Foreign Trade—Two Opposing Systems


By RAYMOND H. GEIST, Chief of the Division of Commercial Affairs, Department of State

Delivered at the 13th Annual Dinner of the Foreign Trade Club of New York University, Held Jointly With Delta Phi Epsilon, National Foreign Service Fraternity, New York, N. Y., May 2, 1941

Vital Speeches of the Day, Vol. VII, pp. 630-633.

MR. PRESIDENT; I wish, first of all, to express my appreciation of the honor which you have conferred by inviting me to participate in this annual gathering of the Foreign Trade Club of New York University, held jointly with Delta Phi Epsilon, National Foreign Service Fraternity. It is most fitting that young men who are in the universities today and will be the leaders of this country tomorrow, should have every opportunity to evaluate, study, and appraise the issues involved in the great struggle now going on in the world, and to gain, so far as it is possible, an accurate conception not only of the causes but also some idea of the possible ultimate results. The subject, like the struggle itself, is so vast and complicated in its elements that it is not possible in the space of a short address to add much to what has already been spoken and written, not only in this country but throughout the world. On that account I propose to limit what I have to say to a short discussion of the foreign trade of the United States, particularly how it has been affected by the events which preceded the outbreak of hostilities, how it is affected by the course of the war, and finally in what measure the fate of our international commerce is bound up with the outcome of the conflict.

The economists of the world in their studies of the numerous problems involved have traced the development of the present international crisis to causes which have affected most radically the structure, not only of the international economic relations but in many cases even of society itself. Undoubtedly, the growths of populations and the demands of larger numbers of people in all countries of the world for a higher standard of living and for a larger share of the world's goods, particularly in an age when technical achievements have brought such goods almost within reach of millions who have not had them, have forced governments everywhere to take a hand in affairs which affect the economic well-being of its citizens. Consequently, diplomacy has increasingly become associated with economic and trade questions. This development, namely, the intervention of the government in the complete economic affairs of the state, in itself would not necessarily be a hindrance to the normal commercial intercourse between nations provided that the motives were in the general interest of "welfare" and not "power" economics. It must be remembered that nations and peoples have been struggling for thousands of years to establish not only governmental and social institutions but also systems of trade and enterprise which afford the greatest good to the greatest number. These evolutions have been slow. Society has been extremely reluctant to throw over systems based upon free enterprise which in the past and over long periods of time, as in the nineteenth century, have been productive of great welfare, wealth, and happiness to a progressing world. The commercial policy of the United States has been based upon such ancient principles. Throughout the world these principles have found general support; and while many nations have been forced to adopt measures in times of crisis which affected adversely the economic stability of their neighbors, there has not been in any general sense a repudiation in principle of the long-established methods of international commercial intercourse. Indeed, it was not until 1931, when the liquidity panic of that year caused a collapse in the capital market, that in certain countries foundations were laid for the introduction of far-reaching systems of "power" economics which have culminated in the present struggle. While the crisis of 1931 marked perhaps a certain stage in the disintegration of the trading system commonly practiced throughout the world, there is no reason to assert that the whole structure could not have been restored to a healthy basis had international cooperation been complete. However, with growing nationalism in certain countries struggling to seize the helm of state and economic insecurity threatening most countries both from within and from without, there was lacking, owing to numerous deep-seated causes, the necessary vitality among the nations of the world to maintain intact the international economic structure. In looking back upon the events which followed the great war, it is clear that many mistakes have been made in affording readjustment and economic security to those nations most directly affected by the conflict. Not only the measures taken collectively by countries united in pursuit of certain political aimsbut decisions made individually on the basis of domestic needs and internal policy contributed to causes which eventually led to the present situation.

The outstanding development during this period of disintegration during the last decade was the resolve of certain countries to abandon the traditional principles of international commercial intercourse and link up the economic apparatus to the state's machinery for the accomplishment of the political objectives to which the nation was committed. The actual measures adopted and put gradually into practice in the realm of foreign trade were regarded by some observers to have been induced by internal necessity and in order to meet temporary situations. The control of foreign exchange, the adoption of import and eventually export quotas, the introduction of bilateral barter arrangements, and finally the policy of the totalitarian governments of drawing certain countries almost to the point of being submerged within the trading orbits of their own states, constituted a departure so radical from what had been the traditional system that the very structure of world trade and its equilibrium was affected. This practice on the part of the totalitarian states went hand in hand through the last decade with the utmost effort to build up autarchial units, the purpose of which was to build up a self-contained economy and establish, with unerring security, unprecedented militaristic strength. Even treaty structure was altered; and arrangements between states made to insure orderly economic relations over a long period of time became short-lived, almost ephemeral; and during this period numerous agreements were made with countries which had economically become, in part, if not wholly, subservient to their powerful neighbor. While this process continued, international economic organization became affected in all parts of the world. Nations which had carried on normal trade with countries which had been drawn into the totalitarian vortex found their markets dwindling and their trade declining. A distinction must sharply be made between the system of exchange control and its concomitant processes adopted and followed as a national policy in international commercial relations and the use of the same devices as a temporary expedient though under compelling necessity. Certain countries in this hemisphere have also adopted exchange control but not in preference to a system of international cooperation in monetary exchange.

The most alarming fact in the development under discussion is that where restrictions, regulations, and discriminatory practices have been deliberately adopted as a permanent policy, no less has been achieved than the imposition upon a considerable section of the trading world of a system which is incompatible with the welfare of its inhabitants. There are a number of obvious reasons why this country could not accept such a system. It presupposes, first of all, a master state, that, over and above its prerogatives of sovereignity, imposes upon all less powerful members a subordinate role, which members are compelled, in fact ordered, to adjust their national economies and productive processes to the needs of the other. This means permanent isolation of such countries from the general system of world trade, a denial of their own progress in the search after higher living standards, and the danger that their common economic status will progressively deteriorate as victims of foreign exploitation. To contemplate this state of existence for millions of people is to envisage a new era of economic enthralment.

Never in the history of the world has statecraft been more ingenious and inventive in devising means of gaining control not only of domestic economy but particularly of foreign trade for the purpose of attaining self-insufficiency, military and political aims in the international field. Few of the devices used by the totalitarian countries failed to have immediate and far-reaching effect upon the trade of most countries, including that of the United States. Foreign-exchange control reduced the volume of American exports in the earliest stages of the process; quantitative regulations in the form of import quotas soon affected the major exports from this country. The situation was further aggravated by the use of multiple currencies, trading monopolies, exclusive trade arrangements with other states, the bilateral balancing of trade, and the consummation of barter-deals. It became clear to those who closely observed the working of these devices that the aims were not economic but political. This conclusion is most important in establishing the conviction that the use of these devices could be of little use in reconstructing international trade and international economic relations in the post-war period.

As the map of Europe changes and a larger number of European countries go into the red, so far as the foreign trade of the United States is concerned, we no longer need to define the trends in our overseas commerce in terms of exports and imports, favorable and unfavorable balance of trade, and other criteria commonly applied in gauging the shifts in the world's economic picture. Our opportunities to carry on peaceful commerce with nations abroad are shrinking before the advances of armies which, in reality, are not exerting their pressure to assure political conquests alone but are in fact waging economic war primarily on peoples and countries such as ours, whose right to trade in those areas is forcibly denied. Our commerce is exposed to a process of attrition which is bound to extend itself, not only during the present conflict but increasingly thereafter, if the totalitarian method of trading endures, by two persisting processes: the first is by encroachment of arbitrary fiat, the behest of force, damming up the streams of commerce behind dikes of steel; and second by the steady impoverishment of vast numbers of people, though far outside the conquered areas, whose economic existence is affected by the changed order. Retrogressive developments such as these arrest, like the ravages of disease, human progress itself. But it is safe to predict that no arbitrary force is powerful enough to resist the will of the human race to forge onward toward the goal of economic betterment and advancement.

Our foreign trade, since the outbreak of the war, has undergone rapid changes, some of which have been in line with our policy of alleviating the effect of the impact of war upon our own national economy, building up national defense, and affording aid to the countries at war with the Central European powers. Besides, action has been started of which the purpose is to support to the fullest extent the economies of nations in this hemisphere, which, like the United States, were immediately affected by the loss of trade with the European countries. This historic program, of which the effects will be to change the course of world events and the destinies of millions of people, is now getting steadily under way. It has perforce changed the character of imports and exports; but the Government's policy has been not to dislodge the established channels of trade and interrupt the exchange of goods with other countries growing out of peacetime needs as far as this is permissible under present conditions. The revision in November 1939 of the Neutrality Act, enabling this country to export arms and ammunitions, has given a tremendous stimulation to our export activity. The enactment of lease-lend legislation and the appropriations made by Congress to carry out the provisions of the bill will further augment the volume of exports in proportion to production of American industry and its expanding capacity. In industrial achievement the success of this country in turning out arms and ammunition to swell this vital export trade is second in importance only to the program of national defense. The major role that exports have played in the present preparedness program cannot be underestimated. Before the United States was aware of the significance of events in Europe, certain countries had caused the acceleration of our defense industries by increasing their imports horn America to supplement their own defense-production. This afforded us a start in expanding our own armaments industries during the months that have passed when we might have been profitably producing for our own national interests. The shipping of war materials, in view of the status of the struggle abroad and the policy adopted by our Government and the people of the United States in affording aid to Great Britain and her allies, increasingly lends to our export trade a special character brought about by the exigencies of the national situation. The prospect that this type of commerce will steadily increase as times goes on is forecast by the trend of events abroad. Likewise, the establishment of military bases of defense along the Atlantic seaboard, in the Carribeans area, the Panama Canal Zone, and the outposts of the Pacific will further accelerate the export of defense materials and equipment.

The character of the trade with other countries has been altered by the adoption of export controls which was initiated by an act of Congress approved July 2, 1940, and proclaimed by the President on the same day. Specific articles and materials may not be exported without license. The several subsequent proclamations of the President have expanded the list of articles and materials put under control. This measure has also contributed to factors which change the character of exports and steadily place our commerce abroad on an emergency basis. Besides, the various blockades exercised by the belligerents have had far-reaching repercussions on our foreign commerce. The changes which have necessarily come about, both with respect to the character and the volume of imports, have been largely induced by the necessity for defense. An analysis of the position of raw materials essential to our industrial processes indicates to what extent we are dependent upon commodities found in other parts of the world. Wars affect vitally the accessibility of such materials; and the economic paralysis, which on this account could strike certain of our industries, needs no elaboration. Our Government has been quick to act with respect to this major problem of our import trade. An integral part of the defense program now in progress is to lay in stores and adequate supplies of such materials—the stock-piles which the Army and Navy Munitions Boards have been building up. Importations of this character are being financed by the Reconstruction Finance Corporation. Besides, urgent activity is being developed by various departments and agencies of the Government to establish and develop sources of strategic and critical materials within our own defense area. The loss of imports from countries with which we normally trade has equally dislocated substantial segments of our commerce as well as theirs. Our imports, like our exports, had become effected before the war by the monopolistic practices of the totalitarian states and by their efforts to restrict the exchange of goods to certain areas and render impossible the triangular and multilateral flow of goods, upon which basis alone world trade can prosper.

The hard times of the present emergency have accentuated as never before the interdependence of the nations in this hemisphere, interdependence not only political and strategically defensive but also economical. Through the far-seeing policy of the President and his great collaborator, the Secretary of State, a basis in friendship has been laid between thiscountry and the other republics in this hemisphere for economic collaboration which will have not only far-reaching and lasting effects upon the industrial and productive characters of the nations of this hemisphere but upon the trade structure of the whole world. These effects will be permanently beneficent to western life. The vast economic resources of this hemisphere have not been fully developed in the face of cheaper production in other parts of the globe and on account of the more ready accessibility of certain basic materials. But now the combined strength, ingenuity, technical skill, and capital of the nations of the Americas are being set in motion to accomplish unprecedented progress wherever the advances may be made. The program for this historical development was couched in firm and clearly worded language at the First Consultative Meeting of Ministers of Foreign Affairs of the American Republics held at Panama in September 1939. It was resolved that:

"In view of the present circumstances, . . . it is more desirable and necessary than ever to establish a close and sincere cooperation between the American Republics in order that they may protect their economic and financial structures, maintain their fiscal equilibrium, safeguard the stability of their currencies, promote and expand their industries, intensify their agriculture, and develop their commerce."

The intensification of agriculture, the expansion of industries, and the development of commerce between the nations of this hemisphere call for the united effort of all our peoples on a scale never before attempted in the history of these continents. While the rest of the world is becoming impoverished and disrupted, it must be our aim to grow ever stronger and more productive in the essential wealth of civilized life so that the standard of living among us shall steadily rise, that out of our abundance the rest of the world, sinking deeper into disorganization and poverty, may draw its means of recovery. A more inclusive expression of the policy which the nations of this hemisphere have adopted and which indicated the immediate as well as the long-term view of our common purpose was contained in the resolution adopted in July 1940 when the Second Meeting of the Ministers of Foreign Affairs of the American Republics resolved to declare:

"One. (a) That the American nations continue to adhere to the liberal principles of international trade, conducted with peaceful motives and based upon equality of treatment and fair and equitable practices;

"(b) That it is the purpose of the American nations to apply these principles in their relations with each other as fully as present circumstances permit;

"(c) That the American nations should be prepared to resume the conduct of trade with the entire world in accordance with these principles as soon as the non-American nations are prepared to do likewise;

"(d) That, in the meantime, the American nations shall do everything in their power to strengthen their own economic position; to improve further the trade and other economic relations between and among themselves; and to devise and apply appropriate means of effective action to cope with the difficulties, disadvantages, and dangers arising from the present disturbed and dislocated world conditions; and

"(e) That the American nations consider it necessary to maintain or improve the normal economic situation established between them in order to assure the preservation or improvement of the position enjoyed in their respective markets.

"Two. To strengthen and expand the activities of the Inter-American Financial and Economic Advisory Committee as the instrument for continuing consultation among theAmerican Republics with respect to economic and trade matters and arrangements, having in mind especially the immediate situations which must be met as a result of the curtailment and changed character of important foreign markets. . . .

"Three. Specifically, to instruct the said Committee that it proceed forthwith:

"(a) To cooperate with each country of this Continent in the study of possible measures for the increase of the domestic consumption of its own exportable surpluses of those commodities which are of primary importance to the maintenance of the economic life of such countries;

"(b) To propose to the American nations immediate measures and arrangements of mutual benefit tending to increase trade among them without injury to the interests of their respective producers, for the purpose of providing increased markets for such products and of expanding their consumption;

"(c) To create instruments of inter-American cooperation for the temporary storing, financing and handling of any such commodities and for their orderly and systematic marketing, having in mind the normal conditions of production and distribution thereof;

"(d) To develop commodity arrangements with a view to assuring equitable terms of trade for both producers and consumers of the commodities concerned;

"(e) To recommend methods for improving the standard of living of the peoples of the Americas, including public health and nutrition measures;

"(f) To establish appropriate organizations for the distribution of a part of the surplus of any such commodity, as a humanitarian and social relief measure;

"(g) To consider, while these plans and measures are being developed, the desirability of a broader system of inter-American cooperative organization in trade and industrial matters, and to propose credit measures and other measures of assistance which may be immediately necessary in the fields of economics, finance, money, and foreign exchange."

I shall not pause at this moment to enumerate and describe the measures which have already been taken under the termsof this resolution, such as the appropriations made by Congress to increase the funds of the Export-Import Bank, which are to be used "to assist in the development of the resources, the stabilization of the economies, and the orderly marketing of the products of the Western Hemisphere"; the credits which the Bank has extended; the measures which have got under way to augment the purchases of strategic materials from other American republics, etc. The steps which have to be undertaken, like other processes in world movements, get under way slowly, because a full realization of the tasks to be performed has not been apprehended by those whose collaboration in the business, industrial, and technical field is necessary. With a fuller understanding of the scope of the conflict which is slowly spreading and gathering momentum, undertakings on vast scales will be launched to carry out the policies which the statesmen of this hemisphere have adopted.

Bound up with the determination of the people of this country and of the other American nations to preserve individual liberty, free private enterprise, and self-government is the unalterable resolve to perpetuate our right of trading throughout the world in accordance with a system of international commerce suitable to our form of government, our institutions, and our concept of law and order. We have steadily followed this system in our dealings with other nations in the past, particularly in the trade agreements concluded on the basis of "the most favored nation treatment". It is our resolve not to abandon this policy.

Furthermore, let me warn against the futile speculations of theorists who would have us deviate from sound principles in international trade and espouse methods of dealing repugnant to our way of life. If in the international sphere we reject political and social systems harmful to mankind, we must also repudiate the economic practices upon which they are based.

If we hold fast to faith in our destiny, we shall create an invincible and advancing civilization upon the foundations of our inexhaustible resources and rear a new edifice where enlightenment, based upon material, moral, and spiritual progress, will finally decide the future of humanity.