America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
WE are having our troubles these days in the United States. We have too much money -- and people penniless. We have too much wheat -- and people hungry. We have too much cotton, copper, coal, petroleum -- too much production generally -- and people in need of the things we have overproduced. We even seem to have too many debtors abroad, owing us so much money that if they pay their debts to us they can't buy our goods from us. When the rest of the world can't buy our goods, then we have still more overproduction; factories have to close; our people are thrown out of work; they lose their purchasing power; we have goods on hand that cannot be sold either at home or abroad. Also, we have a world depression on our hands, and an uneasy feeling that perhaps in some way we may be the agent and at least partly responsible for it. So we wonder what it is all about and where it is going to end.
We wonder particularly about our foreign trade. It seems as though we ought to be able to sell enough of our surplus abroad to keep our industries busy and our workmen employed. For half a century and more we have had a favorable balance of trade, that is, we have annually sold more merchandise abroad than we have bought from abroad. And merchandise bought and sold, most of us have always understood, constitutes trade.
To be sure, some economists have been telling us for a decade or two that foreign trade consists of something more than traffic in merchandise. They have said that the favorable balance of trade we have enjoyed since the seventies was not due entirely or even mainly to our protective tariff system but actually was due to the fact that we were during all that time a "debtor nation." We were a debtor nation, it was explained, because foreigners had lent money to us by investing heavily in our railroads, our industries, our municipal and other bonds, so that every year we had to pay them hundreds of millions of dollars in interest. Foreign trade, these economists asserted, is fundamentally an exchange of goods and services. Of course we were getting merchandise from abroad every year; and that had to be paid for. So, before the World War, we were paying our interest and service charges in Europe by sending them more merchandise, in value, than they were sending us. That is, we each year exported enough more goods than we imported to just about balance our debts to Europe that came due that year.
That was the economic reason, these economists tried to tell us, that we had a favorable balance of trade. We had to ship more goods abroad than we received, or pay the difference in gold. And the only way we could get more gold was by borrowing it from abroad. We were busy building a new continental nation. We were building factories, railroads, utilities, highways, and business and financial institutions. And we were getting the capital for this construction work from abroad.
We paid scant attention to these economists. Economists are only theorists, anyway. We were selling more goods abroad than we were buying. The tariff was protecting our infant industries, keeping up the wage scale, making the American standard of living, and giving us a "favorable" trade balance. We were too busy developing -- even then some used the word exploiting -- our natural resources to pay much attention to theories about why things were as they were. The fact that they were was enough for us. We were selling the goods and building up an industrial civilization such as the world had never seen. We were developing mass production. High wages and low unit costs, advertising and salesmanship, purchasing power and American ingenuity were bringing national prosperity.
Then came the World War. Europe turned to works of destruction. Destruction required more capital in Europe, just as construction had been requiring more capital in the United States. Meanwhile, we in the United States had acquired considerable capital. We lent money and sold supplies to Europe, and finally sent men. Europe called on us for loans, after we had redeemed the capital Europe had poured into the United States during the preceding half century.
The United States thus became a creditor nation. Europe became debtor to us. Interest payments began coming across the Atlantic to our investors in European projects in larger amounts than were going the other way. We continued to lend more capital, to sell more goods. The demands for merchandise of all kinds kept our industries running at top speed. We had such a favorable balance of trade as we had not dreamed of a few years before. Mass production and Yankee efficiency enabled us to supply the European markets more cheaply than impoverished Europe could supply them herself.
But as Europe, partly with capital from the United States and its people, began to recuperate from the devastating effects of war, it faced the problem of paying its debts. Europe wanted to pay in merchandise. It still wants to do so. But if we should take payments in merchandise not only in exchange for the merchandise we ship abroad, but also in payment of services and of interest on American capital loaned in Europe, then we stand to lose our favorable balance of trade. We would be importing more merchandise than we export.
For more than a decade since the war we have defied the economists. A creditor nation, we have retained a favorable trade balance. Every year our exports of merchandise have exceeded our imports, as the following record (in millions of dollars) shows:
If a favorable trade balance spells prosperity, the United States should have had it brimful and running over from 1921 to 1930.
On the other hand, as far as agriculture is concerned, the balance of trade has been unfavorable from 1923 to 1930, inclusive, except for one year. And those years have not been at all prosperous years for American agriculture. While on the subject of favorable and unfavorable trade balances, I might point out that in 1921 the balance of trade was "favorable" to agricultural products by nearly 550 million dollars; in 1922 the balance of trade was almost equally "favorable" to agriculture. But those years were not prosperous years for American agriculture, either. In other words, foreign trade statistics do not seem to indicate that the trade balance is even an index of prosperity or adversity for economic conditions. In fact, I am inclined to believe that it is the failure of our civilization to distribute wealth more equitably, whether that wealth is produced by American mass production or European individual craftsmanship, that is responsible for our present economic situation, rather than trade balances. That, and the immense costs of wars, past and future, under which all peoples are struggling. But this is aside from the subject I started out to discuss.
I am not discounting the importance of our foreign trade, nor attempting to minimize the importance to us of our exports. Any channel that handles 10 percent of the total of the goods produced in this country is entitled to serious consideration.
The statistics of our foreign trade in merchandise over the past 50 years show that during that period, with only slight variations from year to year, the United States has exported just about 10 percent of its total production. The character of exports has changed materially in that half century, but the proportion of the total production exported has remained remarkably constant. William L. Cooper, Director of the Bureau of Foreign and Domestic Commerce in the U. S. Department of Commerce, assumes that this proportion will hold true, approximately, for 1930, judging by the statistics already collected and checked. Another ratio that has not changed materially in 50 years, although it has varied from year to year and from decade to decade, has been the ratio between exports and imports.
It does seem to me there has been considerable loose thinking, and even more loose talking, about our "declining exports." Suppose we take a look at the records.
During the 50 years ending last December our foreign trade in merchandise increased some seven and one-half times. For the five year period, 1876 to 1880, it averaged 1,157 million dollars per year. For the five year period 1926 to 1930, it averaged 8,718 million dollars a year.
But here is an interesting note in connection with this increasing volume. For the five year period ending in 1880, our exports were 57.3 percent of our total foreign trade in merchandise. For the five year period ending 1930, our exports were 53⅓ percent of our total foreign trade in merchandise.
But to me the interesting fact is not that our exports have maintained a comparatively steady relationship to our imports, nor that this ratio has shown always the so-called favorable balance of trade. The interesting thing to me in the foreign trade record of the last half century is the change that has taken place in the character of our exports; and to some extent, though not so marked, in our imports.
Half a century ago nearly one-half our exports, by volume, were foodstuffs. Nearly one-third were crude materials other than foodstuffs. Less than one-fifth were what are classed as semi-manufactures and finished manufactures. Today more than half our exports, by value, are finished manufactures; one-seventh are semi-manufactures; one-seventh are foodstuffs (crude and manufactured); a little more than one-fifth are crude materials other than foodstuffs.
So far as our own export trade is concerned, the United States has passed beyond the state of producing foodstuffs for the world market; the United States has become an exporter of manufactured products. We still export some agricultural products, but aside from cotton and tobacco, these are becoming steadily smaller in volume and value.
During the five years 1876 to 1880 inclusive, average exports, by value, were 664 million dollars; imports were 493 million dollars. Crude materials exported during that period averaged 214 million dollars in value per year; they were 32.2 percent of our total exports. Crude foodstuffs exported averaged 159 million dollars in value a year; these were 23.9 percent of our total exports. Manufactured foodstuffs, 162 million dollars in value, were 24.4 percent of our total exports. Foodstuffs made up 48.3 percent of our exports in value. Semi-manufactures, 30 million dollars by value, were 4.5 percent of our total exports; finished manufactures, 99 million dollars by value, were 14.9 percent of total exports. Total manufactures were only 19.4 percent of total exports.
Turning to the record for 1930, we find that total exports were valued at 3,782 million dollars and total imports at 3,061 million dollars. But we find a difference in the exports far more significant to agriculture than the huge increases in the value of exports and imports. Crude foodstuffs exported in 1930 were valued at 179 million dollars, 20 millions more than the crude exports 50 years ago; but this 179 million dollars, by value, represents only 4.7 percent of total exports, compared to 23.9 percent 50 years ago. Manufactured foodstuffs, 363 million dollars by value, were a little more than twice the 162 millions exported a half century before. But they made up only 9.6 percent of the total, compared to 24.4 percent 50 years ago. Raw materials other than foodstuffs exported in 1930 were 21.9 percent of the total, against 32.2 percent half a century ago. On the other hand, semi-manufactures increased from 4.5 percent to 13.6 percent of the total; and finished manufactures increased from 14.9 percent to 50.2 percent of the total. In other words, while exports of foodstuffs dropped from 48.3 percent to 14.3 percent, manufactures increased from 19.4 percent to 63.8 percent of the total.
During the half century the total value of all imports increased from a yearly average of 493 million dollars for the five years 1876 to 1881, to an average of 4,034 million dollars for 1926-1930. Proportional changes in classes of imports, under the same classification just used for exports, do not show as great relative changes. Crude foodstuffs imported in the 1876-1880 period were valued at 89 million dollars a year; they were 18.6 percent of all imports. Importations of manufactured goods averaged 106 million dollars yearly; they made up 21.5 percent of all imports. Foodstuffs were 40.1 percent of all imports 50 years ago. For the five year period, 1926 to 1930, we find foodstuffs amounting to 22.5 percent of all imports; 12.6 percent being crude foodstuffs, 9.9 percent, manufactured foodstuffs. Imports of finished manufactures dropped from 29.4 percent to 21.9 percent of all imports in the same period; semi-manufactures increased from 13.4 percent to 18.9 percent of the total. In value of finished manufactures, importations grew from 145 million dollars annually to 882 million dollars annually. Imports of semi-manufactures grew from 99 millions to 762 millions.
These comparisons form a good background for the picture of our foreign trade. The Department of Commerce figures show that up until 1923 the balance of trade in agricultural products was always with the United States. Exports always exceeded imports of farm products. Since 1922, in only one year have exports of agricultural products exceeded such imports in value. Last year, according to preliminary reports from the Department of Commerce, we imported a quarter of a billion dollars' worth more of agricultural products than we exported. Total agricultural imports were to the value of 1,446 million dollars; total exports, 1,200 million dollars. In the following table I would direct attention to the steadily lower percentage of agricultural exports, and the comparatively even proportion of agricultural imports to the total imports, by value.
|FOREIGN TRADE IN AGRICULTURAL PRODUCTS|
|(in dollars, ooo's omitted)|
|EXPORTS 1||IMPORTS 2|
|Yearly||Total||Percentage of||Total||Percentage of|
|Average||exports||all exports||imports||all imports|
|1Reëxports of foreign products not included.
2Does not include forest products, but includes crude rubber and similar gums.
Turning to specific commodities, we find that two items, cotton and tobacco, made up more than half the agricultural export trade of the United States in 1930. We exported 496.7 million dollars' worth of cotton; 145.6 million dollars' worth of tobacco. Cotton importations were slight in comparison with exports, being valued at only 25.3 million dollars. The 145.6 million dollars' worth of tobacco exported was partly offset by importations to the value of 40.9 million dollars. Exports of animals and animal products amounted to 150.7 million dollars, against imports worth 33.8 million dollars. Grains and grain preparations were exported to the amount of 191.3 million dollars; imports were only 24.1 million dollars. We exported 130.4 million dollars' worth of vegetables, fruits and nuts; importations, however, were 112 million dollars. Exports of dairy products and eggs, 19.7 million dollars' worth, were more than offset by 27.5 million dollars' worth of importations.
Altogether agricultural exports were 31.7 percent of all exports, the smallest percentage in 70 years. Imports of agricultural products were 47.2 percent of all imports, the smallest percentage in 50 years. But the important feature of our agricultural foreign trade is the steady trend downward, on a percentage basis, of our agricultural exports; and the fact that agricultural imports have hung steadily around 50 percent of the total -- except during the World War -- for half a century.
So far as our foreign trade as a whole is concerned, we have suffered from the depression only proportionately as other leading nations have suffered. We are handling as much of the world's trade as we were before the depression. We are exporting approximately the same proportion of our production as in the past. But the character of those exports has changed materially.
Under present conditions, with nearly every nation in the world apparently determined to become self-sufficient as far as possible through protective tariffs, there does not appear to be a profitable world market for our agricultural products, outside of cotton, tobacco, and perhaps (for several years to come) lard. In some years there will be a foreign demand for other staples, but prospects that it will be steady are not bright. Our position as a creditor nation may force us, in time, to lower our tariff bars to allow other nations to pay their balances in goods. If that is done by lowering protection on farm products instead of on manufactured products, American agriculture will have neither a foreign nor a domestic market that is profitable. If the United States, and the nations of Europe, are to have high protective tariff walls, then the best that American agriculture can do, except in those commodities which the rest of the world is unable to produce in sufficient quantities to meet world demands -- such as cotton and tobacco -- is to restrict production to approximately the domestic demand.
After all, the American market is the best in the world, even during this depression. My own opinion is that the time is coming when we shall gradually lower our tariff barriers. But until that time comes, I can see little hope for a profitable foreign market for American wheat, for example. Western Europe is the world wheat market. Canada, the Argentine, Australia, and Russia can supply that market with wheat produced more cheaply than it can be produced, transported and marketed by American farmers under present conditions.