The Mirage of Expanding Exports
WORLD WILL DISTRUST AN ECONOMIC COLOSSUS AS QUICKLY AS A MILITARY ONE
By ARTHUR BESSE, President, National Association of Wool Manufacturers, New York, N. Y.
Delivered before the Sales Executives Club of New York, April 10, 1945
Vital Speeches of the Day, Vol. XI, pp. 501-503.
GOVERNMENT experts, college professors, and foreign trade advocates are holding out the promise of a ten billion dollar export trade after the war. The State Department, not content with making predictions, is engaged in an elaborate and extensive publicity campaign to make us enthusiastic over the prospect. For you and for others who are interested in an expansion of sales volume, there is dangled the alluring picture of a new and larger foreign market. To those not interested directly in export trade, there is the promise of 60,000,000 jobs supported and made possible by this flood of exports. It sounds alluring. Certainly the matter should be looked into.
How big is ten billion dollars of export? It is about twice the total of our exports in any non-war year ($5,241,000,000 in 1929) and about three times the average of the years immediately preceding this war. It can be compared with 1944 exports of around 14 billion, although present exports are somewhat over-valued in terms of the pre-war dollar and for the most part are being given away. Technically, of course, most of our current exports are being shipped under Lend-Lease agreements; nobody expects that more than a small fraction will ever be paid for. These exports consist largely of war materials and we realize fully that most of our allies can not pay for them. But after the war we will not continue to send our goods abroad unless we do receive payment. And there's where the trouble comes—how are we to be paid for these ten billions of exports?
It may be helpful at this point to contrast our situation with that of a country like England. England, or any nation which is not largely self-sustaining, has a constant problem in trying to pay for its imports. On the other hand, the United States has a constant problem in getting paid for its exports. England is in the position of having to find exports to pay for the things she needs to import; the United States has a problem in finding goods it is willing to import in order to pay for the quantity of goods its merchants wish to sell abroad. This fundamental difference between our position and that of most other trading nations is something which is often forgotten in arguments over foreign trade.
Now let us return to the problem of payment How were we paid for our exports in the pre-war period? Principally in three ways:
1. By imports of merchandise
2. By imports of gold
3. By the return of foreign credits arising from United States payments for (a) Freight charges for goods shipped in foreign vessels, (b) Foreign travel (c) Dividends and interest on American securities owned abroad and (d) gifts sent abroad to relatives or friends.
When these sources of payments proved inadequate to pay for the goods other nations bought from us during the past decade, foreign holders of our securities sold some of the securities back to us, or borrowed funds here—and then defaulted on their loans. They had to default since they had nothing to pay us with—or at least nothing which we wanted.
Looking toward post-war trade, we have- a proposed bank for international settlements and a stabilization fund—known collectively as the Bretton Woods proposals> Under the plans as outlined, nations whose foreign trade is in a condition of unbalance would be able to obtain credits- to correct this unbalance, thus preventing wide fluctuations in currency ratios and a breakdown of foreign exchange. But all this is based on the assumption that the unbalance is temporary. If a country cannot eventually achieve a balance in international trade, the system breaks down and the credits extended will merely have postponed the evil day. In the long run we can look only to the three sources which I have mentioned for payment for our exports. Let us see to what extent any or all of them may be expanded in the years immediately ahead. We will start at the bottom of the list with the smaller items and work up to those of greater importance.
Gifts to foreign countries or to their nationals will increase substantially in the post-war period since to the remittances of individuals to relatives and friends will be added Government gifts for relief and rehabilitation. These Government gifts will probably reach a peak shortly after the end of the European war, declining after a few years. The amount will be substantial but definitely limited; it should be considered as a charitable contribution rather than an item of trade which can be figured on to help balance international trading accounts.
Dividends and Interest paid to foreign holders of American securities will be much smaller than before the war. Very substantial quantities of these securities have been repatriated since the beginning of the war.
Foreign travel will undoubtedly expand. Many parts of Europe may perhaps never recover their former beauty and interest, but we are a nation: of travellers and if we do not go to the same places our tourists used to visit, we will go somewhere else.
However, payments to foreign shipping companies for transportation of passengers and freight will be much smaller after the war. Our own merchant marine far surpasses the tonnage in the hands of all other maritime nations, and it is probable that our superiority in shipping tonnage will be maintained. A much higher percentage of American travellers and of our exports and imports will be carried by American ships than ever before.
It is reasonably certain that shipping charges and payment of dividends and! interest to foreigners will decrease, while expenditures for travel and for private gifts will increase. The net result may well be that: tie total of these items will not vary greatly from the pre-war period. Government expenditures for relief will, as already pointed out, be important for a few years, but must be regarded as charity and not as a part of international commerce. We must look elsewhere for increased means of permitting foreign countries to pay for our expanded exports..
The next possibility is the shipment of gold to this country. Many foreign countries, especially Russia and South Africa, have a considerable amount of gold which can still be mined. But what good is gold to the United States? We accepted so much of it since World War I that we forced other nations off the gold standard and belatedly discovered that it was of no value to us. Its real value is to stabilize foreign exchange and to provide a sort of international currency. Obviously, it can not continue to do this when most of it has been acquired by a single country. There does not seem to be any point in sending our goods abroad in return for more gold which, for want of anything better to do with it, is buried in the ground.
We could, for a time, finance increased exports by making loans to foreign countries, but this postpones rather than solves the problem. Eventually some way has to be found of repaying both the principal and interest.
The only way in which largely increased exports can be paid for is for us to accept payment in goods. This is a generally accepted fact today, but when most people make that statement they appear to believe they have solved the whole problem. We are to take our pay in imports;—what could be simpler? Were England in that position, she would have no problem, since there are many things she wants and needs. But if we are to be paid by imports, we have to decide what we want to import. What are the things we lack?
Two-thirds of our imports come in duty-free. We have, except during the war, imported all of these we have been able to use and there is no barrier to increasing the volume if we wish more. The real increase in imports, therefore, is expected to consist largely of things which are now on the dutiable list. In the main these are items which we produce in this country and which are protected by a tariff against competition from other nations with lower labor costs. But there are reasons—usually intelligent ones—why we decided that we wanted to produce these particular items ourselves.
We could not have equipped an army or navy if we had abandoned our textile industries, our optical companies, our chemical plants and many others,—all nurtured and protected by the tariff. These are typical of the products which it is now proposed we import in order to finance an enlarged export trade. There is a liberal sound to the statement that our tariffs are too high and that we should reduce them in the interests of international cooperation. But the purpose of a reduction in the tariff is to increase our imports and to take from our producers of woolens, chemicals, optical instruments, shoes, and many other products a larger part of the American market. You do not buy an extra pair of shoes because they come from Czechoslovakia instead of from Haverhill; you will not equip yourself with an additional pair of glasses because they come from Germany instead of from Southbridge or Rochester; you do not buy more clothing because the cloth comes from Huddersfield instead of from Passaic, nor do you carry a second knife because it was made in Sheffield rather than in St. Louis. You may perhaps prefer one of these products instead of another, but you do not consume more of them because of a change in origin. If you buy a pair of shoes made abroad, you buy one less pair of American shoes than you would otherwise purchase. The proposed increase in imports would be at the expense of a segment of American industry. Our total imports can be increased but that does not of itself increase our total consumption of goods.
Let's face the issue squarely. The problem is this—What products do we want from foreign countries that we were not getting in the pre-war decade? Actually, we are less dependent upon imports than we were before the war. Natural rubber and silk are two examples of things for which we now have substitutes. But unless we can find something we really want, we will be in the position of a man who has a Christmas gift certificate good in a store that has nothing in stock he wants. For many decades this country has been buying abroad substantially everything it needed, How can we buy more than we need, or if we do buy an excess, what will we do with it?
A reduction in tariff rates is of no value as a mere gesture of international good will; it is of importance only if it results in an actual increase in imports. And such an increasein imports means a decrease in employment in the United States itself unless our own workers are unable to supply the demand—which, of course, is not the case.
Many of those who are ardently advocating a sizable increase in exports argue that this country has such a huge productive capacity that it cannot consume all of its own products and must send some abroad. They seem not to have realized that in the course of trade, we will receive goods in return for these exports and these goods which we accept in exchange must somehow be consumed in this country. Since these advocates of increased exports started out by saying that we had more goods -than we could consume, this exchange of one kind of a surplus for another kind of a surplus presents them with a difficult problem in logic and an impossible problem in economics.
The problem in this country is not production, but consumption. If we want to produce more, we must find some way to increase consumption. If we are to dispose of a surplus, we have to devise ways of using more goods; sending the surplus abroad and exchanging it for something which also represents a surplus above our requirements is not the answer.
Individual exporters will try to increase their sales abroad—that .is only natural. But, if the pressure for increased exports is allowed to continue unchecked, our exporting manufacturers will do well to guard against the possibility that sooner or later foreign credits cannot be transferred to this country. If our imports run around lour billions (in terms of the pre-war dollar) and our exports perhaps five billions, the balance being accounted for by foreign travel and the other so-called invisible items I have previously mentioned, we can maintain a trade balance almost indefinitely. But we cannot keep pushing export figures higher. If we do, we will go down the old road once again—struggling to maintain our sales abroad we will accept gold, bonds, I. O. U.'s and all kinds of obligations only to find that we end by giving our exports away because we forgot that the real purpose of foreign trade was to exchange our own goods for something which we did not already have.
If there is nothing more we need—or perhaps I should say, if there is nothing more we are able to consume—we can increase our exports only if we want to give them away. If we are to give them away, we will fare better if we realize what we are doing at the time rather (than waiting until the .foreign bonds are sold to our own hopeful and trusting investors.
There Is another danger in attempting to increase our exports to which export sales managers should give attention. That is the degree and extent of competition which will be met in the foreign markets. Listening to the arguments of State Department officials and of the Foreign Trade Council and others, one would gather that the world was eager for whatever kind of goods we wanted to export and that the markets of the world would look solely to us for their needs. On the contrary, many other nations are planning campaigns to sell abroad the very things which we visualize ourselves as manufacturing or producing in excess of our own needs. The touchiness of English business men over the fact that our trade ambassadors were permitted in Prance before theirs were an evidence that we are going to find competition in practically all foreign markets. We are going to run head on into competition with Great Britain the moment the war is over, and with many other countries as soon as they can stage a reasonable degree of economic recovery.
It is almost impossible to think of a single product which we want to export which one or more other countries are not planning to export in competition with us. English and Russian factories and many plants in Germany and in the countries lately under German domination have been engaged "in the production of military ordnance. These plants are equipped to produce electrical equipment, automobiles, trucks, farm machinery, planes, railway equipment, business machines and many kinds of capital goods. Those who control these enterprises will not stand by and let the United States grab all the world markets without a struggle.
If we export grain, we find ourselves competing with Canada, Australia and other countries; on raw cotton we compete with Brazil; on cotton fabrics with Great Britain, India and Japan, and so on through a long list of products. We compete for ocean freight with Great Britain, Norway, France, Sweden, Italy and others.
This competition is important not only because it will affect the volume of our exports but because it may lead to friction and difficulties with serious political consequences. And of course we may expect competition in the country to which we send our products from the producers of that country itself. In a study of the post-war plans of the Allied Nations, Mr. Lorwin said that "most, if not all, (post-war) plans state explicitly or imply that full employment and higher living standards depend to a large extent on the capacity of the respective countries to reserve as mack of the home market as possible for domestic industries" We cannot, of course, expect to develop an enlarged export business if foreign countries seek to reserve an increasing percentage of their home markets for their own producers, nor can we very well quarrel with other countries for so doing.
Undue stimulation of our export trade is certain to lead us into serious conflict both with the merchants of the countries to which we export and those of other countries who want to export to those same markets.
This, then, is the dilemma with which we are faced. In trying to stimulate exports, we generate competition with foreign countries which, instead of promoting peace as Mr. Hull has maintained, will lead to arguments and international ill will. And, when we try to get paid for our exports, we find our exporting industries are competing with industries here which are protected by the tariff. These industries are protected by tariffs because of competition from low wage foreign countries. They cannot see why their American market should be handed over to the foreign producer for the benefit of those of out industries who may wish to increase their export volume. Competition may be the life of trade, but it does present certain difficulties.
I do not advocate economic isolation nor anything approaching it. For the last two decades this country, with 6% to 7% of the world's population, has accounted for more than 14% of the total of the world's foreign trade. We always have and always will carry on a large foreign trade. But the fact is that this country does not need an expanded foreign trade; many other countries do. Perhaps our best contribution to international peace and cooperation would be made by a policy of being satisfied with a modest share of the world's trade,-a normal trade which will meet our actual needs. We should not try to grab it all. The world will distrust an economic colossus or an economic tyrant as quickly as it will distrust a military one.
Many of you are definitely interested in foreign markets. You will find a ready market abroad immediately following the end of hostilities, but it is important to understand that as time goes on, competition from other countries will increase tremendously. If we are realistic we will also appreciate that we are bound to encounter more and more difficulty in getting paid for our exports. I think we should settle for five billions and not attempt to double the ante.