THE spectacular expansion of German trade in Latin America and southeastern Europe since 1933 has caused a rather general reëxamination of our own trade policy. What does the German "threat" mean to the export and import trade of the United States? What action, if any, should we take?

In the trade of southeastern Europe the United States is not greatly concerned. Our imports from Hungary, Rumania, Jugoslavia, Bulgaria, Albania, Greece and Turkey include no items of critical importance; taken together they make up less than two percent of our total import trade. It may be that our active and increasing trade with what was Austria and with Czechoslovakia will shrink as a result of German annexations. But that milk is spilled, unless perchance we succeed in establishing better trade relations with Greater Germany. This possibility is discussed later. But when Germany with her new barter deals and compensation agreements makes sudden inroads into the Latin American market, that is a horse of another color. Our trade interests are much larger in that area. Besides, the traditional interpretation given to the Monroe Doctrine makes it difficult to divorce economic from political considerations.

In considering Latin American trade, we must be on our guard against what Röpke has called "geographical romanticism." We must not confuse square miles with purchasing power. The area occupied by the twenty republics is indeed enormous; Brazil alone is ten percent larger than the continental United States. But the populations of our neighbors to the south are small, they are dispersed and, in the mass, they are poor. The entire import trade of Latin America in 1936 had a value less than that of France, while Latin American exports were only slightly larger than the exports from the Greater Reich. Nevertheless, it should be recognized that Latin America ranks far ahead of southeastern Europe, both as a market for finished products and as a source of foodstuffs and raw materials. The imports of Argentina alone in 1936 were valued at three times the imports of Hungary, four times those of Rumania and five times those of Turkey.

More significant for the present discussion, Latin America in 1935 purchased over one-half of our exports of cotton goods and steel mill products; one-third of our exports of leather goods, silk goods, advanced manufactures of iron and steel, electrical and industrial machinery, manufactures of rubber and paper; and over a fifth of our exports of automobiles, their parts and equipment.[i] Taking all shipments together, we send each year to Latin America between 15 and 20 percent of our exports, and in return purchase from that region 25 to 30 percent of all our imports. Under these circumstances, sensational reports of German success in winning markets in our "sister republics" and in extending over them a species of economic domination naturally arouse our apprehension.

The trade figures, as usually presented, are startling.[ii] For example in 1933, Germany supplied only 12 percent of all the foreign goods brought into Brazil, while in 1937 the percentage was 24. In Chile the German gain in the same period was from 11.4 to 26 percent; in Peru from 10.3 to 19.7 percent. But a closer view of the statistics as shown in the following table reveals that the German gains were unevenly distributed:

(Percentages of total imports)
1913 1929 1933 1937
Argentina 16.9 11.5 10.0 10.3
Brazil 17.5 12.7 12.0 23.9
Chile 24.6 15.5 11.4 26.0
Colombia 14.1 14.4 17.8 13.4
Guatemala 20.3 14.2 12.3 32.4
Mexico 13.1 8.0 12.3 15.6
Peru 17.3 10.0 10.3 19.7
Uruguay 15.5 10.2 8.6 11.1
Venezuela 14.4 9.2 11.4 13.6

In the Argentine, Latin America's largest market, German aggressiveness seems to have produced no trade diversion. Note also that in several important markets, such as those of Chile and Mexico, the extraordinary efforts put forth by Germany since 1934 succeeded in bettering her prewar position only slightly. In the markets of Argentina, Colombia and Uruguay, Germany had not in 1937 been able to recover the share of trade enjoyed before the war.

It is true that the dependence of the export industries of certain Latin American countries (Brazil, Colombia and Peru) on German markets has greatly increased since 1933. But Argentina, the greatest exporter of all, was less dependent on Germany in 1937 than in 1933, 1929 or in 1913. The following table gives the details:

(Percentages of total exports)
1913 1929 1933 1937
Argentina 12.0 10.0 7.7 6.8
Brazil 14.0 8.8 8.2 17.1
Chile 21.5 11.0 6.9 9.5
Colombia 9.4 2.1 5.0 12.6
Guatemala 53.0 39.8 35.5 17.4
Mexico 5.5 7.6 9.6 9.4
Peru 6.7 6.1 7.7 13.7
Uruguay 19.5 14.9 14.8 13.2
Venezuela 18.9 4.7 1.4 2.4

What, meanwhile, has been happening to the trade of these countries with the United States? Have the German gains been made at our expense? Instances can be cited aplenty in which certain American firms have lost business to German firms, but these losses seem to have been compensated, or more than compensated, by the gains of other American firms in the same or in other lines. Complaints have been numerous that in the allocation of exchange certain countries have discriminated against the United States. But handicaps such as these must in some fashion or other have been overcome, for painstaking analysis both of our own commercial statistics and those of leading Latin American republics fails to show any general deterioration since 1933 in our competitive position.

Latin American trade is particularly responsive to the fluctuations in the business cycle. In years of prosperity, when the prices of Argentine wheat and flaxseed, Brazilian coffee, Uruguayan hides and meat are high and foreign sales are expanding, the proceeds are spent lavishly on American automobiles, refrigerators, radios, etc. Sales of American luxury goods of this type expand more rapidly than sales of cheaper German and Japanese goods. As a result, American exports to Latin American countries rise in periods of prosperity, not only in absolute values, but in proportion to exports from competing countries. But when hard times come, as from 1929 to 1934, and there is a general decline in trade, American trade suffers more than proportionately.

The following table shows what our sales to Latin America and our imports from that region have been during the period of intensified German competition:

(In millions of dollars)
Exports Imports
1933 240 329
1934 340 390
1935 376 483
1936 429 529
1937 640 705

The present year, judged by eight months' figures, will show declines on both the export and import sides. Exports in the January-August period of 1937 were $404,000,000, in comparison with $377,000,000 during the same period of 1938. Imports in that period of 1937 were $539,000,000, against $334,000,000 in 1938.

Are the Germans responsible? On the import side the answer is "no." Our 1938 imports from all countries are still showing the results of the 1937 business recession. Imports from Latin America have been affected, but not more than total imports. On the export side, the answer is not so simple. Here German aggression supplies a partial (not a complete) explanation.

Aggregates are impressive, but not always instructive. We can get closer to the truth by examining the trade statistics country by country. For this purpose we shall again select the nine leading countries, excluding Cuba and the colonies of European nations. Germany's exports to these nine countries in the first seven months of 1938 (according to German statistics) were Rm. 348,700,000, a gain of Rm. 39,000,000, or 12.5 percent over the same months in 1937. Our exports, on the other hand, fell from $265,000,000 to $241,000,000, a loss of 9 percent. This looks bad. But almost the entire American loss was concentrated in our trade with one country, Mexico. The decline in American exports to that country from $73,900,000 in January-August 1937 to $42,000,000 in the same months of the current year is to be ascribed, moreover, not to the success of the German policy, but to increased Mexican tariffs, the devaluation of the peso, and disturbances following the expropriation of American oil companies.[iii]

Trade statistics of eight Latin American countries for the first six months of the current year, presented below in Table IV, give a somewhat different view of the situation. The comparison of 1938 with 1937 shows no startling changes. Germany, according to these figures, considerably improved her relative position in the markets of Mexico, Colombia and Uruguay. The United States improved its position in Argentina, Brazil, Chile and Peru.

1933 1937 1937 1938
  United States 12.7 16.4 16.3 19.2
  Germany 10.8 10.3 10.9 10.1
  United Kingdom 21.4 18.9 19.9 18.8
  United States 21.0 23.1 21.9 24.6
  Germany 12.1 23.9 24.0 24.1
  United Kingdom 19.4 12.1 12.3 8.6
  United States 22.5 29.1 28.1 29.5
  Germany 11.4 26.0 25.8 24.2
  United Kingdom 12.2 10.9 11.1 11.3
  United States 36.8 48.4 49.1 47.2
  Germany 17.8 13.4 12.6 18.0
  United Kingdom 21.8 18.9 18.3 13.3
  United States 51.0 45.3 46.4 45.8
  Germany 12.5 32.4 30.6 33.6
  United Kingdom 13.1 8.3 7.9 6.8
  United States 59.9 62.8 66.4 58.5
  Germany 12.0 15.6 14.9 19.9
  United Kingdom 8.9 4.6 4.5 5.2
  United States 27.4 35.4 34.0 36.2
  Germany 9.6 19.7 19.2 20.1
  United Kingdom 18.0 10.3 11.6 9.3
  United States 9.2 13.6 13.1 12.8
  Germany 9.0 11.1 10.8 15.6
  United Kingdom 20.0 16.8 15.4 21.5

Taking the most recent figures in conjunction with those of 1933 and 1937, we may draw the following conclusions:

(1)~ The United States has suffered no serious reversals except in Mexico.

(2)~ American goods continue to dominate the markets of Mexico, Colombia, Guatemala and Peru.

(3)~ American exporters are giving the English a stiff run for their money in Argentina.

(4)~ Germany is challenging American trade in Brazil, Chile and Uruguay.

(5)~ The German gains in practically all cases have been made at the expense of the United Kingdom, or some other country, rather than at the expense of the United States.

The Latin American region is an important source of raw materials and foodstuffs -- wheat, coffee, sugar, oil, copper, silver, lead, hides, flaxseed, cotton and many others. In general, the best market for Latin American exports is still found in the United States, although German policy has diverted some of the trade to her markets. In some cases there were corresponding losses in the proportion of the trade going to the United States, but in no instance is there indication that a German trade monopoly may deprive us of essential raw materials or foodstuffs.

But why, the reader will inquire, is there so much excitement if there is really no German threat to American trade? Where there is so much smoke, must there not be some fire? Some fire there is, but not a conflagration. The causes of the exaggerated fear aroused by German trade policies seem to be (1) the bewildering variety of methods used; (2) the ruthlessness with which they have been applied; and (3) the fear that Germany's trade expansion in southeastern Europe and in Latin America is only part of a plan for the political domination of those regions. The last of these considerations lies outside the scope of this essay. Fears on this score may or may not be justified; recent events in Europe give ammunition for those who hold the affirmative view.

Foreign critics have flattered the Germans by discovering in their trade policy, with its use of export subsidies, blocked marks, barter deals and clearing agreements, evidences of an integrated, long-range plan. A closer reading of history,[iv] however, reveals evidence of lack of plan, of a clever opportunism which with ready ingenuity has made the best of situations forced upon the Germans by pressure of outside events, particularly the policies adopted by Germany's creditors. The system of bilateral trade balancing through clearing agreements, one of the most effective features of German policy, was not originated by Germany, but by her creditors. Since Germany exported more to certain of these creditor countries than she bought from them, they were able to capture the surplus of payments due Germany through the device of the clearing agreement. But the creditor countries soon found a flaw in this method of debt collection. Germany's exports to them decreased, and their surplus of imports over exports tended to disappear. Thus the clearing agreements help to explain the diversion of German trade from western Europe to southeastern Europe and Latin America.

The anxiety of German creditors to realize, even at a considerable loss, on their blocked mark accounts was ingeniously exploited by Dr. Schacht and his successors to subsidize German exports. The principle of the scheme, the details of which soon developed with bewildering intricacy, was that mark credits held in Germany for the account of certain foreigners might be sold by them to other foreigners wishing to buy German goods. As The Economist of London wrote on November 5, 1938, in the article already cited:

Permission was given to spend the various types of blocked marks on the purchase and export of certain types of goods which in the ordinary course could not have been marketable abroad. In effect, for export purposes -- but for export only -- the mark was depreciated to a fraction of its official value. Germany got the advantage of a low-value currency for her exports and of a high-value currency for her imports, at the expense of the foreign owners of blocked marks. The range of goods which were allowed to be exported by such means has, however, tended to become narrower and narrower. At present the use of blocked marks in payment for German exports has almost completely ceased, although a large part of German trade with Latin America is paid for with the so-called Aski marks or compensation marks. These are not blocked marks proper; they are received by Latin-American exporters in payment for goods sold to Germany, and can be used in payment for German goods imported into the same country. Since Aski marks are always quoted at big discount, this method amounts to one more of the many disguised forms of currency depreciation.

German trade policy is usually described as autarchic; the objective is said to be economic self-sufficiency. If this were literally true, if the Germans could reach a situation where they would need no imports from the outside world, then the German trade menace would have disappeared. For not even the Germans would be able to export without importing. Even granting their recent progress in producing (at high costs) synthetic rubber, wool and petroleum, their ability to export industrial products must still depend for generations to come upon the import of raw materials. The fact is that Germany has not succeeded in establishing a closed economy. Her imports have not disappeared. Under the Hitler régime they have averaged about 4.5 billion reichsmarks per year, and the tendency is rather upward than downward. The 1937 imports were 5,468 million reichsmarks, a larger figure than in any year since 1931.

Imports have changed in character in accordance with the policy of restricting purchases of foreign goods to essential raw materials and foodstuffs. But these purchases are still substantial and Germany is still vitally dependent on the outside world despite the much-publicized campaign for "autarchy." As late as July of this year, the German Institute for Business Research estimated that out of total raw material consumption of between 8.4 and 8.5 billion reichsmarks, fully 35 percent was imported. The addition of Austria and parts of Czechoslovakia will help only in part to solve Germany's raw material problem. From Austria comes iron ore, wood pulp, timber and oil, magnesite and lead. But even if exploited to the limit and monopolized, these resources would not make the Greater Reich self-sufficient. On the other hand, the Anschluss will aggravate the problem of attaining self-sufficiency in foodstuffs, for Austria was even less able to feed itself than was the old Reich. Even if Germany were able to extend her economic hegemony over southeastern Europe, she would still lack sufficient supplies of copper, lead, tin, manganese, hides and skins, wool and vegetable oils.

Economic self-sufficiency cannot be accepted, therefore, in any real sense as the goal of German policy. Dire necessity, the necessity of protecting the national banking and credit structure, forced Bruening to initiate his policy of restricting imports. Restriction, like the subsequent measures of business regimentation, had unpleasant results. Food became scarce, substitutes appeared, consumers were rationed, business men lost profits. In this situation, those in authority made a virtue of necessity. Clothing its horrid skeleton in the garments of economic mysticism, they called it Autarchy and enthroned it in the temple of Nazi ideology.

The political objectives connected with Nazi trade policy, whatever they may be, form a subject outside the scope of this paper. On the economic side, the fundamental aim is probably little different from that of British, French or American policy, viz. to restore and safeguard national prosperity. It is the means which are radically different. In this country, and in England and France, foreign trade is far from free; it is encumbered and impeded by tariffs, quotas and the like; but it is still predominantly a matter of private enterprise. In Germany, foreign trade as well as domestic business is so thoroughly regimented as to constitute for all practical purposes a phase of government activity. The threatening aspects of German trade policy are very largely the result of the fear that the economic objectives will be smothered, and that trade control will be utilized for a political end which may endanger the peace of the whole world.

Under these circumstances, what should America do? Three courses are open: (1) to scrap the Hull policy and, imitating German methods, to try to assure ourselves a market in that foreign area in which our political prestige is greatest, that is to say in Latin America; (2) to sit tight and hope that the German threat will disappear; or (3) to pursue our present policy more vigorously, more courageously.

The American trade agreements program, it is true, has lacked the spectacular features, the kaleidoscopic variety, in which German policy abounds. The twenty agreements [v] concluded in the past four years have not given us a monopoly of any foreign markets, nor exclusive control over any foreign sources of raw materials. The deliberate procedure and the delays inherent in tariff bargaining and the cautious approach to major tariff problems have irritated the program's staunchest supporters. Some of them, convinced that Munich spelled the victory of totalitarian methods, have openly deserted, turning their backs on the Hull policy, which they now describe as "chimerical." But the signature, on November 17 of this year, of the agreement with the United Kingdom, the most substantial achievement of the entire program, shows their change of front to have been precipitate.

Like its predecessors, the agreement with the United Kingdom constitutes no sharp break with American protectionist tradition; nor does it restore free trade in the United Kingdom. Nevertheless, it provides a clear justification of the Hull program, and may be adjudged a landmark in our commercial history. The reduction in both tariffs on hundreds of items, even if individually many of them are insignificant, definitely liberalizes the conditions of trade between the world's greatest trading nations. The relaxation of British import quotas indicates that England's policy of agricultural protection is capable of modification. The abolition of the English duty on American wheat and the reduction of the duty on softwood lumber show that the system of imperial preference set up at Ottawa is not irrefragable. The admission of American goods to English colonies on terms nearer a parity with English goods gives reason for hope that the process of closing the Open Door into England's colonial empire may have been stayed. Finally, the extension of the tariff "concessions" by each country to third countries is a reaffirmation on a grand scale of faith in the democratic policy of equality of treatment.

Shall we now ditch this policy and go in for a series of special agreements on the German model, attempting to balance our imports and exports with each foreign country in turn? The proposal is not new; it has been in the wind ever since the earliest days of the Hull program. Its ablest proponent, Mr. George N. Peek, resigned his position in the Administration because of his failure to persuade the President of the soundness of his ideas. At intervals in the four years since then the proposal has reappeared, usually sponsored by those whose attitude in the past has been strongly protectionist. But Secretary Hull, Mr. Sayre and others in the Department of State have insisted that the equality of treatment principle must be retained. They have argued that if the United States gets into the business of granting special favors in the way of quotas, lower duties, etc., it sacrifices its power of effective protest about similar discrimination against American trade. Bilateral trade balancing is rejected, first, because it involves regimentation of imports and exports, and secondly, because it of necessity reduces (or checks the increase of) world trade in general and hence, inevitably, the trade of the United States.

Such a policy could not work in any other way. In 1937, United States imports and exports and trade balances with leading commercial countries were as follows:

IN 1937
(In millions of dollars)
Exports Imports Trade Balances
United Kingdom 535 203 +332
Canada 510 399 +111
France 164 76 +88
Germany 124 93 +31
Brazil 69 121 -52
Argentina 94 139 -45
Cuba 92 148 -56
Japan 288 204 +84

How are we going to even up our trade with the United Kingdom, Canada, France and Germany -- by increasing our imports of their products, or by restricting our exports to them? Either of these solutions would meet serious opposition from American farmers and industrialists. Nor is the task much easier with respect to countries with which our balance is passive. Can we persuade Brazil to add 52 millions of dollars to its purchases of American wheat and sugar-mill machinery, or Argentina to buy 45 millions of airplanes, adding machines and tractors? The obvious answer to those who object is that the German bilateral balancing of trade succeeded. But Germany was in a position to work her clearing agreements effectively only because the entire control of her trade, both domestic and foreign, was in the hands of the German Government. Germany was thus able to threaten to reduce imports of Brazilian cotton, cacao or coffee, of Turkish tobacco and Hungarian horses, unless corresponding purchases were made of German goods. The conclusion is that only if we are willing to adopt German methods in toto can we expect German results.

Also, we must remember that the German policy has attained only a qualified success. Trade diversion is not the same thing as trade expansion; in fact the two are antithetical. German trade gains in southeastern Europe and in Latin America have been largely offset by losses in western Europe, the United States, Canada and Australia. The net result is only a moderate gain in German foreign trade. The shares of Germany, the United Kingdom and the United States in world exports are shown below:

Germany United States United Kingdom
1929 9.7 15.6 10.8
1932 10.6 12.2 9.9
1933 9.9 10.9 10.4
1934 8.7 11.1 10.5
1935 8.9 11.6 10.8
1936 9.0 11.4 10.3
1937 9.2 12.7 9.9

Even if we did succeed somewhat in extending our trade in Latin America by German methods, there is no guarantee that the gains would be permanent or that they would offset losses which we might sustain elsewhere. A large part of American trade is normally multilateral. Brazil uses her dollar exchange balance to purchase goods in Europe. The result is that Europe has surplus dollars with which it buys American goods. The attempt to replace this sort of triangular trade with strictly bilateral dealings must inevitably result in the reduction of the total volume of world trade. Unless we were willing to adopt the degree of regimentation which the Germans seem to enjoy, we would be handicapped to begin with; and there is no prospect that we would secure an increased share in the reduced world total.

American export trade might be given "a shot in the arm" by export subsidies. When other countries apply this method of stimulating their sales in American markets, we raise our hands in holy horror -- and we punish the offending nation by applying additional duties to the goods so subsidized. Yet we ourselves have already embarked on a plan to subsidize wheat exports, by which Mr. Wallace hopes to relieve the American market of 100,000,000 bushels. The operations of the Import-Export Bank in putting government credit behind sales to Latin American countries might easily become a mild form of export subsidy. The arguments against subsidies are familiar. Retaliation by other countries can easily deprive such measures of their effectiveness. If they are effective, subsidies result in giving away a portion of our national wealth which in reality we can ill afford to lose. While there are hundreds of thousands of American families undernourished and ill-clad, it hardly seems in the national interest to sell our wheat and cotton at bargain rates, making up the difference at the expense of the American taxpayer.

"Sitting tight" seems unsatisfactory to those whose emotions demand action. But it is not without logical justification. In the first place, it may be argued that the German bolt is shot. Sudden spurts in trade activity often result from the sharp stimulus of a new commercial policy, for example from export subsidies. Germany, by these and other means, may increase her share in the markets of Jugoslavia or Chile from 10 to 20 percent, or from 20 to 30 percent within a few years. But to assume that a proportionate or even an equal gain can be achieved by the same methods in the next few years is probably a gross error. The curve of German gains already shows signs of flattening out. Eventually, and in the not distant future, Germany's ability to export and import will depend on her underlying economic position, upon her ability to produce well and cheaply.

There is no opportunity here to analyze at length German economic conditions as they have developed under the Nazi régime. The abolition of unemployment, and the rise in the index of production both give the impression of growing economic power. But the lengthening of hours of labor and the falling standard of living, the necessity of rationing food supplies and the increasing burden of taxation, despite deficit financing and credit inflation, give rise at least to reasonable doubt. Much depends on the point of view. A firm believer in the efficacy of economic planning will undoubtedly find encouraging items in the German scene; but those who cling to the remnants of liberal tradition will remain skeptical. They will demand more proof than is now offered before believing that the ruthless regimentation of business plus the skill of German chemists has wrought an economic miracle, turning scarcity of raw materials and food supplies into such plenty that, dispensing with imports, Germany can threaten to submerge all foreign markets with her exports.

Still other arguments can be adduced in favor of the policy of watchful waiting. Two cardinal features of German policy, clearing agreements and the use of blocked marks to subsidize exports, depend upon Germany's external indebtedness. Since 1933 this indebtedness has been cut in half. As it declines, the threat of Nazi economic penetration is reduced.

Finally, it should be noted that probably none of Germany's so-called vassal states enjoy their condition of servitude. They would prefer, if markets were open to them, to sell their raw materials and foodstuffs for free exchange rather than to barter them for German harmonicas, warships or railroad equipment. German policy attained its amazing initial successes during a period of deep depression in the prices of primary products. Recovery and rising prices in free markets would much weaken German control. Already there have been signs -- in Brazil, Turkey and elsewhere -- that the close economic alliance with Germany is galling.

There remains the third alternative: more vigorous prosecution of our own policies, dealing with all countries equally, and reducing tariff barriers by the method of reciprocal trade agreements. To date we have made reciprocal tariff bargains with 19 countries. The easiest agreements, naturally, came first. Countries remaining outside the fold present some thorny problems. Critics of the Hull program have contended that further agreements are impossible because the only outsiders of any importance belong to one or the other of two groups, either the totalitarian states or the British Commonwealth of Nations. They say that with neither of these blocs can we negotiate successfully. There is some measure of truth here, but also enough falsehood to make the statement misleading. It is true that the obligations of the Ottawa Agreements complicate negotiations between its signatories and the United States. But Mr. Hull's success in the agreements with the United Kingdom and Canada gives color to the assumption that similar agreements with Australia, India, New Zealand and South Africa are not beyond the realm of possibility.

The negotiation of trade agreements with the so-called "dictator" countries -- Japan, Italy, Russia and Germany -- presents greater difficulties. There is, of course, the political obstacle in the case of Japan and Germany, the horror aroused throughout the United States by Japan's aggression in China and by Germany's persecution of the Jews and other domestic "enemies." In the field of commercial policy, however, there is no "irreconcilable conflict" between the democracies and the totalitarian states. The United Kingdom has signed commercial agreements with Germany, Italy and Russia. We ourselves found it possible several years ago to conclude a commercial treaty granting most-favored-nation treatment to Russia. More recently we signed an agreement with Italy on the same basis. Germany, since October 15, 1935, has been on our blacklist. Her administration of exchange restrictions and import quotas having been adjudged discriminatory against American commerce, Germany was deprived of most-favored-nation treatment. Practically, this has meant that millions of dollars' worth of imports from Germany have not benefited from the tariff reductions which we conceded in agreements with Switzerland, Belgium, France, Sweden, Czechoslovakia and other countries. The Germans have not enjoyed this treatment. With each successive agreement made by the United States with one of Germany's competitors, they enjoy it less. On various occasions, Nazi officials have suggested that an agreement be made restoring equal treatment to German goods. When it became evident that the conclusion of an agreement with the United Kingdom was imminent, their importunities increased. But thus far these advances have been rejected. Our State Department has insisted that Germany, like Italy and Brazil, agree to supply foreign exchange in payment for American goods in accordance with most-favored-nation treatment. Germany refuses to limit her freedom of action to this extent, and there the matter rests.

Both Germany and the United States have much to gain from better trade relations. The astonishing decline in the value and the volume of German-American trade, which was in process as early as 1928, has been accentuated by our unofficial boycott of German goods, and by the German policy of bilateral trade balancing. In 1933, Germany bought American goods to the value of Rm. 482,800,000, or 11.5 percent of all its foreign purchases; in 1937, the corresponding figures were Rm. 282,000,000 or 5.2 percent of the total. Our export statistics (which include shipments destined for reëxport as well as for consumption in Germany) show that in 1933 our sales to Germany were valued at $140,024,000 (8.4 percent of our total exports), while in 1937 they were of a value of $125,884,000 (3.8 of our total exports). Cotton exports furnish an excellent example of what has happened. In 1927, the United States supplied 80 percent of German imports of raw cotton; ten years later the figure was 26 percent. For this change our cotton restriction program must bear partial responsibility; but much is also attributable to Germany's policy of shifting her purchases of raw materials (copper and mineral oils as well as cotton) from the United States to countries with which she can make clearing and barter agreements. Germany last year took only 294,000 bales of raw cotton from the United States, but bought 360,000 bales from Brazil.

A possible exit from the impasse is to treat Germany as we did the Soviet Union. We recognized that in dealing with a nation which conducted import trade as a state monopoly, bargaining about import duties was obviously impracticable. Hence we demanded and received from Russia a pledge to buy each year a specified amount of American products. Our State Department might require, in return for the most-favored-nation treatment which Germany covets, that she set aside specified amounts of free exchange each year for the purchase of American cotton, wheat, petroleum, copper, etc. The practical circumstance which for the moment would limit Germany's ability to comply is that she has so little free exchange. Even after Germany had drastically reduced her purchases from the United States, those for 1937 still exceeded her sales to us by $33,240,000. Under present circumstances the only practicable way of selling more to Germany lies in buying more from her. If we should accord to Germany the lower tariff rates enjoyed by France, Switzerland, Belgium and the United Kingdom, German structural steel, dyes, watches, cutlery, laces, chinaware, might be sold more cheaply in American markets. But would American consumers on that account buy more of them? In other words, how effective is the boycott? Will it be strengthened by the events of the past few months?

Turning to Latin America, we find that we have made no trade agreement with Argentina or with Mexico. Both countries are large purchasers of American goods and important suppliers of American imports, but with neither of them are our commercial relations satisfactory. Argentina discriminates against the United States in the allocation of exchange; we in our turn apply an indefensibly drastic embargo on two of Argentina's principal products, livestock and meat. Until these points of conflict can be removed, there seems little prospect of a trade agreement. Mexico's expropriation of American landowners and oil companies furnishes a stumbling-block to negotiations with that country.

However, the successful expansion of the Hull program in Latin America, in Europe, or elsewhere, encounters a difficulty more fundamental than any of those catalogued above, namely, our fear of increased imports. Economists have supported the policy of tariff bargaining because it provided the only practical method of reducing the excessive rates of the Smoot-Hawley Tariff, of increasing imports so as to restore to equilibrium our lopsided balance of payments. These objectives have been attained only to a limited degree. Tariff reduction has proceeded with great circumspection; imports have increased somewhat since 1934, but exports have gained even more rapidly. As a result the active trade balance has not disappeared. Already this year the surplus of exports amounts to over 900 million dollars and a round billion is in prospect when the twelve months' figures are in. Under these circumstances, the Hull program contributes little to stem the flow of gold from Europe, where it is bitterly needed, to the United States, where we can do nothing with it except to bury it at Fort Knox. The real threat to the Hull program comes not from the dictatorships, but from our own timidity in applying it.

The conclusion of the matter seems to be that German policy presents no threat to American trade, or American economy generally, of a kind which requires revolutionary change in our own policies. Germany's aggressive use of clearing agreements, blocked marks, barter deals and export subsidies, as far as we can judge from commercial statistics, has not deprived the United States of any important markets nor has it cut us off from any source of critical raw materials. German successes, at the expense of other nations than the United States, have been won by intelligent exploitation of short-run situations. In the long run, probably in the next few years, Germany's competitive ability in foreign trade will depend on the productive capacity of German industry. There seems no reason for believing that this capacity has been raised by the controls introduced under the Hitler régime. Under the circumstances, there seems to be no justification for a volte face in American policy. The German aggression is a challenge. But it should be met, not by imitating German policies, but by applying our own more boldly and more effectively.

[i] "Trade Rivalries in Latin America," by Howard J. Trueblood. Foreign Policy Reports, September 15, 1937.

[ii] The statistics quoted in this article have been taken principally from reports of the United States Bureau of Foreign and Domestic Commerce which in turn compiled them from the official data of the Latin American countries. In some cases this information has been supplemented from the official German trade returns. The reader should bear in mind that in addition to the usual inaccuracies in the reporting of imports and exports there has appeared in the years under consideration a new source of inaccuracy, viz., the existence in some countries of both an official and a free rate of exchange, the variation between which may amount to as much as 50 percent. Nevertheless, it is believed that these figures furnish the best indication now available of the changes which are taking place in Latin American trade.

[iii] The bartering of Mexican oil for German and Italian manufactures, which has recently been reported, did not involve, in the first six months of the current year, sums which are large relative to Mexico's total trade. They will probably assume larger importance in the second half-year.

[iv] See "Germany's Foreign Indebtedness," by C. R. S. Harris. London: Oxford University Press, 1935. "Problems of German-American Foreign Relations," by Paul B. Taylor. Foreign Policy Reports, July 15, 1938. "Germany's Trade Offensive," in The Economist, November 5, 1938, p. 262-267.

[v] Including two agreements concluded with Canada.

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