American foreign trade; the United States as a world power in the new era of international commerce

Front matter

C-J

Gopyriglit^!

COPYRIGHT DEPOSm

Chapter I Page

Buying as well as selling goods abroad — Nature unchanged by the Great War — Imports the measure of world commerce — Comparison of quantities and values — New high price levels — Transportation as an element — Relation of foreign trade to domestic prosperity — Internal factors — United States as an exporting country — Evolution from agricultural products to manufactured articles — Farm implements and the blast furnace — Readjustment of visible and invisible balances — Sigjii£canc9 of change to a creditor nation

CHAPTER II The Farm in Foreign Trade 19

Economic basis of the new agriculture — Checking the food waste — "War-time production — A bushel of wheat per person in export trade — Corn and swine — Cattle and meat products — Cotton as a factor in foreign business — Insufficiency of production outside the United States — Lancashire's futile efforts — The American farmer's prospects

CHAPTER III Machinery and Nationalised Efficiency .... 33

Standardizing European methods — England's progress in scientific effectiveness — American individualized efficiency — Machinery's place in industrialism — Development of productive power — Decrease of handicraft — Monotony of machine craft — Welfare projects — Prohibition as an economic element — England's drink problem — The industrial woman of the world — Status in the United Kingdom — Position in the United States — A world reserve factor in production

CHAPTER IV Raw Materials 47

Iron the blood of industrial nations — Ore resources of the world — Distribution in the United States — Coal reserves — Sources of manganese — Copper and other industrial metals — Petroleum as fuel — Where the oil fields lie — Water power as motive force — Raw materials of textiles — Great Britain's basis of iron and steel industries — Geographical advantages — Points in competition with the United States — What Lorraine iron and Sarre coal mean to France

xi xii CONTENTS

Chapter V Page

The shipwrecked Yankee skipper and mutual bargaining — The celebrated Methuen treaty — Objects sought by England and by Portugal — Adam Smith's objections — Disraeli's definition of trade diplomacy — Palmerston on the qualities of negotiators — Tariffs modified hj political motives — Concessions by Japan and France to Great Britain — Commercial diplomacy in Europe in 1914 — Trade spheres and rapprochements — After the war — Functions of trade diplomacy under the new conditions

CHAPTER VI Economic Alliances and Favored Nations .... 74

Echoes of the Paris Pact of 1916 — Summary of its provisions — Inheritance in Peace Settlement — Economic boycotts and trade wars — Fiscal policies of the victors — New basis for commercial intercourse — Prospective readjustment of favored nation practice — Review of the European doctrine — Application to tariffs — Maximum and minimum schedules — Germany's conventional tariffs not the work of supermen — Methuen principle modernized in the Anglo-Japanese Treaty — Industrial instinct of nations — Trend to nationalistic policies in world trade

CHAPTER YII British Trade Policy 90

Edmund Burke's survey of England's trade two centuries ago — Before and after the Great War — Imperial preference as an outcome — From Joseph Chamberlain to Lloyd George — Protective tariff tendencies in war measures — The Budget of 1919 — The self-governing colonies — India and the dependencies — The world view — Disguised or straightforward protection ? — Government participation in finance and commerce — British trading corporation — Direct subsidies — Some national traits — British interests the key to British policy

CHAPTER YIII American Trade Policy 110

Historic background — Commercial character of early diplomacy — Treaties after the Civil War — Blaine reciprocity conventions — Dingley biU provisions — Cuban reciprocity treaty — Canadian reciprocity agreement — Adoption of double tariff system — Maximum and minimum experiment — Repeal by Underwood Act — Review of favored nation practice — Reasons for conditional interpretation by United States — Diplomatic correspondence — Cuba and other exceptions — Concluding resume

CHAPTER IX American Trade Policy (Continued) 125

Adjustment of United States commerce to competitive conditions — Flexible and inflexible tariffs — Defects in maximum and minimum provisions of Payne-Aldrich Act — Amendment proposed by Secretary Knox — Rejected retaliatory clause in Underwood bill — Tariff Commission's approval of retaliatory schedules — Means of securing equality of treatment for American goods — Bargaining tariffs — House of Representatives as source of revenue legislation — Dyes and potash — ^Export combinations — The Webb-Pomerene Law — Price lists abroad and at home — Export railway rates — Objections to government control — Individual enterprise in foreign business

CONTENTS xui

CHAPTER X PAGE

The Cargo- Caeriers 140

Circumstances leading to revival of the merchant marine — The golden age of American shipping — Measures for its restoration — The war boom — Failure of tariff devices — Shipping Act of 1916 — Supplemental legislation — Increased tonnage of the United States — The shipbuilding program — Questions of policy — The Seaman's Act — Reaction from Government ownership — Competition with Great Britain

CHAPTER XI

Continental Europe and the United States . . . 153

Vital economic changes — Factors in France's industrial reconstruction — Colonial commerce — Dependence on American capital — Fiscal relations with the United States — Germany's subtracted raw materials — Melting away of Naumann's Mid-Europe dream — Past and prospective trade with the United States — Importance of copper and cotton — Austro-Hungarian remnants — Belgium's rehabilitation — Italy's territorial expansion and industrial ambition — Import of capital — Scandinavian group — Spain and other countries

CHAPTER XII Russia and the Near East 168

Constantinople as an international mart — The Black Sea a world lake — Jugo-Slavia and the Adriatic — Bulgaria and Rumania — No Balkan Customs Union — Greater Greece — American enterprise in Turkey — Russian economic units — Stirvey of the whole — Commerce of the past — Trade relations with the United States — Territorial subtraction — Agricultural and mineral resources that remain — Siberia's status — ^Foreign capital the hope of the future

CHAPTER XIII Economic South America 183

The Southern Continent a world market — Export taxes a Spanish colonial inheritance — Limited resources for manufactures — ^Agricultural and mineral products the source of purchasing power — Brazil's rubber and coffee — Iron ore and manganese — Decentralized fiscal policy — Argentina's grain and lifestock — Lack of minerals — Uruguay and Paraguay — Chile's copper and nitrates — Protective tariff tendencies — Peru's varied products — Protective and export duties — Bolivia and Ecuador — The Caribbean region

CHAPTER XIV South America as a Market for Europe 200

Salient geographical aspects — Interchange among the several countries — Ocean routes to the old world — Panama Canal — Racial ties with Europe — Immigration from the Mediterranean countries — French intellectual influence a trade factor — Spain and Italy — Reasons for England's primacy — A century's normal growth — British investments — Germany's methods — Teutonic colony in Brazil unimportant — Market in other countries not lost — Tragedy of Belgium's commerce — Europe's prospects xir CONTENTS

CHAPTER XV PAGE

South America as a IVIarket for the United States . 214

Aspirations from Clay to Blaine — Trade not hampered by tariff policy of the United States — Brazilian preference — Analysis of general commerce — Nature of increase during the war — Shift from Europe — Permanent and temporary gains — Character of after-thewar business — Causes of adverse and favorable balances — Basis of future growth — Loans and investments — Development enterprises — What a billion dollars invested in South America will mean

CHAPTER XVI Economic Destiny in the Caribbean 232

What the purchase of the Danish Islands foreshadows — The Caribbean crescent as an economic curve — Cuba's sugar cane and tobacco — Porto Rico's coffee and sugar — British Possessions — Jamaica an isolated unit — Proposed Canadian- West-Indian Federation — Trade Agreement of 1913 — Panama and Central America — Bananas and coffee — Foreign investments — Economic aspect of increased productiveness in the Caribbean area — Influence of the United States — Positive national policy — The protectorates — Nicaragua Treaty — Benevolent coercion — Santo Domingo's objection — Significance of the Haitian treaty — Promise of stability and order — Future commerce

CHAPTER XYII Canada, the Nation to the North 248

War debt and peace resources — Depth of national spirit — Relation of natural resources to trade — Fisheries and forest — Mineral wealth — Wheat fields of the northwest — Other crops — Reasons for daring railway ventures — Basis of industrial development — Iron and steel mills — Fiscal system and preferential tariff — Pre-War commerce with Europe — After-the-war prospects — Trade relations with the United States — Reasons for rejecting the reciprocity agreement — Close business intercourse in the future

CHAPTER XYIII Japan and Mutual Markets 265

New riches — Herbert Spencer's rejected advice — Gains from western civilization — What the island power is — Sparse agricultural resources — Nationalization of raw materials — Political evolution — Winning of economic independence — Fiscal policy — War prosperity — Fundamentals of future commerce — Trade relations with the United States — The Knox Treaty — Questions of the Pacific

CHAPTER XIX China and the Commerce of the Pacific .... 277

Economic definition — Mineral resources — Nature of foreign trade — Small volume — Relations with other countries — John Hay's open door — Root-Takahira Declaration — Lansing-Ishii Agreement— China's own statement — Japan's overlordship — Outcome at Peace Conference —

Bankers' loans — Influence on material development — Fiscal policy

Economic independence the acid test for the Great Powers — United States as an Interested Friend

CONTENTS XV

CHAPTER XX PAG«

Trade that follows the export of capital — Fundamental changes as a consequence of the war — Review of practice in the past — Extraterritorial character of branch factories — State Department formula regarding loans and development enterprises — Popular prejudice against claims — Experiences in Spanish-American countries — Lack of continuous national policy — The Chinese incident — President Wilson's reversal — Principle of the international consortium — The world as the field of American investments

CHAPTER XXI The American Business Man 307

Relation to the government changed by the war — Causes of aloofness — Distrust of bureaucracy — Why he does not come to Congress — Lawyer politicians equally ignorant of international questions — Some examples of business ignorance — Sporadic foreign trade forays — Applying the remedy — Success of the big concerns — Coordination with the government — Cooperation in selling abroad — Educational factors — World commerce as the business of the United States

Appendix

A. Reciprocity and Retaliatory Tariff Provisions . 322

1. McKinley Act.

2. Dingley Act

3. Proposed Knox Amendment

4. Rejected provisions of Underwood Bill

B. Text of Haitian Fiscal Protectorate Treaty . . 332

C. China and the Pacific 336

1. Secretary Hay's Open Door Letter

2. Root-Takahira Declaration

3. Lansing-Ishii Agreement

Index 342

CHAPTEE I

Buying as well as selling goods abroad — Nature unclianged by the Great War — Imports the measure of world commerce — Comparison of quantities and values — New high-price levels — Transportation as an element — Relation of foreign trade to domestic prosperity — Internal factors — United States as an exporting country — Evolution from agricultural products to manufactured articles — Farm implements and the blast furnace — Readjustment of visible and invisible balances — Significance of change to a creditor nation.

FOREIGN trade, to the popular mind, is selling goods abroad. Buying goods abroad receive little thought. That is comprehended in the more resounding term of international commerce, which means the movement of merchandise across boundary-lines both ways. Exports and imports are the opposite pages of a commercial nation'si ledger. The mechanism by which the interchange of commodities is effected, the shipments of specie to balance accounts, and the adjustment of credits without such shipments, are somewhat vaguely understood as processes entering into international commerce.

The popular conception of foreign trade might seem sufficiently clear for the purposes of a work of general character. It reflects the manner in which the ordinary man views the subject, and ordinary men, in their totality, make up the American people. But the significance of the United States as a world power in international commerce requires a more precise definition. American foreign trade is the United States buying goods from other countries as well as selling products to other countries. The term " American " is used with the knowledge that South-Americans, Central- Americans, Mexicans and Canadians have valid objections to one nation appropriating it. But accepted usage in the objecting nations themselves may be urged in mitigation of the offense. It is less awkward to follow the common practice than to differentiate among several Americas and political subdivisions of the Americas, or to point out the distinction between the United States of Mexico, Colombia, Brazil or Venezuela and the United States of which Washington is the capital.

The nature of foreign trade is not changed in the period of reconstruction following the Great War. The change is simply in form from destructive war consumption to reproductive peace consumption. Production resumes its normal course. War activities die; peace activities quicken into fresh life. New industries are born out of the war chaos. Old markets survive. New markets are created. Yet wheat, corn, pork, beef, mutton, sugar, coffee, tea, cotton, wool, iron, copper, oil, coal, lumber, the interchange of these products in their raw or manufactured state, constitute the foreign trade of the new as of the old era.

The consequences of the Great War change the currents of the world's commerce, and that is all. Political re-alinements, groupings of peoples under changed boundaries, the birth of new nations, creditor countries becoming debtors, and debtor countries becoming creditors, do not substantially modify the nature of foreign trade, though they may alter materially the conditions governing that trade. Its nature may be examined in the general aspect before describing the position of the United States.

The imports of all the countries of the world taken together are the only measure of the total commerce. They are at best a defective measure, yet they approximate a real standard, for they show the value in money totals of goods that have crossed boundary-lines, and thus have become foreign trade. The common error is to add imports and exports. This practice ignores the fact that the exports of one country are the imports of another country, thus counting each transaction twice.

Students of international economics, and manufacturers seeking markets abroad, need not confuse their brains by too much effort to reconcile conflicting export and import statistics. Trade statisticians, on their part, between the uncertainty governing the exports of one country that become the imports of another country, and the varying values due to the numerous processes involved in the interchange of commodities, at best can only approximate the total of the world's commerce. They are like the metaphysicians who, seeking to define the conditioned and the relatively conditioned, are content to discover some appearance in the midst of things.

In general it is true that the difference between values in countries of exportation and countries of importation is made up of carrying charges, exchange paid to bankers, and merchants' and shippers' profits; but it is always questioned whether the total amounts thus paid explain the whole difference in computed values. Allowance for freight, insurance, re-exports, customs duties, arbitrary tariff valuations, market values at the place of manufacture, different classifications, and different administrative methods, is inconclusive. Too often it is misleading. The most painstaking investigation of these factors only gives baflfling discrepancies.

Growth in population, machinery as an element in production, subdivision of labor, new lands opened to cultivation — all these are factors in the increase of world trade during a given period. But it is not of great significance whether the total of import values due to these and other causes, which constitutes the world's commerce, amounts to thirty billion dollars or to thirtyone billion dollars in a given year.

The period preceding the Great War was one of abnormally high prices. Whether this was wholly due to gold inflation it is not necessary to examine. The result was to give a fictitious increase to world trade everywhere. There had been some increase in quantity as well as in values, but not a proportionate one. Expanded commerce, through expanded values, with an actual decrease in the quantitative volume of trade, was an incident of the war.

Dollar figures, in describing world commerce, appeal to the imagination by their stupendousness. To talk in billions is to think in billions, and the habit of mind grows ; yet the imagination, in dwelling on these figures, should not become too riotous. Where the quantities of goods exported increase with rising prices there is a real advance in foreign trade, although the augmented quantities may not be proportionate to the advanced prices. What was a dollar's worth of wheat in export

))ry trade in the midsummer of 1914 had become two dollars* worth in the midsummer of 1917; but the bushel was still only sixty pounds, and five bushels of wheat were still required to make a barrel of flour of one hundred and ninety-six pounds.

Farm products afford numerous illustrations of an actual decrease in volume, as measured by quantity, with an increase in value, as measured by prices. Before the United States became a participant in the war, and before the Government fixed a minimum price for wheat, this tendency was clearly manifested. The same phenomenon was shown in the case of iron and steel products.

In the fiscal year 1915, 259,643,000 bushels of wheat, valued at |333,523,000, were exported. In 1917 the exports were 149,532,000 bushels, valued at |298,180,000. For the same years, respectively, the exports of wheat flour were 16,183,000 barrels, valued at |94,869,000, and 11,942,000 barrels, valued at |93,198,000. In this case a decrease of 4,240,000 barrels meant a decrease of less than 12,000,000 in the values.

In iron and steel products exports of 220,570,000 pounds of wire rods Were valued at |2,744,000 in 1915. The value of 329,786,000 pounds was |9,870,000 in 1917. The value of 168,664 tons of structural iron and steel exports was $6,289,000 in 1915. The value of 339,500 tons was f22,911,000 in 1917.

These examples show that the quantity of exports and imports is a more correct measure of foreign trade than values or prices. Dollar figures should be interpreted in that light. It is apparent, too, that values in the future will afford little satisfaction in seeking to make trade comparisons with the past. The period before the war, as has been stated, was one of abnormal high prices. The war period was one of inflated prices. The period after the war is one of a permanent higher-price level. The dollar is a dearer dollar the world over because it buys less. Some recessions from the extreme prices may be reached, especially in food commodities, but they are not likely to affect the general situation.

The year 1919 may be taken as the yardstick for the years to come. Five years thereafter, or ten years thereafter, it will be possible to make comparisons on the basis of the year 1919. To attempt comparisons on the basis of 1914 would require by laborious processes to set forth what a dollar bought then and what it buys in the years after the war. It is an unnecessary labor. In fixing the position of the United States in world commerce in the future it may therefore prove desirable to give closer attention to quantative measurement rather than to price measurement, or at least to remember that the true nature of this foreign trade is not to be judged solely by tables of values. Dollar figures should be interpreted in that light. They do not impair the position of the United States in international commerce as it may be exhibited by values.

The essential elements of the foreign trade of the United States may be classed as visible and invisible. Some of them are as clear as physical objects to the naked eye, while others are portrayed only through mental imagery. The quantity of goods exported and imported, the volume of the movement, and the total of prices given in terms of monetary values are a simple matter of statistics; but there are intangible elements which also must be taken into account in determining the true worth of foreign trade in the industrial and commercial movement. These include the gain to domestic industries by providing an outlet for excess products, the domestic markets created by export trade, and the steadying influence of the foreign market on the home market ; the effect of the wages paid in production and distribution, the demand created for products of the factory through the business built up by investments abroad, and the benefits arising from the employment of bank reserves in international commerce.

The transportation element may be shown by examples of cargoes originating at points distant from the seaboard. A carload of agricultural implements shipped from Chattanooga to Savannah, for export, before the war, paid at the rate of twenty-five cents per hundred pounds in carload lots. This meant |50 for a single carload of 20,000 pounds, or flOOO for a trainload of twenty cars. The |1000 freight on the twenty carloads was divided beween labor and capital, since it was paid out in wages, salaries, interest on bonded debt, and in dividends on stock. It was an addition to the amount paid out in the Tvages of production from the primary material until this was transformed into a carload of plows, for which the Argentine farmers paid the community of Chattanooga.

Similar analysis may be applied to a hundred carloads of mining machinery shipped from Chicago to New Orleans for ocean carriage through the Panama Canal to the mines of Peru and Chile ; to a trainload of coal from the West Virginia mines to tidewater at Newport News for sea freightage to Rio de Janeiro or Buenos Aires ; to a cargo of crucible steel products from Pittsburgh to New York for ocean carriage to European ports; to twenty carloads of wire products from Birmingham to Savannah for shipment to Brazil and the Argentine Republic ; to a trainload of packing-house products from Kansas City to New Orleans for distribution throughout the West Indies ; to a cargo of wheat from the Dakotas or flour from Minneapolis to seaboard for carriage across the Atlantic to Italy and ^pain ; or to carloads of cotton from the Texan plantations to Galveston for ocean carriage to Liverpool. The deduction is clear that the transportation of products from the interior to seaboard, or to the frontier, as in the cases of Canada and Mexico, is an added source of income to the whole country that would not exist in the absence of foreign trade.

Another intangible, but very definite, benefit of foreign trade is that of having an excess of goods taken from the home market, and of aiding the manufacturer to reduce overhead charges and secure full return on his capital by enabling him to employ his factory capacity to its full extent. This does not need to be stated in theoretical terms. In illustration, the anarchy in Mexico in 1913 caused a falling off of |20,000,000 in the exportation of products from the United States, so that the factory output was reduced by a definite quantity, and there was less employment.

This meant just that much subtraction from the general sum of industrial activity in the profitable employment of labor and capital during a year of notable business depression. The loss was not entirely negative. since the purchasing power in the domestic market was reduced by the amount of money that would have been received from these commodities, a loss to the producer of the raw material that would have been consumed in the factory, to the wage-earners who would have turned it into finished product, and to the transportation companies that would have carried these products to the Mexican markets.

A common method of illustrating the benefit of foreign trade is the geographical one. This was employed by Mr. Blaine in his campaign for enlarging the markets of the United States in South America. He analyzed the cargo of an outgoing vessel, the various commodities of which the cargo was made up, and the part of the country from which these commodities came. This method might be called the sentimental one. It is useful in localizing the subject.

The relation of foreign trade to domestic prosperity must be determined in the light of the intangible elements as well as of the visible values, but even in a comparison of visible values the tendency is to overestimate the internal movement and to understate the foreign movement. The wheat-fields of the West and the cotton-plantations of the South are drawn on by the flour-mills and the textile factories for raw material whether their products be consumed at home or be sent abroad. The same fields and the same factories provide the industrial and commercial activities, so that there is no exact means of separating the essentials of domestic trade from the essentials of foreign trade. They are not distinct, but blend together.

The factors of internal trade in the United States, in official formula, are manufactures, agricultural products, mining products and minerals, fisheries and furs, the value of imported goods, and the value added to the foregoing groups by transportation. A midyear of the war period serves for illustration. An estimate on this basis fixed the internal trade of the United States for 1915 approximately at $45,000,000,000. The value of the foreign trade for the same year, as shown by actual statistics of exportation, was a fraction less than |4,500, 000,000. On this reckoning the foreign trade in the year given was approximately ten per cent, of the commercial activities of the country, without allowance for the intangible values, such as those noted above. It may be remarked further that the domestic movement of commerce is based very largely on estimates, while export trade is given in definite terms, based on the specific declaration made by shippers under regulations laid down by the Government.

Two opposite schools of political thought in the United States are not so far apart in their mental attitude toward foreign trade. To those of the Chinese-wall belief exports are of no consequence. They would be content solely with the domestic movement. The other school, that of free trade tendencies, while theoretically equally interested in exports and imports, in practice shows little regard for exports. Its concern is for imports. Even the scholar in politics sometimes errs in failing to give to goods sent abroad their proper place in the commerce of the country. President Wilson, in a speech at Cincinnati in 1916, declared that competent authority placed the export trade of the United States at only four per cent, of the total commercial movement of the country. One of the statistical bureaus of the Government, the Bureau of Foreign and Domestic Commerce, reached a different conclusion, as follows:

Factors of Internal Trade of the United States 1915

Manufactures produced, 1915 $27,800,000,000

(Based on Official Census, 1914, which gave $24,246,323,000.) Agricultural products 10,500,000,000

WHAT FOKEIGN TRADE IS 13

Mining Products, minerals, etc $ 2,500,000,000

Fisheries, furs, etc 500,000,000

Value of imported goods, 1915 1,700,000,000

Value added to foregoing groups by transportation 2,000,000,000

(Freight earnings of leading railways, Interstate Commerce Commission.)

Total Internal trade $45,000,000,000

Value of foreign commerce, fiscal year, 1915 $ 4,442,759,000 Eelation of foreign trade to estimated internal trade, 9.83 per cent.

The turn-over of a country's business, as measured by bank clearings, stock sales, and similar transactions, is not a true standard on which to determine the comparative values of domestic and export trade. It presents a series of duplications. Production is a more certain standard. It reaches back from the goods either on the sales-eounter or on board the outgoing vessel, to the farm and the forest, the mine and the factory. The broad view is the one to be taken. This recognizes that domestic trade and foreign trade are not actually separable in determining the factors in national prosperity. They are interworking and interdependent, mutually sustaining and strengthening each other.

With this brief exposition of what constitutes foreign trade and its relation to domestic prosperity, the place of the United States in world commerce may be described. As an exporting country it has progressed from the primitive barter of surplus farm products and the raw materials of industries to the sending abroad of all classes of manufactured products. The nature of this transformation is shown vividly in the exports of agricultural machinery. John Deere, the Vermont blacksmith who settled on the prairies of Illinois and replaced the crude iron blade of the pioneer farmer by steel plows, was one of the leaders in the transition from the export of agricultural products to manufactured articles. The chilled plow of John Oliver was another chapter in this trade expansion. Cyrus McCormick, Hussey, Whitley, Warder, and their rugged generation of inventors and forceful manufacturers made the romance of the reaper in the Mississippi Valley a world romance. So it was, too, with the threshing-machine.

At the close of the Civil War the enterprise of these pioneer makers of farm machinery had opened a foreign market for agricultural implements to the amount of a million dollars. The exports were almost stationary for the next ten years. Then they began to grow, and the growth was rapid until the business of exporting agricultural machinery became a distinctively national one. This is the progress in the exports through the different periods :

The blast-furnace, with its multiform products, is the most comprehensive and illuminating chapter in the commercial expansion of the United States and affords the most striking illustrations of the changing nature of American-foreign trade. The eye in traveling across the page sees the march of exports of iron and steel and their manufactures in this wise :