THE 1932 foreign trade figures of the leading commercial countries afford an opportunity for speculation with regard to the effects of currency instability upon imports and exports. The trade of three countries with stable currencies -- France, Germany and the United States -- may be compared with that of two countries with depreciated currencies -- Great Britain and Canada. In theory, currency depreciation tends to stimulate exports and to check imports. Investigation shows that the exports of all the countries mentioned were less in 1932 than in 1931, but that the decline was substantially greater in the stable-money countries. The decrease in the value of exports in 1932 from the previous year was 35 percent in France, 40 percent in Germany and 33 percent in the United States. In Great Britain and Canada, on the other hand, the decreases were respectively 7 and 19 percent.

This would seem to indicate that the cheap money of Great Britain and Canada, while not causing an absolute increase in exports, may have been instrumental in producing a smaller decline than was experienced by stable-money countries. On the other hand, if the export trade of these five countries in 1932 is compared with that of the pre-depression year 1929, the relative changes shown by the two groups are not so striking. From 1929 to 1932 the value of exports decreased 60 percent in France, 58 percent in Germany and 65 percent in the United States, while for Great Britain and Canada the decreases were respectively 50 and 59 percent.

The decline in the case of Germany, France and Canada shows remarkable uniformity. As British trade was lagging behind that of these other countries in 1929, a relatively smaller decline might be expected. For a contrary reason, a greater decline might be expected in the United States, inasmuch as its export trade in the pre-depression years had been stimulated by heavy loans to foreign countries.

It is impossible to obtain conclusive evidence from trade statistics regarding the effects of the depreciation of foreign currencies on imports and exports. The United States Tariff Commission, in response to a Senate resolution of April 12, 1932, made a comprehensive study of this question. With respect to imports into the United States it found that "no definite difference can be traced between the commodities coming chiefly from depreciated-money countries and those coming from other countries." Concerning exports its verdict was that the data "likewise fail to show at all conclusively that the trend in exports has been more unfavorable in the case of depreciated-currency countries than of other countries."[i]

The Commission found that between October 1931 and February 1932 imports into the United States from the six leading European countries off the gold standard had declined 28 percent, as compared with the corresponding months of the preceding year. At the same time, imports from six important countries remaining on the gold standard had decreased only 23 percent. This seemed to indicate that the actual effects of the abandonment of the gold standard were the opposite of what was generally expected. The Commission was careful to point out, however, that the real effects of currency depreciation might be concealed through the operation of other more important influences, and that depreciation of currency was itself the outcome of more fundamental conditions and forces.

Meantime, the suspension of the gold standard by 35 nations had given rise to two different kinds of agitation in the United States for legislation to protect the country from the consequences of cheap foreign money. With the continuance of the industrial depression these movements have recently gained new adherents. One group insists that the United States should arm itself with the same weapons employed by its competitors, and cheapen its money either by an inflation of the currency or by reducing the gold content of the dollar. Another group insists that the tariff walls be strengthened so as to offset the advantages which the depreciation of foreign moneys will give our trade rivals in our own markets.

Agitation for cheap money is no new thing in American history; it has appeared in every period of severe economic depression since the beginning of the Republic. But this is perhaps the first time that cheap money has been urged as a means of meeting the trade competition of other parts of the world, as well as of relieving domestic economic conditions. The agitation for "compensating duties" to chink up the leaks which depreciated foreign currencies are believed to make in a gold-standard country's tariff dikes is a more recent phenomenon and may be regarded as a by-product of the World War.

The advantages enjoyed by European countries with debased currencies in the post-war years were one of the chief arguments advanced for the higher tariffs which were enacted by the United States in 1921 and 1922. With the widespread abandonment of the gold and gold-exchange standards, beginning in the autumn of 1931, a campaign was inaugurated for still higher compensating duties. Between December 19, 1932, and January 26, 1933, no fewer than six bills were introduced in the House of Representatives for the stated purpose of protecting American industry from what one of these measures described as "the effects of competition based on the depreciation of foreign currencies." Many similar measures had been brought forward at the previous session of Congress, and for more than a year the members were subjected to constant pressure from manufacturers, farm organizations, and trade unions for legislation of this character. All such proposals, however, were bottled up in the unfriendly Committee on Ways and Means to which they were referred.

The general purpose of these bills was to impose an extra duty equal to the difference in the value of the imported article in terms of the money of the exporting country at its gold parity and at its current rate of exchange. This duty, in most of the measures, was to apply also to goods on the free list, if they were of a kind produced in the United States.

The proponents of compensating duties maintained that the countries which had gone off the gold standard had increased their competitive capacity, first, by lightening the burden of debt and fixed charges on their industries, and second, by reducing labor costs, inasmuch as wages were not increased in proportion to the decline in the gold value of the currency. This situation, they claimed, forced American producers to lower their prices and reduce wages in order not to lose their home markets to foreigners. But they laid special stress on the "flood of imports" and the steady increase in unemployment due to this cheap-money competition. A caucus of the Republican members of the House of Representatives late in January 1933 decided to support one of the measures known as the Crowther bill, providing for compensating duties, and adopted a resolution stating that foreign currency depreciation had thrown a million Americans out of employment and was causing a direct and indirect wage loss of $10,000,000 per working day.[ii]

Party lines were sharply drawn on this measure. An attempt was made on February 13 to discharge the Ways and Means Committee, then controlled by the Democrats, from further consideration of the Crowther bill and to bring the measure to the floor of the House for a vote. This was defeated by a vote of 212 to 174. Only three Democrats and fifteen Republicans refused to vote with their respective parties. Although made a party measure in the House, the Crowther bill did not have the support of the Administration. The blanket application of compensating duties found no favor with the Secretary of the Treasury, the Secretary of Commerce, and the Chairman of the Tariff Commission. President Hoover on several occasions during and after the campaign of 1932 had called attention to the danger of increased competition from the goods of countries with depreciated currencies, but he had advocated a readjustment of duties by the Tariff Commission under the flexible-rate provisions of the existing law, and did not urge the enactment of the Crowther bill or any similar measure.

The flexible provisions of the present tariff act authorize the President to raise or lower any tariff rate by a maximum of 50 percent on the recommendation of the Tariff Commission. While Congress was considering the various measures prescribing compensating duties, President Hoover availed himself of his power under the flexible-rate provision of the law and ordered substantial increases in the duties on fabric-upper and rubber footwear, the imports of which had been rapidly expanding. These imports had come in part from Japan, which is a cheap-money country, and in part from Czechoslovakia, a country with stable money.

While 1932 did not see any flood of imports or any increase in total imports from countries with depreciated currency, there were large increases in the imports of certain commodities. From Japan, for example, there were increases in the imports of salted and pickled fish, incandescent lamps, and the cheaper grades of shoes. There were also increases in the imports of fish from Great Britain, Denmark and Norway. All these countries were off the gold standard. On the other hand, there were equally striking increases in certain imports from countries remaining on the gold standard. This was illustrated by the larger importation of Portland cement, iron and steel from Belgium, of leather from Germany, of cotton goods from France, and of clothing wool from South Africa.[iii] The Tariff Commission's study of 277 articles whose imports might be affected by currency depreciation showed that the imports of only 83 of these were greater in 1932 than in 1931. Of these 83 commodities, 43 were from countries with a depreciated currency, and 40 were from countries on the gold standard.

In the light of these data it is impossible to draw any definite conclusions concerning the actual effect of depreciated foreign currencies on the import trade of the United States. The fact that imports of certain commodities have increased from both gold-standard and cheap-money countries would appear to indicate that production costs in these countries have been substantially lowered and that they enjoy an exporting advantage regardless of the condition of their currency.

There can be no question that currency depreciation may stimulate a country's exports if other conditions are favorable, but even then the stimulation will be only temporary unless the depreciation is progressive and continuous. If the currency is finally stabilized at a lower level, wages and prices will adjust themselves to the new situation and the country's exporting advantage will disappear. If, however, the currency continues to depreciate, the advantage which the country appears to enjoy can be maintained only by the depletion of its capital resources; for with steadily rising domestic prices it is actually selling its goods for less than the cost of their replacement. Germany learned this costly lesson in 1921-24, and this explains the present dread of inflation in that country and the extraordinary measures which have been taken to safeguard the stability of the reichsmark.

The difficulty of determining the effects of cheap money on international commerce accounts for the doubts of responsible officials as to the efficacy of compensating duties as a remedy for conditions about which American producers have been complaining. Meanwhile, the effect of such duties on international relations has not been overlooked. They would result in as many different tariff rates as there were countries with depreciated currencies. There would be one rate for Japan, another for Canada, and still another for France. Moreover, as was pointed out during the debates in Congress, the compensating duties would impose a new and heavy burden on Great Britain, after she had come forward and paid every dollar of the December 15 instalment of her war-time obligations, while France, who paid nothing on that instalment, would escape the new duties entirely.

[i] "Sixteenth Annual Report of the United States Tariff Commission," 1932, pp. 59-61.

[ii] Total imports from all countries, including those on the gold standard, had an average value in 1932 of about $3,600,000 per day. How the portion from cheap-money countries could have caused a daily loss of $10,000,000 in wages was not explained.

[iii] The Union of South Africa eventually suspended the gold standard, but it had not done so during the period under consideration.

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  • WILLIAM O. SCROGGS, Director of Information of the Council on Foreign Relations; joint author of "The United States in World Affairs"
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