Foreign Trade Is a Two-Way Street

by HERBERT V. PROCHNOW

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A FEW years ago when the retail price of coffee rose above one dollar a pound American housewives vigorously protested and organized an informal but effective boycott against their grocers. The result was a sharp slump in imports of coffee by the United States, a nervousness in commodity prices in the principal markets of the world, and considerable official agitation over what should be done in the circumstances.

The impact of the American people on foreign trade, as the coffee situation showed, is enormous and stems from the fact that they possess the highest standard of living in the world. Their income dwarfs that of any other people. Their currency, the dollar, is the most sought after in the world. Their capacity to consume and to produce has been described as Gargantuan. It is an influence that determines every day whether longshoremen will load cargoes at Santos, Liverpool, and Marseilles. It determines how many of his trees an Indonesian rubber planter will tap for the fluid that will be transformed into tires for American automobiles. It determines whether a Chilean copper miner will dig the ore that will be smelted into the metal on which our electronics industry depends. In a word, the American consumer’s decisions not only help to determine how well he will live, but also how well much of the rest of the world will live. Because of this, American foreign trade policy is a matter of vital concern to governments throughout the world.

Evidence of America’s ability to absorb the products of the world was presented by the President’s Commission on Materials Policy in its 1952 report. This report pointed out that in the middle of the century the United States with a population of 151 million was using over 2.5 billion tons of material each year to support its standard of living. Each American in 1950 was consuming on the average eighteen tons of materials annually. In comparison with his parents at the turn of the century, the American at mid-century was taking from the earth two and one-half times more bituminous coal, three limes more copper, three and onehalf times more iron ore, four times more zinc, twenty-six times more natural gas, and thirty times more crude oil. Since the publication of this report, the American population has risen to more than 168 million, and in 1956 the gross national product rose to a new peak of more than $410 billion.

The American propensity to consume emphasizes the necessity for a trade policy that will take into account the tremendous growth of the American economy, and the reliance of that economy on foreign as well as domestic sources of supply.

The United States has a long and in many ways romantic foreign trade tradition. During the colonial period, New England sea captains plied the ruthless multilateral trade between Massachusetts, West Africa, and the West Indies. In Massachusetts they loaded aboard their vessels the rum distilled from the molasses of the West Indies. In West Africa they traded rum for slaves, and in the West Indies they sold the slaves for more molasses, and for gold and silver.

After the Revolutionary War closed British markets to the new nation, American merchants outfitted their ships for the Pacific northwest to reach its rich harvest of furs. From there, the islands of the Pacific beckoned them onward, and before long the new American flag was being unfurled in the teeming harbors of the East Indies and of China. The most stirring period of this early American overseas commercial expansion occurred during the decade preceding the outbreak of the Civil war when American clipper ships, such as the Flying Cloud, with their fast, clean lines carried the products of the United States around the world.

Following the Civil War, there was a great surge of industrial and agricultural expansion which radically changed the character of American foreign trade. We began to develop trade balances against, other countries, selling more to them than wo bought. Some of our economists described these as “favorable” in the sense that it was probably better to be a creditor than a debtor. As is often the case with economic matters, however, the picture was not quite so simple. This fact was brought home to us by World War II, which seriously impaired the delicate patterns that had made it possible for Europe to buy more from us than it sold to us and to make up the difference in dollars owed to us through earnings in other parts of the world. The loss by Europe of these other sources of dollar earnings has been made up since the end of World War II by United States economic assistance in the form of loans and grants, and by ihe dollar expenditures of our overseas military programs.

A basic question of United States foreign trade policy is whether these various forms of assistance should be regarded as a more or less permanent way of allowing the rest of the world to buy more from us than its own dollar earnings would permit. When you freeze a nation’s boundaries to an area and to resources upon which its people cannot exist without trade with other nations, what responsibility do you have to that nation? The difference between what the United States sells to the rest of the world and what it buys from the rest of the world reached its peak in 1947 when it amounted to almost $10 billion. In the seven years 1946-1953, our exports of goods and services exceeded our imports by about $49 billion. In that period, the sale of goods and services by other nations to us was $49 billion short of paying for the goods and services we sold them. This shortage in dollar earnings was covered almost entirely by loans and grants of the Enited States government.

Despite the marked economic recovery of the world since the end of World War II, the extension of massive United Stales economic assistance over the years, and the operation of the United States technical aid for productivity programs, in 1956 we had a balance against the rest of the world, measured in terms of goods and services, of about $4 billion. To accept $4 billion more in imports would mean accepting goods and services equal to less than one percent of our gross national product. If we were to increase both our exports and our imports gradually, the imports increasing w it h slightly greater rapidity, the difference of $4 billion might be reduced with a minimum of economic difficulty.

We are pleased to sell the world our raw materials, finished goods, and services. But we often seem strangely reluctant to import raw materials, finished goods, and services in payment. We seem willing to deplete our resources, use our manpower, and wear out our productive equipment in order to sell goods abroad. But we hesitate to take imports in return that would build up the resources that have been depleted, return the manpower that has been used, and replace the productive equipment, that has been worn out. As the nation which leads the world in the production and distribution of goods, we need critically to examine the soundness of this economic philosophy.

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OUR government has given increasing attention to the development of a higher level of mutually advantageous trade between the United States and the rest of the world. Such trade would make it possible for other countries to earn more dollars and, consequently, for the United States gradually to dispense with economic assistance to them. In line with this point of view the Enited States has participated, since the end of the war, in five major tariff negotiations, which have resulted in a reduction of some barriers to imports.

With the exception of a few import quotas affecting agricultural products, the United States imposes no quantitative restrictions on products from abroad. Laws have been enacted which have simplified United States customs procedures and thereby encouraged foreign manufacturers to sell in the American market. The substantial preference which formerly favored domestic producers bidding for federal contracts has been reduced, making it possible for foreign firms to compete for orders by the United States government of goods to be used in this country. This country has coöperated with other countries in international organizations, such as the General Agreement on Tariffs and Trade, the International Monetary Fund, and the World Bank, in order to promote the expansion of world trade and the increased convertibility of world currencies.

There is a much greater public recognition now that foreign trade is a two-way street — that the United States cannot expect permanently to sell to other countries more than it will buy from them. Sooner or later foreign governments will seek United Stales economic assistance to finance their import surplus, or they will take drastic steps to reduce that surplus by restrietions on American goods and tight government controls over their own economics. The prospect of permanent large-scale programs of economic aid is not attractive to the American people. Neither is the prospect of our friends abroad developing planned economies and limiting our foreign trade, which accounts for an estimated 4.3 million American jobs. Policies which stimulate a higher level of mutually advantageous trade are in America’s own self-interest.

The extent to which the American people owe their material prosperity to foreign markets for their products was described in 1956 in a report of the House Ways and Means Committee. The committee noted that our agricultural exports represented an estimated annual output of 50 to 60 million cultivated acres, an area equivalent to the combined cultivated land of Mississippi, Tennessee, Louisiana, Kentucky, Alabama. Florida, Georgia, North Carolina, South Carolina, and Virginia. The committee also noted that during the previous year the American farmers had exported 27 percent of their rice, 27 per cent of their tobacco, 19 per cent of their cotton, 29 per cent of their soybean and soybean oil products, 28 per cent of their wheat and flour, 20 per cent of their barley, 29 percent of their grain sorghums, and 35 per cent of their raisins.

The stake of the American factory worker in foreign markets is no less impressive. In testimony before a congressional committee in 1955 in connection with the renewal of the Trade Agreements Act, James B. Carey, Secretary-Treasurer of the CIO, declared that many workers in key industries such as auto, steel, electrical products, and machinery are dependent for their jobs on foreign markets for products manufactured in their plants. He noted that in 1952 the United Stales exported 13 percent of its production of agricultural machinery, 23.3 per cent of its tractors, 13.3 per cent of its motor trucks, 3.9 per cent of its production of passenger cars, and 6.3 per cent of its output of rolled steel products. Hartman Barber, representing the Brotherhood of Railway Clerks, endorsed the renewal of the Trade Agreements Act in 1955 and declared that in the transportation industry approximately 10 per cent of the employment could be attributed directly to foreign trade.

Repeatedly, witnesses before congressional committees have stressed the truism that foreign trade benefits both the importer and the exporter — that the dollars which the foreign producer earns in the United States by his sales to Americans are not lost to us. The principal use of money is still the purchase of goods and services. Whether American dollars are earned by sellers in Rio de Janeiro or London, sooner or later they will buy American manufactured goods, farm products, and services, thereby maintaining and generating jobs for the American people, taxable income for federal and local governments, and the material prosperity of hundreds of communities and millions of workers throughout the United States.

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THE United States foreign trade policy that has been developed since the end of World War II has undoubtedly done much to make trade a two-way street between the United States and the rest of the world. This policy has posed some problems as well, which go to the heart of America’s role in world trade and its position of leadership in the free world alliance. One of these problems arises from the now general recognition that domestic economic policy and the foreign trade policy of a nation are inextricably linked. Let me illustrate the importance of this linkage and the problems it creates.

Both of the major political parties are firmly attached to the principle that the American farmer should share fully in the American prosperity. They recognize that a sound, healthy agriculture is a necessary part of the American economy. Sharp declines in farm income adversely affect not only farmers but also the producers of automobiles, farm equipment, electrical appliances, and scores of industrial products. A decline in farm income can mean a decline in industrial production and the loss of jobs in the cities for many industrial workers.

A prominent feature of the government program to assure the American farmer of his share of the national prosperity has been the price-support system, which places a floor under the prices of certain crops, such as wheat and cotton, through a system of loans which the government extends to producers of the crops. The level of world prices has tended to he below our supported prices.

The domestic price-support system has had important effects on American foreign trade policy inasmuch as the United States has been required to impose restrictions on lower-priced competitive agricultural products from abroad in order to protect the operation of the system. The government imposes the restrictions to avoid having to support the world price for agricultural commodities. Without import restrictions foreign producers can undersell our farmers in the United States. Government stocks of our surplus agricultural commodities would rise higher and higher as the government took over the American farmer’s collateral on his loan — his crops. The accumulation of these stocks would increase the cost of the price-support program to the American people. It would also augment the problems the government now faces in its efforts to decrease these surplus stocks by sales abroad for foreign currencies instead of the American dollars it would prefer to receive. These foreign currency payments must be negotiated in a manner satisfactory to the United States and the foreign governments concerned, and the sales should not displace our regular commercial exports of agricultural commodities.

Import restrictions on foreign agricultural products have to be imposed whenever such imports interfere with our domestic price-support operations. But do not trade restrictions inevitably place pressures on us to engage in bigger programs of foreign economic aid?

The extent of United States import restrictions on agricultural commodities over the years has actually been relatively slight, and some that have been imposed by the government to protect the price-support program have been subsequently either eliminated or relaxed. Nevertheless, the peoples of foreign nations have been concerned about what they regard as the contradiction represented by these import restrictions with the professed American policy of encouraging a higher level of world trade. For some countries, such as the Netherlands, Denmark, and New Zealand, agricultural exports form an important part of their total export trade, and foreign restrictions on those exports hurt.

What is the United States to do in t his situation? It has an obvious interest in making certain that serious weaknesses do not develop in its domestic economy as a result of an agricultural situation. It has an equally obvious interest in making it possible for friendly foreign countries to sell their products to us in order that they may be cut loose from the United States economic aid programs, with consequent benefits to the American taxpayer. How can the foreign trade and domestic economic interests be given their true weight and balanced? How can we develop a national trade policy, one recognizing and weighing the various interests at stake, all of which appear to be equally valid?

There is no easy answer to these questions. National defense considerations also enter into questions of foreign trade. The President’s Commission on Materials Policy recommended that the United Stales reject a policy of national self-sufficiency.

The commission fell that it was better to develop a coördinated materials policy in conjunction with the other countries of the free world. In this way, the commission suggested, the economic defense of the free world would be strengthened and broadened; whereas self-sufficiency by the United States would be not only dangerously expensive but also tantamount to a self-imposed blockade.

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SINCE the publication of the commission s report, foreign trade policy and the relationship of this policy to the national security of the United States have continued to receive careful study by the Congress and the executive branch of the government. No other aspect of foreign trade policy has created such apparently insoluble paradoxes. The reason for this arises in part from the massive character of modern warfare, in which virtually every American industry would be called upon to play a part. The Congress recognized this situation in June. 1955, and inserted into the Trade Agreements Act a provision which makes it possible for a domestic American industry to seek relief from import competition in the American market on the ground ilmt it is essential to the national security.

Even before the new “national security" section was added, the Trade Agreements Act had “escape clause” procedures, which were put into force for the first time in 1951. Under these procedures, a tariff concession which the United States has made to other nations may be withdrawn or modified. In this way, they help to protect a domestic industry against serious injury from imports. They reflect the view of the Congress that notwithstanding all the precautions taken to ensure that American tariff reductions do not injure a domestic industry, such injury might, in fact, occur.

By October, 1956, there were more applications from American industry for relief from import competition on grounds of national security than there were requests for relief under the “escape clause ” procedures.

Now, everyone is prepared to recognize that certain industries have obvious national defense characteristics and are essential to our national security. The steet industry is a good example. It would be impossible to wage a war without the tanks, the shells, and the ships for which the steel industry provides the basic material. Similarly, the petroleum industry is an essential part of our defense because it provides the fuel for our Army , Navy, and Air Force.

The United States is a major petroleum producer, but il is also a major importer of petroleum from such important areas as Venezuela and the Near East. Should the United States restrict imports of petroleum in order to lessen the impact of lowcost competition on our domestic petroleum producers? If we do not restrict imports, our own producers claim, we shall make it impossible for them to continue the exploration necessary to maintain production, in view of their higher labor costs and the significantly greater costs involved in the discovery and recovery of new oil resources in the United States. In time of war, they say , we may find ourselves cut off from foreign sources of petroleum, and the result would he a national disaster.

Opponents of restrictions on oil from abroad contend, on the other hand, that the lower-cost oil from foreign wells conserves our own reserves and makes it possible for the United States to operate at such high and efficient levels of production; that if we are to maintain the strong defense base we already possess, we cannot afford to build into our economy a high-cost energy factor that could seriously increase the defense budget. They also argue that United States restrictions on imports of oil could throw into complete turmoil the economies of countries of vast strategic importance to the United States and thereby expose these sensitive areas to Eommunist subversion. The petroleum problem is further complicated by the fact that many American petroleum producers also import oil from the wells they own abroad. In restricting imports of foreign oil we would be open to the charge of favoring one segment of the American petroleum industry against the other. But the same charge could be made by exclusively domestic producers if no import restrictions of foreign oil were imposed.

In time of war or international emergency, Canadian and Mexican oil would presumably be as available to the United States as would oil from its own wells in Oklahoma and Texas. Consequently, the argument that American producers of petroleum should be protected against lower-priced imports of oil in order to guarantee the survival of the American petroleum industry overlooks the fact that a war would probably not interrupt the flow to this country of oil from at least the two countries contiguous to the United Stats. Thus, the case for import restrictions based on the contention that foreign sources of supply could be cut off from the United States in wartime may require some important qualifications.

An additional fact that must be taken into account in weighing the case for import restrictions is the unique character of any future war. Much has been written of the necessity for industrial dispersion in order to minimize the impact of atomic bombing. For example, it is sometimes contended that too much of the American steel industry is located in the Northeastern part of the country and in the Middle West and that more of it should be located in the South, Southwest, and Great Plains areas. Similarly, it is argued that the aircraft industry in the United States is particularly vulnerable because of its location on the seacoasts — California in the West, and New kingland and Long Island in the East.

If there is any merit to this argument for the geographic dispersion of industry, then it would seem that the United States must consider the consequenees of impairing the industries of its allies by restricting their exports to the American market.

The advantages to our armed forces of having a strong logistical base abroad were demonstrated during World War II when the Allied armies could draw on the British economy as well as the American supply depots in the United Kingdom. These advantages were demonstrated again during the Korean War when Japan fulfilled the same role against the Communist aggressors. In any appraisal of the ease for import restrictions on the grounds of “defense essentiality,” a judgment must be made regarding the validity of the concept of a worldwide defense base.

Increasing attention is being given to the possibility of preserving strategic domestic industries by means other than import restrictions. Such means might include government subsidies chargeable to the national defense budget, training programs to improve the technical efficiency of the industry concerned and therefore its ability to compete against imports, stockpile operations providing government markets for strategic commodities in times of surplus production, and indirect financial assistance such as rapid amortization arrangements for new plants and increased deplelion allowances for producers of strategic minerals.

Decisions on these matters require a high degree of coördination between the government departments directly concerned: the Departments of State, Treasury, Commerce, and Agriculture, the International Cooperation Administration, and the Office of Defense Mobilization. Many of the answers. ultimately, must be referred to the President for final decision. Moreover, concerted attempts are made to make sure that the public is consulted directly on many issues of foreign trade policy .

The “escape clause” procedures of the Trade Agreements Act include public hearings at which arguments may be presented for or against an application for import restrictions on a particular commodity. Before tariff negotiations are held with foreign nations, our government publishes a list of all the commodities being considered for possible tariff concessions by the United States.

In addition to formal arrangements such as these for ascertaining public opinion on matters of trade policy, government officials frequently meet with individuals and public groups interested in national trade matters. These meetings afford a firsthand opportunity for members of the government to learn what national trade policy looks like to those affected by it, and to explain the basis for it.

To develop such a policy, it seems to me that three things are necessary. The first is an increased public awareness of the importance of foreign trade policy to every American. Too often the only Americans who are aware of what is happening in the foreign trade field are those whose economic interests are directly at stake.

The second requirement is that there must be an end to the use of such terms as “free trader” and “protectionist" in evaluating the reliability of the sources of arguments against and for import restrictions. Such terms are of no help in making decisions. We should make certain that our factfinding machinery is as perfect as it can humanly be, so that when a decision is made on foreign trade policy the basis of it will be firmly and clearly established.

Finally, we must recognize that decisions on foreign trade policy are not decisions affecting banks, steamship companies, import-export firms, and commodities alone. They affect people. As such, they are certain to affect our political relations with the rest of the world and the chances of the attainment by the United States of ils worldwide objectives. The machinery of government must never be so impersonal that the impact of its decisions on our own people and on those abroad is ignored. To ignore it in making decisions on foreign trade policy would be to commit a cardinal blunder, for trade is the economic lifeblood of us all.

Western civilization is now faced with its supreme opportunity to organize its common interests for a period of significant economic progress for mankind: therefore we need the vast material benefits that will flow from steadily expanding trade. Increasing world trade is imperative to a stable and peaceful world where people can live and work and hope with faith in the future.