International Trade as Viewed by American Labor
DANGERS FACING AMERICAN EXPORTERS AND DOMESTIC PRODUCERS
By MATTHEW WOLL, Vice-President, American Federation of Labor
Delivered before Manufacturing Chemists Association, June 1, 1944
Vital Speeches of the Day, Vol. X, pp. 601-606.
THE outstanding postwar problem, both national and international, is to find ways and means to meet in a spirit of justice and human kindness the proper economic aspirations of both nations and individuals in order that the temptation to international war may be removed.
Through bitter suffering the world has learned that no nation is free if its daily bread can be given or be withheld in war or in peace according to needs or pleasures of some other nation. The world has likewise learned that political liberty without economic liberty is but an empty shell.
Economic liberty need not necessarily mean privation. Gradually, almost imperceptibly, science has been drawing from nature some of her essential secrets. Science, more than laws, has broken up one after another slavery, feudalism, absolutism; the 12-hour day, and other forms of human bondage. Science also has changed and will continue to change the relations of nations.
The question presented to every American is whether the United States will shape her life largely in her own way, and in accord with her ideals, or whether she will become inextricably involved in old world interests, habits of thought and economic affairs. In other words, America is called upon to decide whether international trade has a certain divinity which must be placed upon a permanent basis. Thereupon it will be the duty of a concert of powers to allocate to the nations of the earth their rights to import and export and at what prices and then set up an international standard of living and a superstate to assure that the world will stay pigeonholed.
Or, will we choose to abandon attempts to regiment a world that refuses to be regimented and adopt the practical, diplomatic approach; that is, to recognize what are the realities of the economic interdependence of nations and try to achieve a formula by which nations can cooperate. Certainly, this is not isolationism, so called, but rationalism.
No one can predict with any degree of certainty what sort of world we will face when world hostilities come to an end. However, the past does not indicate the sort of thinking and planning that is more than likely largely to influence the judgment of nations in working out their destinies under conditions of peace. It is futile to discuss postwar trade problems without a realistic examination of some of the leading factors involved.
Among these leading factors may be considered:
1. The agricultural and industrial revolution during the period 1933-34 and the resultant loss of former markets.
2. The strength of the system of state trading controls and preferential trade system after the war.
3. The predominance, in world trade, of giant state trading agencies, great international corporations and cartels.
4. The critical position of the free trade unions and free enterprise, under the circumstances both in foreign trade and in the domestic American market.
5. The possibly dangerous tendency of this country to discuss the merits of lofty principles of freedom of trade while ignoring the abolition of those principles in domestic and foreign trade.
It is not possible in a brief discussion to more than summarize some of the principal aspects of these outstanding problems. The following points are, however, essential considerations:
As during the World War of 1914-18, great changes in the structure of economic life have occurred throughout the world.
India, for example, is now a creditor country and one of the leading industrial nations of secondary rank.
South America has rapidly expanded not only its production capacity for consumer goods, as during 1914-18; it has also notably expanded production of minerals, some basic industry, and other primary commodities.
The United Kingdom now produces about one-half of its food requirements and has enormously increased the efficiency of its manufacturing plants. On the other hand, England has liquidated about half of its overseas investments and has amassed an enormous debt sterling balance.
Postwar Foreign Trade—American Labor
Europe has undergone fundamental changes that may outlast the war. The synthetic production of textile fibers, rubber, gasoline and plastics, the development of processed wood substitutes for metals are only the better-known changes.
American organized labor in the North American continent seeks to maintain the independence of labor unions and business enterprises. In contrast, organized labor in Europe and in the United Kingdom seeks to nationalize basic industry and, by various so-called socialistic measures, tends tochange and modify the character of an independent labor movement, in the unfounded hope of capturing control of the state.
This increasing dependence upon the state on the part of organized labor in Europe and the United Kingdom is shared by organized European industry. To an extent not appreciated by either American business or American labor, European and British industry has become increasingly reconciled to dependence upon the state and guidance from the state in recent years.
The economic crisis of the early '30s was followed in Europe by revolutionary changes in the character of state intervention in business and of state economic administration. The gold standard was abandoned by its creator, the Bank of England, in 1930, and the British example was followed throughout most of the world during the following five years.
In Europe, as a whole, there gradually developed first a regulation of foreign trade and foreign exchange, as emergency measures, to meet the economic crisis. Thereafter followed the regulation of internal business activities, including production, prices and distribution.
As Nazi Germany in 1933 inaugurated the German rearmament program and the German effort to create a "self-sufficient" war economy, other leading countries also strengthened state economic control over business in order to prepare for war.
In the late 1930s in Europe there ceased to be any genuine freedom of international trade as it was formerly understood. Most European countries had state regimes which controlled foreign trade channels in a manner that excluded freedom of competition by private firms and corporations without regard to country of origin or the manner of payment for imports. Most states insisted that their imports must be paid for in exports, not in foreign exchange; imports, were prohibited or restricted where domestic production, even at very high cost, could supplant imports.
Practically every country in Europe developed a program of "tied trade" or balanced trade agreements with other countries and a program of subsidized expansion of domestic production of products formerly imported. The result was, for example, that Brazilian cotton of inferior quality and at higher prices was purchased by Germany in preference to cheaper and better grades of American cotton.
From the standpoint of the American farmer, worker and businessman, the significance of the new European system of state control of domestic and foreign trade was that these new factors eliminated the normal freedom to buy and sell in open trade agreements. Competition was no longer between individual producers, sellers and buyers in different countries; it changed in character to competition between state trading agencies, for which not only economic but also political interests of the contracting states were decisive elements.
The ability of the individual American producer to sell better products at a lower price than his foreign competitor ceased to be a decisive factor; the question was not the price or the quality of imports; it was the question whether payment for imports could be made in the products of the purchasing country.
The World War of 1914-18 demonstrated how blockade conditions and sea warfare forced countries dependent upon imported food and industrial products to turn to domestic production. The cotton textile industry of Lancashire, England, lost its Far Eastern markets to new competition
in Japan and India. The German chemical industry lost most of its export markets to new producers in France, England and the United States. The trend towards industrialization in colonial and rural countries was accompanied by a trend towards agricultural self-sufficiency in many industrial countries. These trends continued after the war.
France, Italy, Germany and Sweden sharply increased their own grain and other food production during the interwar period. The United States had become a creditor nation and an outstanding factor in world trade.
The World War of 1939-44 has accelerated similar trends throughout the world. Industrialization in Latin America and in the Far East has proceeded at a remarkable rate. India has become an industrial nation of secondary rank, as well as a creditor nation. East Europe has been made a second Ruhr industrial district by the Nazi government, which has transferred a substantial part of industrial activity and armament production to the area comprised by southeast Poland, German Upper Silesia, Czechoslovakia, Austria and Hungary. Coal production in Upper Silesia, with coal fields slightly greater than those of the Ruhr, now compares with Ruhr coal production.
In Turkey, the Belgian Congo, South Africa, as well as nearer home in Canada, Brazil, Argentine and elsewhere, additional production capacity has been created in minerals, heavy industry, finishing industries, and in some agricultural products such as Turkish and Brazilian cotton.
In addition, however, the war has comparatively impoverished some leading countries. The United Kingdom probably has left no more than half of its former investments abroad and has piled up debts to many countries of the world to a total of perhaps more than $4,000,000,000 is blocked sterling debts.
The small countries of Europe must undertake reconstruction with limited financial resources, even though thai colonial possessions, such as the Belgian Congo, the Dutch East Indies, and Portuguese colonial possessions provide rich resources. France alone has a substantial amount of gold and foreign investments in comparison with its postwar needs.
Trade Treaty Benefits Scrapped
These circumstances lead to certain conclusions:
It seems a foregone conclusion that Russia will exert a political and economic hegemony over east Europe, from Finland, through Poland and Czechoslovakia and Yugoslavia. The almost inevitable result may be the creation of a counterbalancing bloc of western European states led by the United Kingdom. This would mean the creation of a bloc of states and colonial empires that cover the greater part of the world.
It is sometimes forgotten that in 1939 the beginning oi such a bloc has been made, financial and economic accords were concluded between the United Kingdom on the one hand and France, Belgium and the Netherlands on the other in 1939 and early 1940.
The terms of the economic accord of December 4, 1939, between France and the United Kingdom exemplify the character of the accords and give a picture of postwar possibilities which gains significance because of the view generally held in British and French official circles—then and now-that the accords should be maintained after the war.
The provisions, in brief, were:
1. The pegging of the pound sterling—French franc rate of exchange.
2. A clearing agreement covering exchanges of goods and services, with no limitation upon credit balances, until 6 months after the war.
3. Preferential buying in the other empire where possible rather than buying outside the British or the French empire.
4. Pooling of the raw material resources of the French and British empires.
5. Common purchasing agencies in third countries for the two empires to eliminate competitive buying.
6. No increase in the restrictions upon trade between the two countries, no matter what restrictions were placed upon imports from third countries.
It seems unnecessary to emphasize the effects upon American farmers, manufacturers and workers, dependent upon export markets and subject to import competition, which would follow the postwar creation of a trade cartel of this character between the British, French, Dutch and Belgian empires, together with the participation of the Scandinavian states, dependent upon British markets, and possibly including Spain, Portugal and Italy.
This state trading cartel, it should be recalled, was actually established in a tentative form during the early part of 1940. Its development was terminated only by the collapse of western Europe. After the war the emergence of Russian hegemony in east and southeast Europe may well impose some such combination as a measure of European self-defense. In addition, the financial position of postwar England ill be badly shaken by war expenditures; England will naturally tend to finance its huge import surplus by preferential buying in countries that will accept payment in British goods and services. England's former revenues from foreign investments, shipping, banking and trade will have declined once more as in 1914-18.
It would be a grave oversight to ignore the prospect that political and economic circumstances may necessitate the creation of this huge preferential bloc of nations, with the resultant adverse effects upon American trade at home and abroad.
State Trading Agencies—Preferential Tariffs
International competition, under the state clearing systems, and exchange control systems ceased to be conducted by private enterprise; buying and selling in open markets at competitive prices and costs were practically eliminated. The balanced clearing agreements, which determined, over long periods, the volume of goods exchanged and frequently also their prices, eliminated open markets and competition in them. Price, quality and cost of production of individual producers competing in open markets ceased to be the basis of world trade.
States that suffered from a crisis in foreign exchange reserves permitted purchases so far as possible only from countries that accepted payment in goods. At the same time they subsidized exports to countries which still permitted payment in gold and in stable "free exchange" currencies.
There is no convincing evidence that after the war the principal countries of the world will have either the means or the desire to abandon state control of foreign trade and foreign exchange. Emergency conditions will remain for some years in the domestic fields of reconstruction and reemployment, as well as in international trade and financial relations.
Even the great resources of the United States are not sufficient to finance, on a long-term credit basis, the program of European and world reconstruction in such a manner that restrictions upon international trade and financial transactions could be generally abandoned.
Postwar discussion that presupposes the early or general abandonment of state economic controls of foreign and internal trade in Europe and elsewhere would not therefore seem to be realistic
Giant Corporations—Cartels Control Exports
It seems almost a foregone conclusion that many nations, particularly in Europe, will maintain state agencies for the control and direction of foreign trade. Long before the present war international cartels and giant corporations dominated world trade in many products. Even as far back as 1915 it was calculated that 15 American corporations accounted for 75 percent of the value of industrial exports of the United States.
In most of the leading export and import commodities, such as petroleum, wool, cotton, certain fruits, metals and other products, a few firms or corporations, and in some cases one or more joint sales agencies, accounted for well over half of total exports or imports of the product of the United States. Closer concentration of private control in the foreign trade of the United Kingdom, Japan, Germany, and other countries had existed for years.
In certain industries, giant national corporations in the leading countries have concluded a complicated series of agreements dividing up world markets and exchanging engineers, production processes, patents, sometimes organizing jointly owned producing or selling companies in various markets, and, dictating in any event the terms of trade to independent distributors. In other cases a few producers have dominated the field of distribution.
The economic consequence of the resultant artificial restriction of production and sales have seriously contributed to the economic difficulties of many countries. The adverse effects upon industries and countries of the rapid disappearance of the small and medium-sized producer and distributor has been noticeable in Europe as well as in America.
Free Trade Unions—Free Enterprise
But the political power and effects of international interlocking corporate groups, syndicates and cartels are perhaps far more significant than the economic effects. It would be difficult to recite the true history of the rise of the fascist regime in Italy and the nazi regime in Germany without noting the decisive support granted to these movements by international finance and industry, especially certain great corporations and cartels.
World trade after the war will be dominated by state foreign trade agencies and by great corporate and cartel groups. Gigantic corporations, with annual sales and expenditures in excess of the annual budgets of most nations in peace time, can not be termed "private" or free enterprise. Nor can such terms be applied to rigid international cartel groups which eliminate outside producers and frequently dictate their terms even to smaller nations.
The future of the small and medium-sized manufacturer, and, of the worker, in industries where competition still exists in vigorous forms, is endangered today to a greater extent than ever before in history. The great domestic market provided by the farmers is threatened first by the loss of foreign markets. The former export and domestic markets of competitive American industries are similarly threatened.
American exporters face the prospect of exclusion from former export markets, irrespective of their competitive prices and the superiority of their products.
American producers for the domestic market face the prospect of over-expanded foreign industries, mining companies and agricultural producers seeking to unload, in the United States, war stocks and the products of excess production capacity by state-subsidized export campaigns.
Job Security of Paramount Importance
Faced with the huge problem of shifting approximately 30,000,000 of war workers and service men into avenues of profitable employment in the postwar period, the question of unemployment in the period of transition is of transcendent importance.
After all, the whole life of the worker is pervaded and molded by his job; by the physical condition under which he works; by the length of his working day; by the adequacy of his pay; by the extent to which he is protected against arbitrary discharge; and by the nature of the strains under which he works.
The harmful spiritual consequences of enforced unemployment are no less than its material deprivations. However keen and anxious we may be to help build up the economy of other nations and peoples, we must not attempt these efforts at the sacrifice and well-being of our people.
We are and have been living more or less under a protective philosophy. We have our trade unions and trade associations to look after our respective interests. We have our minimum wage laws, our child labor laws, our sanitation and compensation and security laws. We have their counterparts in other spheres of activity. We have our immigration laws, etc., all designed for protective purposes. It is therefore just and proper that we should protect our American standards of life and of work against destructive foreign competition.
There has been a tendency in the United States to discuss the advantages of freedom of trade and freedom of enterprise for farmer, worker and businessman in general terms, which almost completely ignore the manner in which freedom of enterprise has been abolished in many branches of American economic life, as well as abroad.
It would be unquestionably a great victory for American principles of free enterprise if the rest of the world consented to adopt a revised international gold standard, based upon American gold and American credit. Also, if the world agreed to discard state controls of domestic and foreign trade, and, to break up giant corporate groups and cartels that sprawl over the world markets. There is, however, no present prospect of the achievement of these laudable objectives. There is, therefore, every reason for this country to take intelligent and prompt measures to meet postwar realities.
It would be an invitation to disaster to permit foreign state-controlled industries to invade the American market with their war stocks and excess production capacity by means of state subsidies which could nullify superior American efficiency and destroy superior American living standards. European state-controlled trading systems of economy permit production cost and price to determine trade.
European systems of economy likewise permit the dumping of products in this market, whether or not their production costs are substantially higher than American costs. Under such circumstances the laudable academic theory of the international division of labor on the basis of production costs ceases to have relevance.
Other Trade Restraints and Barriers
In addition to the foregoing other considerations must be recognized in any serious discussion of postwar trade. Some of these considerations relate to—
(a) Lack of purchasing power on the part of the masses of the people of the world.
(b) Lack of price stability; instability of currencies, laws and regulations restricting the free flow of trade and currencies.
(c) Quota restrictions and prohibition of imports.
(d) Preferential tariffs.
(e) Government bartering; government monopoly of trade.
(f) Government control of vital raw materials.
(g) Subsidized shipping and state industries.
All of these are more or less trade barriers. They do have an effect on foreign trade and act as trade restraints.
Submerged and low living and working standards of people abroad do restrict and limit and as well tend to degrade the markets of the world. This condition may rightfully be considered the most vicious of all our trade restraints. If standards of living and of work were increased everywhere to our American standards the increase of the purchasing power of the masses in all lands would be tremendous.
Even were such an additional purchasing power in existence, international trade as well as the masses would benefit little unless stability of prices was assured. The possibility of securing an assurance of the stability of the money of the peoples of the several nations will be one of the important problems in our postwar world. Depreciation in the value of currency is therefore closely associated, as a trade barrier, to the lack of purchasing power on the part of so many of the nations of the world.
Placing quota limitations on either imports or exports constitutes other grave trade barriers. These preclude an equal opportunity to all producers.
Preferential tariffs, such as are in effect among the nations of the British Commonwealth, constitute effective trade barriers in that the countries comprising this group influence the trade of nearly 50 percent of the world's population, but, a lesser percentage of the world's purchasing power.
Government barter, or monopoly control of a nation's import and export commerce is another form of trade restraint in that such monopoly control precludes a free market in the purchase and sale of goods under such control. The same is true of government control of vital raw materials. This too constitutes an effective trade barrier and is a denial of a free and open market.
Government control and large investments of government funds in government directed shipping combines, indirectly constitute a barrier to free trade in that such shipping concerns and facilities lend themselves to favor the nation which controls or subsidizes those facilities or concerns. Shipping companies are often used to offset import restrictions in the form of tariff rates levied on competitive imports by such companies absorbing the import tax through lower freight charges.
In the field of patent laws, we find the laws of other governments, that is, of all commercially important governments, including the colonies, dominions and territorial possessions of such governments at variance with our own. In other lands a grant of patent is public property unite limited restrictions* Unless sufficient articles protected bysuch patent are produced within that country to meet the domestic consumptive demands, the government may issue a license to others who may wish to produce such articles.
Our patent laws permit of citizens of a foreign government obtaining a patent registration, thus securing a monopoly on the right of production as well as of sale of such patented article.
This trade barrier is further aggravated in that no article, so registered in the Patent Office, can be imported here, though produced abroad, without the written consent of the patent registrant. The patent holder alone can have these patented articles, protected by an American patent, produced in a foreign country and shipped into America. This same privilege is not accorded by other governments to Americans.
With reference to the requirement that trade within a country be confined to citizens of the (foreign) country, our Good Neighbor policy has not prevented some Central American countries, and possibly others, from putting into effect a most insidious trade barrier of denying non-citizens the right to engage in trade. This again constitutes an unfair and inequitable trade barrier.
These and other trade barriers have been adopted by individual nations undoubtedly for different reasons. It is fair to presume they were enacted and adopted in the attempt to protect and promote the interests of the nations concerned. But, of the trade barriers cited, the United States has resorted to but one. We do subsidize shipping engaged in foreign trade. However, these shipping companies are operated by private persons and corporations, and, are uninfluenced by government authorities in favoring American trade.
What is generally referred to as a trade barrier common to America as well as to every other commercial nation is the imposition of tariff duties on imports. Indeed, most foreign nations impose a tariff duty or customs duty, which in respect to the wholesale value of the article or commodity involved, when sold in the country which permits of importation, is higher than our own. Yet, our own nation is unjustly accused of being the chief and sole offender in this regard. At the same time no reference whatever is made to the many other and more destructive trade barriers practiced and enforced by other countries which I have called to your attention.
Declaration of the AFL on Trade Barriers
It is obvious that if we are to modify, alter or eliminate these trade barriers and encourage a greater flow of international trade concerted and voluntary action is required on the part of all commercial nations of the world.
In this regard I would direct your attention to the declaration adopted at the Postwar Conference of the American Federation of Labor last month, and which in part provides—
"We have demonstrated during this war that a free economy can produce goods in unimagined abundance. In the years of peace a sustained high level of production and employment is also possible if there is assurance of economic justice within nations and between nations. To accomplish this, it will be necessary to get rid of that kind of exploitation which tends to concentrate income in the hands of the few and prevents the great mass of workers from having the purchasing power to buy the things they need for daily life. It also will be necessary to lessen the barriers between nations so that there may be a larger interchange of goods and services for all. The basic test of freedom is the welfare of the common man. We hold that under freedom society can be so organized that everyone will have an opportunity to earnhis own livelihood."
The report further provides that—
"A certain number of international functional agencies will be necessary to ensure the consistent development of sound economic policies in a world which will be increasingly responsive to the advances in technology due to scientific discovery and invention. The frontiers of the world of labor are those of economic as well as political geography, and, the economic barriers to freedom of intercourse must not be permitted to block the pathway to prosperity. These problems by their very nature cannot be solved in any single set of laws or agreements because the conditions with which they deal are forever changing. It is, therefore, necessary to maintain and create the pertinent institutions for dealing with them."
In defining the institutions to deal with these subjects the report provides that—
"In the world of commerce and industry there should be agencies to deal with such problems as (1) the stabilization of foreign exchange, (2) communications and transport on land, sea and in the air, (3) the commercial policy including cartels, (4) fiscal policies and foreign investments, (5) access to natural resources and raw material, (6) to coordinate these activities there should be a United Nations Economic Organization with consultative and advisory functions.
"In each case there should be provision for objective studies of the facts which should be made available to the general public."
Instead of the foregoing it has been suggested that entering into trade treaties is the proper method to be followed for the attainment of the results indicated. Fundamentally, trade treaties, as at present negotiated and entered into, disregard constitutional requirements under guise of trade "agreements." Then, too, under the method adopted of negotiating "trade agreements," sole power to determine matters relating to foreign trade are delegated exclusively to the executive branch of government.
Quite aside from the fact that trade agreements entered into have been negotiated under methods which do not provide ample opportunity for consultation and consideration of the domestic interests involved, including labor, experience has demonstrated that to make these trade agreements or trade treaties effective, there must be some automatic enforcement provision.
A prime provision of all trade agreements or treaties is that the other contracting parties shall not grant to imports of other countries a lower tariff rate or similar concession than that accorded to imports of the United States. These provisions have not been adhered to in all instances. To the contrary, we understand that complaints in this regard reached such proportions that certain high officials in our Department of State were impelled and did prepare a strong protest against the failure on the part of several nations to fulfill the terms of the trade treaties entered into. However, the protests were never transmitted, nor were the complaints manifested ever properly adjusted.
In this discussion I have dealt largely in a general way with the many barriers to an enlarged intercourse of foreign trade, the least harmful of which is the levying of tariff rates on competitive imports. I have not attempted to deal
specifically with rates that govern under our Jaws and to the extent imports to this country are subject to tariff rates as compared to those on the free list. Neither have I attempted to set forth comparative rates enforced on imports by other countries.
American Valuation Justified
Suffice it to say that some two-thirds of the articles listed at this time in our tariff schedules are on the free list.
A discussion of the tariff rates themselves assumes increased importance when it is recognized that in the main our tariff duties are levied on foreign valuation, a system of valuation not alone unfair to American producers, but, equally discriminating as between competitive producers of our principal commercial nations. In fact, under our foreign valuation system, those nations are favored whose people suffer the greatest submerged standards of life and work. They are the greatest beneficiaries under our present system, particularly the Japanese and peoples of other low standard and semi-enslaved nations.
All engaged in the American chemical industry should be grateful for the foresight, the patience and energy of the late Frank Garvin, who, in 1920-22, realizing the unfair and discriminatory advantages which the German cartelized chemical industry had over its American competitors in the American market, prevailed on Congress to levy tariff rates on imports of chemical products on the value of competitive American products.
This system of levying duties on the American selling price, or American valuation, enabled the American chemical industry to be in a position to render to our nation and its allies the valiant, patriotic and all-important service so essential to our victory in this colossal and world-wide devastating war.
Trade in the postwar period we fear, will not be governed upon an individual and private basis, nor will it be governed by production costs or by prices, domestic or foreign. Instead it will be controlled by the political and economic objectives of each nation concerned with maintaining domestic employment. It is our further judgment that in time, when an expanded production capacity will again be realized by the leading industrial and commercial nations abroad, that the nations confronted with surpluses; and, for other considerations will be prepared for large scale export dumping wherever and whenever possible.
We should be prepared at all times and under all circumstances to protect our own market and our own people and be ready to meet whatever emergency may arise, So far as lies within our power and influence, let us aid other nations and peoples to attain higher standards of life and of work, and enlarge and enrich the markets of the world. In so doing, let us not be unmindful that the interests of America are of foremost consideration. But regardless of whatever policy or relationship is to govern, let it be formulated and arrived at in open concert, by a democratic procedure, and not by bureaucratic methods or means.