The Present Need For a Sane Commercial Policy
ECONOMIC AND COMMERCIAL WARFARE IS A CONSTANT MENACE TO PEACE
By HENRY F. GRADY, Assistant Secretary of State Delivered in the National Radio Forum of the Washington Evening Star, over the Blue Network of the National Broadcasting Company, November 27, 1939
Vital Speeches of the Day, Vol. VI, pp. 210-213.
AMERICANS in all sections of the country, in our cities and on our farms, in our offices and our factories, toiling in our cotton, wheat, and corn fields, in our mines and on our railroads, all are coming to realize that the United States is one of a group of nations which must seek their livelihood in an international community. Neither the United States nor any other country can draw apart from this world community and yet hope to maintain its present standard of living.
The world's resources are not equally distributed. Some countries possess great surpluses of raw materials but are lacking in capital equipment and skilled labor. Other countries are well adapted for carrying on industrial production but lack necessary raw materials. Even the United States with its unparalleled abundance of natural resources cannot hope to be self-sufficient.
The raw-material-producing countries differ widely in respect of the kinds of raw materials which they are able to supply, and industrial countries differ widely in respect of the types of goods which they are best equipped to manufacture. Even between industrialized countries there is close interdependence; the greatest development of mutually profitable international commerce has been between such countries.
To fulfill the needs of this interdependence of nations there has developed a mechanism of international economic relations of which the domestic economy of each country forms a functioning part. The exchange of commodities produced by countries rich in raw materials for articles manufactured by industrial countries illustrates the economic interdependence of nations, just as the exchange of the products grown on our farms for the factory products of our cities illustrates the economic interdependence of the various sections of the United States.
Under normal conditions of peace, economic conditions in a country are affected to an important extent by the policies and actions of other countries. In time of war, however, changes occur in the economies of the participants which are relatively sudden and violent. Such changes have an especially far-reaching and disturbing effect on the economic structure of the entire world.
Under normal conditions, the international mechanism of trade and capital movements operates to effect adjustments; under wartime conditions, however, the changes which occur are even more serious in their consequences because of a partial breakdown of this mechanism. The economic problems of war are not confined to the belligerents alone; they burden the international community as a whole; no nation escapes unaffected.
My discussion this evening of our present need of a sane commercial policy as embodied in the trade-agreements program is based, first, upon the fact that the world is closely bound together commercially, financially, and industrially, and, second, upon the significance of that fact in the light of the present conflict in Europe. In order, however, to appreciate the need of the trade-agreements program at this
juncture of world affairs, it is necessary that we understand the bearing of foreign trade upon a prosperous domestic market and the contribution which this program has made to American prosperity by helping to restore and expand foreign markets for our products.
The most distinguishing characteristic of the depression through which this country passed between 1930 and 1932 was the sudden inability of manufacturers, farmers, and merchants to find buyers for the goods they had to sell and their consequent inability to afford the goods they had been accustomed to purchase. The stagnation of domestic markets and interruption of the steady flow of production and consumption brought in its wake new unemployment, increased stagnation of business, and general pessimism regarding the future.
In the course of the depression years of 1930, 1931, and 1932, we learned once and for all that the great domestic market, in which we had come to place almost unbounded confidence, was capable, like Alice in Wonderland, of rapid shrinkage as well as growth. Instead of being destined to grow without interruption, as many had come to suppose, the market proved to be capable of stable activity and expansion only so long as it was able to draw nourishment from all accustomed forms of economic activity. In 1930 and after, this was not the case, and the market succumbed from a lack of certain essential stimulants, one of which was the impetus given to domestic trade by a normal flow of foreign trade.
In 1930, the Hawley-Smoot tariff was enacted as if on the assumption that our 9-billion-dollar foreign trade was a branch of the economy not essential to the prosperity of our domestic market—an assumption which proved to be tragically wrong. The Hawley-Smoot Tariff Act raised barriers to nearly all foreign goods, including those only remotely competitive with our products, and our imports were sharply and suddenly curtailed to a fraction of what they had been. As a result, foreign customers, for lack of purchasing power, were compelled to forego accustomed purchases of basic American export products such as cotton, tobacco, lard, tractors, and machinery.
But men thrown out of work by the loss of export business could no longer buy the same quantities of goods they needed; domestic producers, despite their increased protection against foreign competition, found fewer and fewer buyers. Practically the whole domestic market was theirs; but it was shrinking at an alarming rate before their eyes. The result of all this was, of course, net loss for everyone.
Since 1934, we have been applying a remedy designed to quicken the flow of domestic business and so to restore Alice to her normal size and growth. Through the trade-agreements program, authorized by Congress in 1934 and extended in 1937, we are reducing some of the artificial barriers to foreign trade which have grown up both at home and abroad as a result of world-wide competition in import restrictions. We are concluding agreements with foreign countries like-minded in this purpose, by which they agree
to lower tariffs, enlarge quotas, and remove discriminations against American goods, in return for which we also make concessions to facilitate the importation of some of their products.
Each concession gained from foreign countries creates an opportunity for American producers to increase exports— men are put to work in American factories, or the market for some agricultural commodity is strengthened. In either case, income is created, and the American workingman or farmer, when he goes to market, has more money to spend, His purchases stimulate business in many other industries, some of which may seem remote from foreign trade. Suppose he decided this year to buy a turkey for Thanksgiving; suppose he found that it was high time to replace an old radio, or that he finally decided to have his house repainted, Each purchase puts other men to work and creates a better market for domestic goods and services. This is the essential purpose of the trade-agreements program.
The trade-agreements program cultivates foreign markets for American products because the recovery of these markets is essential to the restoration of industries which produce for the home market as well as the prosperity of those which produce for the foreign market.
The index of the volume of our export trade fell from a base figure of 100 in 1929 to the low point of 52.3 in 1932, or nearly 48 per cent. During the same period, the index of industrial production fell 47 per cent; employment, as measured on a man-hour basis, fell 55 per cent; and prices of finished products and raw materials declined 26 per cent and 43.5 per cent, respectively.
Similar evidence is to be found in the course of economic events in the United States during the 8-year period from 1922 to 1929, which was for the most part a relatively normal period, not affected by the abnormal factors of a world upheaval as was the period which followed. The period from 1922 to 1929 was marked in the United States by three distinct but minor fluctuations in economic activity which were national rather than international in scope. As measured by the index of manufacturing, the economic activity of the Nation fell to its lowest points of this period in 1924 and 1927 and experienced its greatest annual increases in 1923, 1925, and 1928-1929, the increase in 1929 being the same as in 1928. The years in which manufacturing activity increased the most, that is, in 1923, 1925, and 1928, were also the years in which occurred the greatest increases in our exports of finished manufactures. The years of decline in manufacturing activity, which were 1924 and 1927, were also the years of slower growth in these exports.
It is no mere coincidence that there has been a close correspondence between movements in exports and business conditions in the United States over a long period of years. There is an important connection between activity in production for export and production for the home market.
A few points may be worth mentioning to indicate that this connection is far more important and fundamental than might be suspected from the percentage of total output of domestic production which is exported.
In the first place, the percentage of total national production which is exported fails to indicate the extent to which many industries having exportable surpluses are dependent on foreign markets. For instance, the percentage of national production exported in 1929 was 55 per cent in the case of cotton, 48 per cent in the case of lard, 41 per cent in the case of tobacco, 36 per cent in the case of refined copper, 30 per cent in the case of office appliances, 25 per cent in the case of agricultural machinery, and from 8 to 51 per cent in the case of certain petroleum products. Agricultural industries with large exportable surpluses are a basic factor
in the economic life of large sections of the United States. An increase or decrease in exports may mean to these sections prosperity or hard times. Moreover, some of the manufacturing industries constituting the chief mainstays in our industrial structure are export industries. A decrease or increase in their foreign markets affects the entire industrial welfare of the Nation.
Furthermore, the loss of our foreign markets would mean a far greater loss than that represented by the percentage of our total production which is exported, for a loss of foreign markets would also result in curtailment of the domestic market. A part of the production for domestic consumption is dependent on the purchases of those industries and their workers who are engaged in supplying goods for the export trade. Nor would the decrease in domestic business activity and employment resulting from export losses cease at that point. It would continue the cumulative effect to further stages of economic depression. Presumably a new equilibrium in the domestic economy would eventually be reached, but only at the cost of painful adjustments.
Another important aspect of the bearing of export trade on domestic economy involves the possible effects of export sales on the domestic price structure. Foreign sales give rise to claims for payment from abroad. These claims, when liquidated at the domestic banks, may result in an increase in the volume or circulation of money at home, thus tending to cause a rise in the general level of domestic prices and thereby stimulating business activity.
Increases in export trade stimulate domestic activity. Under the trade-agreements program our exports have increased. Although it is always difficult to isolate the effects of any single factor where so many are operative, we have conclusive evidence to show that our trade has improved faster under the agreements than would otherwise have been the case.
In 1934 and 1935, which may be considered as substantially pre-agreement years, exports from the United States averaged 2.2 billion dollars. In 1937 and 1938, with 17 agreements in effect for most of the period, exports averaged 3,2 billion dollars. It is significant that during the post-agreement period, 1937-38, exports from the United States to countries with which reciprocal trade agreements were in operation showed an increase of 61.2 per cent against an increase of 37.9 per cent in exports to non-trade-agreement countries.
It is significant, moreover, not only that exports from the United States to the trade-agreement countries have gained relatively more than exports to non-trade-agreement countries, but also that the agreement countries have generally increased their imports of American products more than they have increased their imports of the products of other countries. For example, in the 3 years 1936-38 of the first agreement with Canada, that country's imports from the United States averaged 42 per cent greater than in 1934-35, compared with an average gain of 22 per cent in Canadian imports from other countries.
Total Canadian imports from the United States increased from $309,000,000 in 1935 to $424,000,000 in 1938, a gain of 37 per cent. Of importance is the fact that imports from the United States of products on which Canada granted duty reductions showed an increase of 65 per cent in 1938 over 1935. On an average for the 3 years of the agreement, 1936-38, Canadian imports from the United States were 39 per cent above the 1935 imports.
Cuban purchases from the United States have more than doubled since the agreement with Cuba went into effect. In 1936, 1937, and 1938, Cuban imports from the United States were valued at $66,000,000, at $89,000,000 and at
$75,000,000, respectively, representing gains of 193, 292, and 231 per cent over 1933. During the same years Cuban imports from other countries were only 87, 107, and 57 per cent greater than in 1933.
Altogether, in the 22 trade agreements concluded thus far, the foreign governments concerned have reduced duties, agreed to bind the existing duties or the free entry, or have granted other concessions such as enlarged quotas, on hundreds of commodities which we export.
On the basis of 1937 data, foreign countries with which trade agreements had been concluded prior to November 1, 1939, granted concessions of some kind on about three-quarters of their total imports from the United States of agricultural products and on almost one-half of their total imports from the United States of non-agricultural products. For all products combined, 56 per cent of these agreement-countries' imports from the United States have been the subject of concessions to the United States.
Hundreds of concessions in one form or another have been obtained for American farm products in the agreements thus far concluded. Let me illustrate by describing concessions and increases in our foreign sales of meat products.
Seventeen countries, plus many British colonies, have granted reductions, quotas, or bindings on various American meat or other animal products. Canada has made reductions ranging from 12 to 75 per cent on fresh meats, bacon, ham, lard, cured meats, extracts, and other meat products. Canadian imports of animal products from the United States increased in 1938 over 1935 by nearly one and one-quarter million dollars. Again, the United Kingdom, which in 1937 purchased more than half of total United States exports of lard, removed its 10 per cent duty on this product and established a liberal quota for hams. The United Kingdom imports of American lard and hams for the first 6 months of the agreement were the greatest since 1935. Cuba, the second most important foreign market for American lard, reduced its duty by successive stages from a rate equivalent to 9.6 cents a pound to 1.5 cents. Cuban lard imports from the United States increased from $500,000 in 1933 to $4,000,000 in 1938.
Concessions have also been obtained on a wide range of American manufactured products. Among the important groups of commodities benefited are iron and steel semimanufactures, automotive products, electrical apparatus, industrial, agricultural, and business machinery, rubber products, chemicals, paints and allied products, hides and leather products, certain textiles, and various American specialty products.
Belgian imports for consumption of automobile parts for assembly totaled $8,000,000 in 1938 as compared with $2,700,000 during 1934. Canada's imports of passenger automobiles and chassis increased between 1935 and 1938 from $1,700,000 to $9,200,000.
These and many other increases in the foreign trade of the United States with trade-agreement countries have not only increased the prosperity of those portions of our agriculture, industry, and labor producing goods for export, but have also, by increasing employment and consumer purchasing power, benefited producers and workers engaged in supplying the domestic market.
But while our export trade is a very important factor in our domestic economic activity, so that prosperous exports are an essential element in a prosperous general business situation at home, we must not permit an undue concentration in the export side of foreign trade to obscure the larger significance of our trade with the world. The contribution of our foreign trade to our economic welfare is in the last analysis similar to the contribution of trade between regions
within the country; it makes possible a higher standard of living than would be the case without this exchange of products.
Our foreign trade enables us to concentrate and specialize somewhat more than would otherwise be possible in those lines of production in which we are most capable and naturally best endowed. The resulting larger return for our efforts is shared by the consumer and the producer. And by exchanging with other countries the excess of what we produce beyond our own needs, of the things we are most capable and best endowed to produce, we are enabled to enrich our own lives and further raise our own standards.
This fundamental basis of our foreign trade should always be kept in mind, and particularly now when it may seem to be obscured by the distorting effects of warfare in other parts of the world. Fortunately our country is, I think, more wide awake and informed than it was the last time. It is encouraging to note the widespread degree of caution expressed in business circles against plunging into artificial and ephemeral expansion based on the expectation of belligerent purchases, without due forethought for the aftermath. Let us not allow false hopes, based on such increased export business as may come to us through war-stimulated diversion of trade, to obscure from our vision the real nature of profitable foreign trade and the necessity of pursuing a sane and sound commercial policy which will bear lasting benefits-lasting because of their being mutually profitable and constructive.
Although the war may create a profitable market for some of our products, no one could be so foolish as to imagine that it will provide a lasting basis for prosperity. Far from removing the conditions which have created an urgent necessity for our trade-agreements program, the war will surely create an even more imperative need for agreements between nations providing for the reduction of excessive barriers to trade. When the war is over, we will be faced with the problem of restoring export outlets for many branches of our industry and agriculture whose exports may be curtailed as a result of the war, and of creating opportunities for the opening up of new channels of trade. Whatever the consequences of the war may be, one thing is certain: it will result in serious economic dislocations, and statesmanship of the highest quality will be required to effect the revival of a healthy international economic order.
It is not possible to anticipate exactly how this war will affect our trade. Although the present war resembles in some ways the first World War, there are important differences.
So far as the trade of our own country is concerned, the most conspicuous and probably the most important result of the last war was an enormous increase in our export balance of trade. For the decade before 1914 our exports had exceeded our imports by about half a billion dollars annually, on the average. During the war and immediately after it, our export surplus increased rapidly, reaching a peak of 4 billion dollars in 1919.
We have no reason to assume that the present war will give rise to such an excess of exports in our foreign trade as resulted from the last war.
Nevertheless, there can be no doubt that our trade will be seriously affected by the war. Some of our trade is being interrupted by blockade. Our trade with the United Kingdom and France is bound to be affected by the economic changes in those countries which war makes necessary.
Fundamental changes must necessarily take place in the foreign trade of the countries at war. Even if the belligerent countries were to succeed in maintaining their exports,
the character of their imports must change. Less will be imported for civilian consumption in order to conserve foreign exchange for the purchase of needed war materials.
Consequently, even if our total exports to the United Kingdom and France, for example, be increased, the character of that trade will undoubtedly change. We will export less of some things and more of others. As a result, those branches of our industry and agriculture which are producing for export the things which the European belligerents need for war will tend to expand. The development of other branches may be retarded. When the war is over, there may develop out of the immediate needs of reconstruction and the satisfying of long-deferred wants, a temporary boom. The task of statesmanship will be to endeavor so to guide affairs as to promote the re-establishment of trade on a sound basis and to avoid those mistaken and short-sighted policies which will lead from temporary post-war stimulation into renewed economic depression. We must keep our trade-agreements program in the fullest possible effective operation, as an essential aid to this future task of statesmanship.
Our trade with the neutral countries will also be subject to modification because of the war. Many neutral countries, including those in Latin America, may turn to us for supplies previously purchased from other sources but now no longer available from them. The degree in which our exports to these neutral countries will expand in consequence of these changes will depend in large measure upon their ability to sell their products to us in increased quantities. It is for this reason that no opportunity should be lost to provide improved opportunity for such increased exchange of goods through the negotiation of new trade agreements.
Moreover, the extent to which any increase in our trade with neutral countries may be based upon a sound and mutually profitable increase in reciprocal trade, will serve to diminish the dangers and extent of later readjustments which must follow from unsound and uneconomic wartime trade developments.
The end of a major war brings with it a complicated chain of problems of economic re-adaptation. In part, but
only in part, it leaves a need for the restoration of previous channels of trade. In part it requires an adaptation of the economic system to conditions which are entirely new.
This need for reconstruction and re-adaptation will not be confined to the belligerents. It will affect American industry and American agriculture.
No approach to a satisfactory and permanent peace after the war has ended can be made without regard to the economic factors which govern the relations of countries to each other. Economic relations must be adjusted to insure friendly and cooperative relations among all nations. Economic and commercial warfare is a constant menace to peace. The raising of trade barriers and the giving and seeking of preferential advantages in commercial relations is in effect a form of conflict. It repudiates the concept of mutuality of interest among nations and substitutes that of struggle. It is aggression, and aggression is the logical antecedent of military action.
Every country must be able to feel that its interests are associated with a cooperating, peaceful world—that the functioning of a sound, wholesome international trade is vital to its well-being and security. In a word, an international economic and political system to which every country owes allegiance is the only alternative to world confusion and disorder. By "system" I mean an informal but nonetheless real association based on accepted rules of conduct both political and economic for the protection and advantage of all. This means the inviolability of treaties and the outlawing of any practices whether economic or political by which one country injures another. Commercial policies which prejudice the rights of other countries to carry on legitimate trade come in this class.
A stable world order must be based upon a cooperative attitude in the relations of nations to each other. To this end the whole network of excessive and preferential tariffs, of restrictive quotas, of exchange manipulation, of government-controlled foreign-trade monopolies must be replaced by an orderly system of international economic relations in order that the capitalist system may survive and the whole world may prosper and advance.
Politics as a Profession
WHEN THE POLITICIAN FAILS, DEMOCRACY FAILS By JAMES A. FARLEY, Postmaster General and Chairman of the Democratic National Committee Delivered before the faculty and students, Wharton School of Finance, University of Pennsylvania, Philadelphia,
December 4, 1939
IT is a privilege for me to address the members of a great university, which, among its other functions, maintains one of the best known schools of business in the world. I am particularly glad to talk to you quite frankly and simply about politics. One of the most useful things that any of us can do is to look occasionally at the other man's job. It would be very helpful if all politicians could look occasionally at business through a businessman's eyes; and if all businessmen could occasionally have a glimpse of public affairs through the eyes of politicians.
I am a politician; and am proud of being one. I am also a businessman, and I am proud of that. But I do think it is fair to say—though politicians frequently do not say it— that in politics we probably have to take account, and do take account, of the views of businessmen perhaps even more than businessmen take account of political factors.
Politicians probably stand more abuse, year in and year out, than perhaps any other group of individuals. And yet, the success of our democracy in large measure is directly and continuously dependent on them, and on their work. Public opinion in a democracy has to find some way of expressing itself in an orderly and effective fashion. This we do through political parties, which give effective form to the desires of the public and the views of our citizens. The organization of political parties, and the using of them to express the public will, is the work of politicians. It is they who must harmonize conflicting points of view; who must reach compromises, who must look always for the greatest common divisor of public opinion, and give the result form and substance. In practice this means reaching agreements on candidates, on policies, and on legislation which meets the needs of the country.
One may almost say that whenever the politician fails,