America's Trade in a Changing World
DIFFICULTIES WE MAY HAVE TO FACE
By EUGENE P. THOMAS, President, National Foreign Trade Council, Inc., New York
Delivered at Meeting of the Cleveland Chamber of Commerce, Cleveland, Ohio, October 29, 1940
Vital Speeches of the Day, Vol VII, pp. 120-123
I AM very glad to have this opportunity of addressing a meeting of the business leaders in this great city, which has always been so foreign trade minded. The State of Ohio has an important stake in the sale of its products abroad and naturally is concerned as to the effects of this war upon both her domestic and foreign trade. As a prominent factor in the nation's defense plans your State occupies a dominant position, especially in some of our most strategic key industries.
In 1937, when Cleveland was host to the Twenty-Fourth National Foreign Trade Convention, we were buoyed up by the apparent recovery of international trade. We felt at that time that there was a general desire among all countriesto seek recovery through world trade expansion. We were looking ahead to a way out of the remaining obstacles to trade expansion and return to the prosperity of the closing Twenties. Although at that time there were signs of unrest among the so-called "have not" totalitarian nations, the democracies of the world felt secure in the belief that international law would continue to rule the relations between nations, and that solutions would be found on fundamental problems so that the debtor nations of the world would be aided in resolving their domestic difficulties.
Not for many past decades has the American public been so deeply stirred as now by threats to our national security arising from war. Throughout the country at the presenttime, groups of thinking people are meeting to discuss the great issues that confront this country through the downfall of democratic nations in Europe and the peril to Great Britain. Americans in general have an intelligent grasp of the evils inherent in the plans of the Axis Powers. Although our national defense measures are speeding production and expanding employment, and while our sales of war materials are compensating in some degree for the loss of our normal markets in Europe, the question inevitably presents itself to every thinking mind: What of tomorrow? What of the new world that will arise from the smoking ruins of the dead past?
My chief purpose, accordingly, is to discuss some of the questions relating to America's future place in world markets. Before entering this region of speculative inquiry, let us examine our foreign trade position for the first year of war.
Our foreign trade increased by over one and a half billion dollars, compared with the preceding twelve months. Our exports increased by 35 per cent and our imports for consumption by 20 per cent. Our domestic exports in this year of war were higher than at any time since 1929; our imports higher than in any similar period since 1930, with the single exception of 1937.
Taken solely at their value in dollars, these figures indicate a most prosperous year of trade, were we to disregard the wartime loss of normal markets in Europe. Our export balance for this first year of war amounted to about one billion 400 million dollars—exceeding by nearly 600 million dollars the export balance of the previous corresponding period. Our trade with Europe as a whole showed the largest gain by valuer—$450,000,000—an increase of 37 per cent. Our total sales of our domestic products to Latin America during this year of war were valued at 733 million dollars, an increase of 243 million, or 50 per cent, exceeding sales for any year since the low level of 1932. In the peak year 1920, however, Latin American purchases totalled approximately one billion dollars. History again repeats itself as to the effect of war on the diversion of Latin American trade.
Purchases of the United Kingdom increased by 282 million dollars to 787 million, about 20 per cent of our total exports. Canada increased by 238 million and France by 171 million. The British Empire is now taking about 66 2/3 per cent of our exports, against 42 per cent in the previous twelve months. Argentina increased her purchases by 52 million 200 thousand dollars, Brazil by 44 million 500 thousand dollars, Soviet Russia 41 million dollars, and China 34 million.
Although our increased wartime trade has compensated in value for our exclusion from European markets, the change in the character of this trade must impress us with the problems which war has brought in its train. The effects of Axis domination of European markets are now apparent, and the next twelve months' trade statistics will reveal more clearly the situation which bodes ill for a number of our leading commodities shut out by the war from European and British markets. Eleven European markets, now under Nazi domination, which in August 1939 took American products of the value approximately of 54 million dollars, show purchases in August 1940 of only 124 thousand dollars. Gains in our trade with France and Italy during the first year of war will be eliminated in the coming year.
The total gain of one billion 75 million dollars in our exports, including re-exports, during the first year of the war reveals a change in the character of our trade which particularly concerns some of our leading export commodities. Raw tobacco suffered a falling off in value by 77 million dollars; passenger automobiles 34 million dollars; wheat 29 million dollars and fresh fruits over 21 milliondollars—a total including other farm products and petroleum of 234 million dollars. Our gains in exports to Europe of wartime goods include iron and steel, raw cotton, aircraft, machinery, chemicals, firearms and ammunition, paper, lubricating oil and refined copper.
Turning to Latin America—shut out of continental Europe for sources of supply which in a normal year amounted to more than 500 million dollars, the United States has made considerable advances in replacing these European goods. During the first year of the war our exports to Latin America of animal and vegetable products—including lard, dairy products, leather, flour, rubber manufactures and naval stores—increased by 26.4 per cent; exports of textile fibres and manufactures by 46.7 per cent; wood pulp and paper 79 per cent; coal and petroleum 49 per cent; iron and steel products 131 per cent; machinery and vehicles 21.8 per cent and chemicals and related products 80 per cent.
As against this increase in our exports to Latin America, our imports from these countries in the first year of war showed a gain of only 31 per cent, to a total of 615 million dollars. Food products and beverages constituted slightly less than half, coffee being the outstanding article, followed by sugar and bananas. We bought more textile fibre manufactures, more raw wool from Argentina, Uruguay and Chile, and increased our imports from Argentina of inedible animal products, including hides and skins, by 13 million dollars.
I have no desire to burden you with such figures, except to emphasize the fact that our trade during the first year of the war should not lead us to take the extravagant view that the large increases due to war demands are a matter for unqualified satisfaction or lead to any definite conclusions as to the future. The close interaction of political and economic factors, which obscures the future, is the inevitable accompaniment of war and of our own plans for national and hemispheric defense.
It is of the utmost consequence, however, that serious study be made of the probable operation of European economic blocs in accord with the proclaimed intention of the Axis Powers to control world trade, predicated on their military success and the consequent survival of their tripartite pact.
Looking then to the end of the war, what, we may ask, may be the chief difficulties presented to the United States as a nation bent upon bargaining her way through to former markets? Assuming for sake of discussion that regional grouping will be a feature of the coming world order, and that the totalitarian system will continue in Axis countries, what will be demanded of the United States for the privilege of trading in hemispheres now under Nazi and Fascist influences?
It is futile to speculate now on how the war will end. Prudence, however, should lead us to be prepared to accept the challenge thrown down by the Nazi Government, that trade between the United States and post-war Europe must be on terms dictated by Germany.
Dr. Walther Funk, Minister of National Economy in the Reich, and successor to Dr. Schacht, has left to the United States two alternatives: To submit to Germany's trade terms or be shut out of European markets. He has left us in no doubt as to what Germany's terms are, and what Europe's commercial destiny will be under their domination of that continent. So recently as July last, Dr. Funk made this announcement:
"The methods to be employed in our economic reorganization of Europe are those which have brought us our great economic successes before and during the war. The peace economy which I am preparing must guaranteeto Germany the maximum of economic security and to the German people the highest possible standard of living. The economic system of Europe must be organized for the achievement of this aim. Every European country is to develop its own economic resources and to trade with other countries, but the principles and methods regulating such trade will have to be more or less German."
Carried away by German conquest of eleven European nations, including France, Dr. Funk threatens the United States with being shut out of the European market, unless we surrender to Germany's trade conditions.
These conditions would involve the substitution for gold of German paper currency, and bilateral compensation or barter trading which would deprive us of multilateral trading and reciprocal trade agreements under the most-favored-nation principle. Such methods would expose us and the world to certain economic confusion.
The new Europe, patterned after Nazi doctrines, would be under German rule or tutelage, with subjugated nations as agricultural adjuncts to a highly industrialized Germany. Already we may surmise what will befall the German occupied countries should the war end in a stalemate, or in a decisive victory for Germany. Preliminary steps have been taken to transform the economic structure of Europe. In France, for example, the textile mills are being deprived of raw materials and forced to abandon the manufacture of carpets, laces and woolen manufactures. The Dutch people have been warned that their lot in the future is to supply Germany with food and that their standard of living must be lowered, as in the case of the Poles and Czechs.
As happened previously in the Balkans, under Dr. Schacht's regime, and as happened to Latin American countries in the pre-war years, the occupied countries in Europe have found that they have no choice as to what return shall be made to them for the large percentages of their food and other products taken by Germany. They are receiving credits in depreciated German currency, and there appear to be no limits as to the amount of clearing balances accumulated against Germany.
In less than five months, the Germans have built up a debt to the Danes of 800 million kroner. The German procedure is very simple: to take the products of the country and to furnish to the invaded territories in return those commodities Germany can spare, and to charge any price she chooses—the occupied territories having no opportunity of importing from oversea and Germany having no competition to face. No longer is it necessary for the Nazi Government to subsidize exports in order to meet foreign competition.
Reports from Europe continue to stress the growing signs of currency inflation in the German occupied countries. Compelled to send supplies to Germany from their own depleted resources, winter will find these subjugated peoples not only short of food and other necessary supplies, but suffering from the effects of currency inflation and steadily mounting prices which have proved in the past to be harbingers of revolution. Hunger and hardship may prove more decisive than Nazi armed force in shaping the future destiny of Europe.
Our wartime trade situation has been further complicated by the steady deterioration of American-Japanese relations, as the result of a succession of Japanese threats to American interests in the Far East, and by Japan's pact with the Axis Powers. The incompatibility between Japanese policy in the Far East and the rights of the United States cannot be overcome by a trade agreement until these differences are reconciled.
The abrogation of the American-Japanese Treaty has been followed by an embargo on exports of iron and steel scrap to Japan. Meanwhile, Japan has tightened her control over industry in all its branches, resembling the measures adopted by Germany and Italy. A Supreme Council is in control of industry, labor and agriculture, extending its supervision throughout the entire country. To effect control of her trade with the yen-bloc countries, all transactions are handled collectively by the new Japanese Federation of East Asia Export and Import Associations. The Tokyo Government proposes to subsidize the expansion of iron and steel works and the production of machine tools. As an aid to the Japanese silk industry, the textile manufacturers are now required to mix silk to an increasing degree in rayon, wool, and cotton manufactures.
Under international conditions so adverse to American foreign trade interests, except with the British Empire and Latin America, we turn our attention to the policies to be pursued in defense of our stake in world commerce. Our bargaining power at the close of the war may depend upon our present action in forming economic alliances strong to resist any combination of forces hostile to the liberalization of international trade.
Now that the Petain-Laval Government has agreed to collaborate with Germany and Italy in the organization of a Nazi dominated European bloc, it is incumbent upon the United States to enter upon alliances that are increasingly important to the scheme of Pan American defense. With the United States, Latin America and the British Empire controlling in normal times 50 per cent of the world's trade, against 12 1/2 per cent by Germany and Italy combined—or with the remainder of continental Europe, except Russia, 40 per cent—a united economic front by these democracies would render extremely difficult any attempt by a Nazi-controlled European bloc to force them to comply with Europe's economic demands.
The European bloc which Hitler proposes to set up bears no resemblance to the scheme which the late French Premier, Aristede Briand, favored, which was akin to that which the Lima and Havana Conferences have planned for consolidating Pan American interest. The position to which the Vichy Government has reduced France is, I am confident, not the will of the gallant French people. We shall continue to cherish the belief that France again will rise in spiritual triumph from the thraldom of Nazi rule and live to assert once more her cultural leadership in a Europe now living in the darkness foreshadowed in Hitler's "Mein Kampf."
We naturally ask: What is being done to consolidate the twenty-one American republics in defense of their economic freedom and security against the threats of the Axis Powers? The conferences at Lima and Havana gave strong assurances of steadfast opposition to a regional division of the world which would leave the Axis Powers free to dominate and control international commercial relations. The national defense policy of the United States is a further indication and warning that no peace can be made permanent with those who continue to deny the sanctity of treaties and the right of other nations to live their own lives in peace and security.
We should not deceive ourselves by underrating the power of Germany to carry on an economic war on this Western Hemisphere. If free to extend her influence in Europe at the close of the war and to bring other European countries within her economic orbit, we shall be thrown back upon our own resources in organizing an economic front capable of withstanding powerful pressure of a European bloc. The total export trade of this Hemisphere amount approximatelyto seven billion dollars. Continental Europe and the United Kingdom have taken 43 per cent, or over three billion dollars. Our plans for the future must definitely embrace retention of these markets for disposal of surpluses. With any large diminution of these exports the economy of the whole Western Hemisphere would be seriously dislocated.
Germany's capacity for industrial efficiency will be greatly strengthened if she succeeds in her plan of making the rest of Europe tributary to her industrial requirements in food and raw materials and as an expanding outlet for her manufactured products. In preparations for this war, Germany inflicted great damage on other countries by her competitive methods and by her resourcefulness in subjecting primary producing countries to her industrial demands. A country which proclaims its determination to abolish gold as a medium of exchange and to trade with credit marks, will, if victorious, be capable of going far in the making of a closed economy in the European continental area.
In such an eventuality what resources can we draw upon to counteract effectually the closing of continental Europe to United States products—which, in 1938, totalled 800 million dollars?
If our problem at the close of the war is one of closed economies in other parts of the world, the first consideration is the ability of a Nazi Europe, or of an Axis combination in the Near and Far East, to survive the experiment of a self-sufficiency policy. Germany, as the industrial core of a hinterland of agricultural countries with depressed standards of living, may find herself in the position in which the United States is placed commercially in relation to Latin America, but with this difference: We shall find it to our advantage to aid financially the greater industrialization of Latin American countries, bringing a higher standard of living and increased purchasing power.
What Germany has so long declaimed against—the policy of the balance of political power in Europe—is her policy today in a wider field: she aims at holding the balance of economic power throughout the world. It is incumbent upon us, therefore, to determine our plan of defense against this threat to the economic freedom of the democratic nations.
The recent Havana Conference was not only a manifestation of the solidarity of the Americas, politically and economically, but a revelation of the difficulties to be overcome in implementing the accords reached by the twenty-one republics. The United States is more nearly self-contained than most countries and could survive an economic war of the kind forecast by Dr. Funk. Our national defense plans, however, are of wider scope than defense of our own economic boundaries. They embrace the defense of the entire Western Hemisphere, including our good neighbor Canada. On the economic side lies our greatest problem: that of aiding in making Latin America more self-contained and less dependent upon European markets. We can plan effectively a two- or three-year program of military defense, but the economic development of Latin America is a longer and slower process. With the possible loss annually of markets for at least 500 million dollars' worth of their surplus products, or about one-half of the normal shipments to Europe, the most important of which compete with our own, the other Americas must rely upon their powerful neighbor—the United States—to assume the leadership among equals in finding a way to absorb or market surpluses now piling up. We have a selfish interest in full cooperation in this direction—the growing necessity of finding increased outlets for our own surpluses which formerly were taken by Europe.
The addition of $500,000,000 to the funds of the Export-Import Bank, and the visit to Latin American centers of thePresident of the Bank—Mr. Warren L. Pierson—as well as the $20,000,000 loan to Brazil for development of steel works, indicate on our part the resolve to be of practical aid to our republican neighbors in furtherance of plans for a comprehensive scheme of economic assistance which will tend to increase the flow of trade between them. This is a vital part of our defense plans. Thrown back upon their own resources, dependent upon a Hitlerized Europe for the disposal annually of products of the value of $500,000,000, which otherwise will rot, these countries could become an easy prey to economic pressure and fifth-column penetration.
Now is the time for immediate planning for an advance along the entire Pan-American front. We look for the collaboration of Latin American Governments in devising plans for the protection of their domestic economies, and for the financial assistance needed to expand the development of their resources, to stabilize exchange, and to increase the standards of living. It is essential also that adequate assurances be forthcoming that investments by our Government or by private capital are applied to the purposes ordained and be fully protected against unilateral legislation of a confiscatory nature.
The Export-Import Bank already has loaned $120,000,000 to Latin American countries, including $20,000,000 to Argentina to maintain exchange; $12,000,000 to Chile for reconstruction and other works; $500,000 to Paraguay; $1,500,000 to Ecuador for sanitation and health work.
In this hemispheric front so rapidly brought into existence, stands our northern neighbor, Canada. Gone are the days of the irritations and trade losses due to tariff wars. Leader always from colonial times to the present in the ranks of the growing nations of the Empire, Canada has played in recent years a conspicuous part in influencing the British trend away from the rigidities of the Ottawa Agreements and in favor of our reciprocal trade agreement policy as an alternative to high preferential tariffs. This has been of significance in the growing allegiance of the British to the multilateral most-favored-nation doctrine of non-discrimination. The new era will bring closer to the side of the Pan-American nations our northern neighbor who has enriched our civilization by her distinctive resources and institutions, and who has won our admiration by her part in securing recognition of the equality of Dominion status with that of the United Kingdom.
In addition to Canada, common sense and commercial strategy dictate that the British Empire as a whole should be identified with Canada and the Americas in presenting a common front to Germany's plan for a balance of world economic power in her favor.
Although our trade agreement program has been suspended in the case of warring countries, it still remains as a goal to be reached in our relations with Latin America and as an ideal policy to shape the course of international trade when peace returns. Negotiations to this end should not wait on the termination of hostilities.
Far from striking a pessimistic or defeatist note in the thoughts I have presented to this audience, I have attempted rather to stimulate study and investigation of the difficulties we may have to face. I have an abiding confidence in the bargaining power the democracies possess to maintain the moral and business foundations on which sound international commerce rests and by which all nations in the past have prospered. This confidence is strengthened by the failure of Germany's Four-Year Plan and the entry of that country on a second Four-Year Plan to redeem Hitler's broken promises that his conquests in Europe would be reflected in the relief of the German people from hardships brought upon them by Nazi rule.