|May 17, 1962
By Morris K. Udall
THE TRADE EXPANSION ACT OF 1962:
"A BOLD NEW INSTRUMENT OF AMERICAN POLICY"
After World War I President Wilson tried to lead the United States into the League of Nations. He hoped for a world in which war could be avoided and in which nations could trade freely with each other. But this nation turned its back on the League and began to look inward, hiding in isolation behind a "protective" tariff.
Our tariff wall, to protect American producers against competition from "low-wage countries", started going up in 1922. It was completed in 1930, with passage of the Smoot-Hawley Act--which set our tariff at the highest level ever. Trade neared a standstill. Europeans, meanwhile, needed access to American markets as never before, to help pay off their war debts. Dismayed by our restrictions to trade, they retaliated with barriers against our products. As a result the depression deepened on both sides of the Atlantic.
To reverse this trend and bring
about economic recovery, President Roosevelt and Cordell Hull sought--and
gained--passage of the 1934 Trade Agreements Act. Since then our tariff
has been reduced gradually and trade with other nations has flourished.
In the decade since 1950, our sales abroad have doubled. Our purchases, meanwhile, have increased only 67 per cent. We are now the world's biggest trader. Price tags marked "Made in U.S.A." account for one in every six dollars' worth of goods in international trade.
Today, we have arrived at another milestone in our efforts to keep goods flowing freely. The 1934 Act, which has been extended 11 times, expires in June of this year. President Kennedy has asked, not for renewal, but for replacement of the 28-year-old law with a Trade Expansion Act of 1962.
I am inclined to favor the President's proposal. To give you some of the background on this issue and to indicate what a "bold new instrument of American trade policy" would accomplish, I have prepared this special report.
ARIZONA HAS A DIRECT STAKE IN OVERSEAS TRADE
Much has been said and printed about the President's arguments for trade policy overhaul at this time: The economic challenge of the Common Market and its Cold War potential, our balance of payments position, the special trade needs of Japan and the developing nations, and the need for improving our own economic growth rate.
More will be said about these points later on. Right now I would like to point out that, aside from these general foreign policy and economic concerns, Arizona has a direct stake in this nation's overseas trade.
The departments of Agriculture and
Labor estimate that 12,900 Arizona farm workers helped produce $74.2 million
worth of commodities for sale abroad in 1960. Of the total, the 2nd District
share came to $42. 3 million--including $30.6 million in cotton, $2.8 million
in livestock products, $2.3 million in wheat and $1 million in sorghum
In manufacturing, 12,635 Arizona
workers produced $29.3 million in goods for sale abroad in 1960. This means
THE PHILOSOPHY OF FREE ENTERPRISE AMONG NATIONS
Most people who take a position on the tariff and trade issue fall into one of two camps. In one are those who favor the removal, wherever possible, of barriers to trade; in the other are those who would prefer that most, if not all, Americans buy only goods made in America. Philosophically, I favor the former.
The free enterprise economy in which
we take such justifiable pride is based on the idea that individuals and
firms will specialize, producing whatever is best suited to the talents
and resources at hand. Free competition between nations is simply an extension
of this idea. Whenever nations refuse to "specialize" they must somehow
"subsidize", to bring the price of outsiders' wares up to the going price
on locally produced items. Any way you look at it, such price props are
a waste of human and natural resources. They do not stimulate industry
and ingenuity. Quite to the contrary, they reward and thereby perpetuate
I strongly believe in the energy and resources of the American people. I think we can compete with any country in
|the world. And, in the long run,
removal of barriers to trade will give us a higher standard of living--a
bigger variety of goods available at lower prices.
HERE'S WHAT THE PRESIDENT HAS REQUESTED
Presidential power to adjust tariffs is a potent bargaining lever. The United States is the world's most glittering market; an offer to lower our tariff walls can be used to tempt other nations to do likewise, opening up new markets and improving the competitive situation for Americans doing business abroad.
In the Trade Expansion Act of 1962,
the President is seeking two basic kinds of tariff-cutting authority for
use over the next five years:
Tariff cuts under the new act would not all come at once; they would be "staged" over a five-year period, making the cuts in five equal installments. The 1934 Trade Agreements Act initially allowed the President to halve tariffs. In the last extension of this act, in 1958, the President was authorized to cut tariffs only 20 per cent. Existing law also requires item-by-item negotiation, which is time-consuming and complicated. A one-hole widget, a three-hole widget, a nine-hole widget with chrome trim--under present law the offer to cut tariffs must be made individually on each of these (widgets are mythical items dear to the hearts of people who write about trade policy). The President is asking for authority to exchange tariff concessions across-the-board, cutting the tariff by a given amount on all widgets.
The President's proposal retains
the "most-favored-nation" principle, whereby tariff concessions negotiated
with the Common Market would be extended to our other Free World trading
partners. In addition, the new act would give the President power to eliminate
the few remaining tariffs on tropical farm and forestry items--which this
nation does not produce in any significant amount--if the Common Market
will do likewise. Both of these provisions are designed to preserve and
to expand trade ties between ourselves, the Common Market, Canada, Japan,
Latin America and other non-European nations.
Under present peril point
procedure, the President must submit to the Tariff Commission a list of
all items on which he plans to negotiate. Then this commission must determine
the point at which any further reduction of the tariff will result in serious
injury to an American producer. The President may not cut the tariff below
this point unless he explains his reasons for doing so to Congress. The
new act would, as in the past, provide for Tariff Commission review of
proposed concessions. However, the commission would not determine any specific
floor below which the tariff could not be cut.
The new act would authorize the President to provide for relief whenever the Tariff Commission finds that an entire industry is suffering idle plants, operating at a loss, or has laid off workers as a result of a tariff cut. However, the President has made it clear that escape clause relief would be a last resort, that federal "trade adjustment" assistance to firms and workers is much preferred.
Under the Trade Expansion Act, a firm hurt by a tariff cut could get these types of assistance: Tax benefits, loans and technical information to aid in modernizing and re-tooling for new products. Readjustment allowances, vocational education and relocation assistance would be available to workers made jobless because of increased imports.
Passage of the act and reduction of tariff barriers between our country and the Common Market nations should result in expanded business for many existing firms and the creation of many new firms. On the other side of the coin is the fact that some firms now protected by the tariff will be hurt. The Department of Commerce estimates that between 700 and 800 firms could be affected--in some degree--during the five-year life of the act, requiring about $15 million in technical aid and some $120 million in loans. About 18,000 workers a year might be eligible for assistance, at a total cost over five years of $50 million.
EUROPE'S COMMON MARKET: OPPORTUNITY AND PERIL
The Common Market opened for business with little fanfare on January 1, 1958, when six nations--West Germany, France, Italy, Belgium, Holland and Luxemburg--agreed to mesh their economies. It has flourished and expanded since then, and in this growth are both opportunities for the West and elements of peril. Here is the shape of the challenge:
Britain, which had formed a rival
European Trade Association "outer seven, " applied for membership in the
Common Market in mid-1961. Denmark applied at the same time, and the rest
of the "outer seven"-- Switzerland, Austria, Portugal, Norway and Sweden-
-are expected to follow suit. Greece has already become an associate member,
and Turkey is attempting to do likewise.
|I am convinced that the success
of the Common Market has been one of the greatest disappointments the Communists
have suffered in post-war years. The Kremlin's plan for world domination
called for the capitalist economies of Europe to stagnate and, eventually,
to collapse. That they have done just the opposite is due in part to such
farsighted American policies as the Marshall Plan.
But while economic integration represents new sources of strength for the Atlantic Alliance, the keystone of our Cold War strategy, the Common Market also has within it a potential for divisive economic rivalry. The heart of the matter lies in the fact that, while tearing down tariff walls against goods exchanged among themselves, Europeans are preserving barriers against the goods of outsiders, including ourselves.
If the Europeans should be unable
to resist the temptation to build ever higher tariff walls, we and our
other Free World trading partners would be locked out. This potential for
the creation of rival trading blocs appears just as the need for economic
unity seems greatest. In 1954 the Communists launched a trade offensive
against the West and the developing nations; their capacity to conduct
economic warfare on a global scale has been increasing ever since.
Before the Europeans began meshing their economies, an American and a German tire manufacturer faced the same tariff in France. After integration, the German, a Common Market "insider", will pay nothing; the American will face a tariff of $2 or more per tire. Such price discrimination could cost American producers as much as $800 million annually, with sales of machinery, electrical equipment, finished chemicals, wheat and animal fats hardest hit. Corn and feed grains, tobacco, oil and wool sales would be affected to a lesser extent.
At present, one-third of our total overseas trade is directed toward West Europe. Sales in the area have increased steadily, from $2.5 billion in 1953 to a whopping $5.7 billion in 1960. Most experts agree that our sales are likely to continue to increase--if the Europeans can be prevailed upon to keep their common external tariff wall low.
TRADE HELPS OFFSET THE COST OF WORLD LEADERSHIP
Considering this nation's role as the world's biggest trader, it should come as no surprise that our overseas sales and purchases affect every part of our domestic economy. It is perhaps less well known, however, that the dollar value of our sales abroad also is directly related to our responsibilities as leader of the Free World.
The goods our producers sold abroad in 1960 provided work for 3.1 million Americans. Our farmers in the same year earned $5 billion, or 14 per cent of their total cash income, through sales in overseas markets. Put another way, this represents the crop off one of every six acres harvested.
Imports also provide jobs. Goods from abroad must be moved about and, in some cases, packaged here. Furthermore, a number of imports are vital to our national security. Today, well over half the goods we buy overseas do not compete with goods produced here; most of these non-competitive imports are scarce raw materials needed to support our industries. By way of illustration, 90 per cent of the chrome ore needed for our steel mills and 84 per cent of the bauxite needed for our aluminum manufacturers must be imported.
If we stopped trading abroad, the
shortage or price rise on certain goods and raw materials would make these
items too costly for any but the extremely wealthy: coffee, cocoa, spices,
anything in tin cans, aluminum kitchenware, new radios, television sets,
telephones, washing machines and automobiles.
We now sell far more than we buy abroad. But, despite this favorable trade balance, we are continuing to spend more dollars overseas--to pay for import of raw materials and other goods, in investments, to maintain troops and in foreign assistance--than we have been able to get other nations to spend here. In 1957, we sent $3.7 billion more abroad than we got back. The payments deficit reached $3.9 billion in 1960, before improving somewhat last year.
The net effect of such deficits is to create a drain on our gold supply. If this were to continue, it could undermine world confidence in the dollar. President Eisenhower urged measures to boost sales of American goods as a means of closing the payments gap. President Kennedy has held out the choice of either improving the balance further by increasing exports or of retreating from some of our defense and assistance commitments abroad.
WE MUST CONSIDER OTHER NATIONS' MARKET NEEDS
Among America's responsibilities
as leader of the Free World are the special trading needs of Japan and
the developing nations, which are particularly vulnerable to Communist
economic imperialism. Japan is a vital ally. If Japan cannot find markets,
this key democratic nation may turn away from the West.
Common Market members' concessions to their former colonies in Africa have also accentuated economic problems in other developing nations. For instance, among Latin America's chief exports are coffee, bananas and other tropical fruits. The Africans, whose products are on the Common Market "free list", produce similar commodities
|for export. Because Western Europe
has maintained high tariffs on coffee and bananas, among other items, the
concessions to the Africans put Latin producers at a severe price disadvantage.
While their resources are limited, the Communist bloc nations have indicated that they also understand the economic facts of life, along with the advantages of beating the West at helping newly independent nations. Soviet bloc trade with non-Communist nations in the less-developed areas tripled between 1954 and 1960, rising from about $870 million to some $3 billion. Soviet leaders, meanwhile, have made it quite clear that they value this trade "least for economic reasons and most for political purposes."
Provisions of the Trade Expansion Act have been written with these problems in mind. I am sure that the President's new authority under the act would be used not only to strengthen trade ties between Japan and the West but those between the industrialized and the developing nations as well.
THE OUTLOOK IS FOR TRADE BILL APPROVAL
At present, the President's trade
bill is being put in final form by the House Ways and Means Committee.
Its work is expected to be completed by June 1. What action Congress eventually
will take, of course, remains to be seen, but legislative soothsayers believe
that the President will get substantially what he has asked.
We do not have to join the Common Market. Indeed, we have neither been asked to do so nor are we likely to. But European economic unity is putting new muscle behind NATO. We must continue to encourage this development. At the same time, the booming Common Market nations today are a big and growing market, a continental showroom that must be kept open to American goods. The President must be in a postion to do some hard bargaining on the tariff, if we are to meet the economic challenge of the "new" Europe and to reap the Cold War benefits it promises.
A number of questions remain, however,
particularly with respect to how much authority the President needs at
Finally, we must remember that other nations' tariff schedules are only one among many barriers to the sale of American goods abroad. Our agricultural products, bound for Common Market nations and elsewhere, are especially vulnerable to non-tariff trade restrictions, including import quota systems, state trading monopoly regulations and various special import fees.
In my opinion, it should be clearly understood that a 1962 Trade Expansion Act would not in itself solve all of the complex problems of international trade. A new law would be a tool in the hands of the President. Like other tools, its utility will be determined by how skillfully it is employed. One of the basic aims of trade policy revision is to expand sales of our goods abroad--which will require continuing pressure for removal of all barriers raised against American products in overseas markets.
Once before we retired in isolation behind high tariff walls. Outside, Hitler and Mussolini were promising to end the depression with one blow of their mailed fists. A frustrated Japan began offering its wares on the tip of a bayonet. The catastrophe of World War II was upon us before we were either willing or able to cope with it. I hope this kind of history will not be repeated.
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