assist us through dollar grants from the American taxpayer . . . instead of allowing us to pay in goods for dollars we urgently need to buy American products.”

The choose quota was not an isolated event. Various other devices were employed to frustrate European imports and thwart the attempts of our friends abroad to exchange the galling status of wards for the honorable role of trading partners. A bold reversal of this negative trend occurred last August when President Truman refused to increase the tariff on watches imported from Switzerland. But since then the clamor for protection has intensified, and Europeans are wondering whether there is any point in making great efforts to develop the American market when the first signs of success invariably call forth an angry demand for quotas and higher tariffs.

One fact cannot be ignored. The tilings Europe can send us arc not the raw materials that constitute the vast hulk of our imports and supplement rather than compete with our own output. From Asia, Africa, South America, and Canada we import the things that come in duty-free: copper, tin, and nickel; coffee; newsprint and wood pulp; crude petroleum; rubber; vegetable and essential oils; cocoa; jute. On the other hand, the only things t hat Europe can send us are manufactures — things which can be made here, of course, but in which she enjoys some special advantage based on centuriesold skills, traditions of craftsmanship, or the ability, because of lower wage rates, to lavish a degree of hand labor and painstaking detail unsuited to American methods of mass production. Rut these are the very items winch cause such an outcry. There are always American producers who make things similar to (if not identical with) the imported article, and who experience competition from it. These producers draw on an arsenal of arguments to show that the import is playing havoc with the American economy and should be chased out.

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A CASE in point is woolen and worsted cloth, imports of which have risen impressively in recent years. (In 1951 they were more than four times the 1947 volume, on a square-yard basis. In 1952 they rose another go per cent.) To Grent Britain these woolen exports are an important source of dollar earnings. The British woolen industry exports over a quarter of its output, and the I nited States’ share in these exports is large. I nderstandably Britain regards the protectionist campaign against woolen imports with misgivings, and to all countries of Western Europe the woolen issue is a crucial test of our intentions in foreign trade. As such it merits examination to see whether the complaints anti warnings of domestic woolen manufacturers are valid, and whether the “threat” posed by woolen imports is serious enough to warrant protective measures that are contrary to our announced trade policies.

Those who are agitating for higher tariffs on woolens base their argument on those points: —

1. The strategic importance of the woolen industry. — Even the most doctrinaire advocate of free international trade readily grants that considerations of national security may justify measures not otherwise allowed under classic free-trade theory. No one questions the vital importance of maintaining a sound, functioning woolen industry, fully equipped to supply every need for wool cloth that may arise under a war situation. The record of our woolen industry in the Second World War was a proud one. If it can be shown that the strategic potential of the domestic industry is being impaired, then some measures (not necessarily import restrictions) are in order. But unless it is proved that imports arc in.fact impairing — or threatening to impair — this potential, the national security argument for higher tariffs begs the question.

2. The high volume of imports. — It is pointed out that the volume of imports in 1952 was approximately 22.5 million square yards of woven wool fabrics. In 1951 the total was 18.7 million square yards. The impression is conveyed that these are very large quantities. Liberal use is made of such phrases as “avalanche . . . opening the floodgates . . . inundated by imports . . . surrender of our markets,”and so on.

Of course import figures take on significance only when compared with U.S. production figures and translated into percentage terms. Imports in 1952 actually came to 24 million square yards. But U.S. production of wool apparel fabrics was 464 million square yards. So the imposing figure of 24 million square yards for imports is scaled down to a rather unimposing 5.2 per cent.

In 1951 the proportion was lower, only 4 per cent. In 1950 it was 3.4 per cent. If the production and import figures for the seven post-war years 1946 through 1952 are totaled and compared, the proportion which imports bore to domestic production is found to have been 2.1 per cent.

In the light of these percentages the appropriateness of such terms as “avalanche . . . inundation . . . death knell of the domestic industry ” becomes questionable.

3.Imports hare caused depression and unemployment in our woolen industry. — An advertisement in the Daily News Record on March 10, 1953, said, “it is no mere coincidence that the current depression in the wool textile industry concurs with the highest volume of woolen and worsted imports in the country’s history.”

The statement might have been in the form “it is an unfortunate coincidence that . . .” But the writer said “no mere coincidence,” and therefore flatly maintained that there was a causal relationship between the high level of imports and the recent depressed condition of the domestic industry. Did such a causal relation actually exist?

From 1950 to 1951 the production of apparel fabrics containing 50 per cent or more wool by weight fell from 539 million square yards to 474 million square yards. This was a reduction of 65 million square yards. In the same period imports from abroad rose by one fifth of one million square yards, Can it be seriously suggested that a rise in imports by this amount had anything to do with depression in the domestic industry?

Perhaps the figures just cited are not a fair example. Let us take instead a comparison of the years 1949 and 1950. In this case imports about doubled, rising from 8.9 million square yards to 18.5 million. But at the same time U.S. production of fabrics containing 25 per cent or more wool by weight rose from 527 to 572 million square yards, a gain of 45 million, or almost five times the gain in imports. The fact is that fluctuations in production and imports have almost invariably been in ihe same direction. The depression years of the thirties, for example, represented the lowest ebb of woolen imports, not only in quantity but in proportion to domestic production.

4. The present duties on wool cloth imports arc “grossly inadequate.” — Here the impression is given that the present rate of duty is a trifling impediment in the way of imports, and that foreignmade cloth flows into our market almost as if no duty existed at all.

The tariff on wool cloth is a compound duty, consisting of two separate levies. The first is a specific duty of 37½ cents a pound. The second is an ad valorem duly of 25 per cent. Thus, assuming a cloth weighs 12 ounces per yard the specific duly comes to 28 cents. Assuming further that the cloth costs the equivalent in foreign money of $2.80, the ad valorem duty figures out 70 cents. The total duty, therefore, comes to 98 cents.

This is an effective rate of 35 per cent. If such a rate can be termed “grossly inadequate,” one wonders what rate of duty should he considered “adequate.”Perhaps a rate that would exclude woolen imports altogether.

5. Imports come in not because they are better than domestic fabrics but because they are cheaper. — On the first, of these two points the United States Tariff Commission, which may be presumed to have some acquaintance with the subject, has this to say: —

There is a considerable preference for British fabrics on the part of many United States consumers of certain types of high-quality fabrics. This preference is based on the long-standing reputation for quality of the British goods.

The second part of this argument—that imports are cheaper than domestic fabrics — has a curious ring to many individuals who, like the writer, hear steady complaints day after day from would-be customers who say, “How can you expect to do business at such prices?” or “Why can’t your mills meet the competition of such-and-such a domestic cloth?” It is an unending struggle to get quotations from foreign mills down to the point where they can compete with the domestic product.

But the day-to-day experience of individuals in the import business is not tendered as authoritative evidence. Why not see if available statistics cast some light on the subject ? The figures for exports of woolens and worsteds to the United States in 1952 have been published in the Trade and Navigation Accounts of the United Kingdom. (The United Kingdom supplied 80 per cent of our wool fabric imports in 1952.) The figures are given on both a yardage and a value basis, from which a simple computation gives the following average unit values for British cloths: —

The adjustment to make these figures comparable 1o domestic prices would be as follows: —

The United States Government does not publish statistics on average wholesale prices of woolen or worsted cloth. However, the Fairchild Index is regarded as authoritative. This index shows the following average figures for domestic cloths in 1952:—

Thus the comparison is: —

For the reasons given it is not claimed that these figures are exact to the penny. But they do suggest that the blanket statement “imports are cheaper than domestic fabrics” might be subject to some qualification or explanation.

6.Imports have an unfair advantage over the domestic product because wage rates are much lower abroad. — It is true that hourly wages are much lower in the British woolen industry than in the American. It is equally true that output per manhour is far below the American level. Which means that no facile assumption can be made that the unit cost of production is lower in Britain. In some cases it may be considerably higher.

A report on the British woolen industry, published in England in 1947, included a comparison of productivity in the British and American woolen industries. It was shown that the yearly output per wage-earner in Britain was 1835 linear yards of cloth, while in the United States it was 3633 yards. These figures cannot be taken as an absolute measure of productivity, for reasons stated in the report, but they unquestionably reveal a sharp contrast between per capita output in the two countries.

In America the stress is on mass production, and our mills equip themselves with as much automatic machinery as possible. Most of the looms are the automatic type; in Britain, by contrast, they are mostly the nonautomatic type. A single weaver can tend as many as eight or ten automatic looms, but only one or two nonautomatic looms. Such figures would seem to explain why the supposed advantages of lower labor costs arc nullified by a much lower output per individual worker.

On the other hand, the predominance of nonautomatic equipment furnishes the actual basis for much of the exportation from Britain to the United States. Various fabrics can be produced on “pickand-pick” looms which cannot be made on automatic looms. Again, the appeal of certain classic British imports lies in their use of hand-spun yarn or in the exacting methods of finishing employed. These processes require more man-hours of work than conventionnal fabrics, and would not be, in the words of the Tariff Commission, “appropriate to the methods of production employed by most United States mills.”

The so-called “cheap labor" argument evades the real issue, which is the total unit cost of production. It also overlooks the fact that where labor is cheap the resulting product is apt to be of a type that does not conflict with the major part of American output. A good portion of the fabrics coming in from Britain (Harris tweeds, Donegals, Shetlands, short-run worsteds) fill a demand that would not be met at all if imports were shut off. As for the rest., they cannot be shown to enjoy any advantage over American production by virtue of lower wage rates.

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ON the whole it appears that the ease for higher tariffs on woolens is based on half-truths and misleading assumptions. In this respect it serves as a warning of what may be expected in other pleas for protection. By employing scare techniques and propaganda devices, by making imports the whipping boy for all domestic ills, the protectionists will attempt to stampede the lawmakers into illconsidered tariff measures.

It is not suggested that the tariff on woolens is wholly bad and should be swept aside. Apart from the matter of strategic preparedness, I do not advocate a scale of imports that would cause real harm to a great domestic industry. Neither should any business group try to mislead the public and hobble our foreign policy in the name of an unwarranted fear of imports.

It is not as if the American woolen industry had its back to the wall, with no other means of improving its position than to deny imports access to the market. The total demand for woolen goods is not fixed; it could be expanded tremendously by imaginative promotion. The competition of synthetics could be much more aggressively met. Indeed one wonders how the money spent to combat the claims of the “miracle" fibers compares with that spent on tariff lobbies in Washington.

Then there is the high cost of raw wool, which severely handicaps the woolen manufacturer. Domestic wool is priced at an artificially high level by means of the government price-support program. On top of this, America — alone among the great wool-consuming countries — impost’s a substantial duty on imported raw wool, and there is actually talk of raising it still further!

In brief, the current “crusade" against woolen imports is a case of misdirected energies. Ignoring the logical and wholesome means of strengthening their position, some of our manufacturers have chosen to set up a bogey and blow up the “menace of imports all out of proportion. In so doing they make it difficult for Europeans to hope that they can over sell enough in America to make an appreciable dent in their indebtedness to us. As Hume Wrong, Canadian ambassador to the United States, put it, “Inside the United Stall’s these protectionist breezes may not bo important. In other countries, however, they are felt as a chill wind.

Europe does not seek the “surrender of the American market"; site asks only for a chance to compete on a fair basis without unreasonable handicaps. True, a limited segment of American production may be affected by European imports, and this is a problem to be carefully explored by the special study commission recently established by Congress in extending the Reciprocal Trade Agreements Act. It is just as uneonst ruetive to advocate the overnight scrapping ol our present tarillsas it is to gull the public into “know-nothing" opposition to imports bv appeals to narrow nationalism. This is not the time for a new “tariff of abominations.”Nor is it ripe for the millennium of Smithian free trade.

But, in all studies of the tariff issue let a sense of realism prevail. In 1952 dutiable imports, which include all the items that can be regarded as in anyway competitive with domestic products, amounted to a little over I per cent of American gross national product. With competitive imports placed in this perspective, foreign-trade policy can he more soberly discussed than in an atmosphere engendered by talk of floodgates, inundations, and death knells.

The impact of our decisions on our friends abroad should always bo kept well to the fore. They are not only willing to pay their own way, but insisting on it. As the President of the British Board of Trade put it, they “do not want American citizens to tax themselves into poverty in order that their country might become the soup kitchen of the Western World.”

The alternatives before us are obvious. We can frame our tariff law in terms of exaggerated fears of foreign competition, and in so doing alienate our allies and isolate them between the Tariff Curtain and the Iron Curtain. Or, by dealing with the tariff issue in a statesmanlike way, we can win from the Europeans their warm friendship and secure their willing cooperation in our broad foreign policy. It will be a purely American decision; wc alone will be responsible for the results.