Memorandum by Mr. Rudolf E. Schoenfeld of the Division of Western European Affairs

Conversation: Dr. Puhl, Director of the Reichsbank;
Dr. Hartenstein of the German Ministry of Economics; and
Mr. Sayre.13
Mr. Dunn14 and Mr. Schoenfeld were also present.

Doctor Puhl and Doctor Hartenstein called on Mr. Sayre this morning. Doctor Puhl said he had read with interest Mr. Sayre’s recent book America Must Act. He expressed the opinion that the thesis of the necessity for greater imports if there were to be greater exports would be novel to most Americans.

Mr. Sayre said he was convinced that freer commercial intercourse was essential to improved world conditions. The only hope, we felt, of producing such a condition was through the most-favored-nation policy. The world was suffering, in our opinion, from a system of discriminations. Any bilateral preference meant discrimination against fifty odd countries. Only by the general extension of concessions was it possible to open up channels of trade. For this reason, we felt that we could not make exceptions in individual cases as this would defeat the main aims of our program.

Doctor Puhl said that the German Government shared the views of this Government regarding the necessity of freer trade. Germany, however, was so completely tied down by clearing arrangements that it had practically no free foreign exchange. These arrangements had been forced upon it by countries which were chiefly interested in assuring payment of coupons and interest due their own nationals. Germany would very much like to be able to utilize its exchange for the purchase of necessary American products, such as cotton and lard. The clearing arrangements, however, made it impossible to get at the money. The problem for Germany was how to make a start in breaking down this system.

Mr. Sayre went on to say that he was impressed with the similarity of the problems of economic disarmament and military disarmament. The frontiers were simply bristling with economic barriers of one sort or another. Many countries seemed to regard it as necessary to invest available funds in armaments rather than in imported goods which would expand international trade. Obviously, it was impossible [Page 214] for any one country single-handed to bring about a solution.

Doctor Puhl said that in Germany very little foreign exchange went into armaments. The Reichsbank was in fact surprised at how small the amounts were. Germany’s armaments were produced in the main from domestic raw materials. Germany regarded its armament activities largely as it did public works, namely, as a measure to relieve unemployment.

Mr. Sayre said that we were most desirous of improving the level of our trade with Germany if this could be done without sacrificing the broad principles underlying our program. He would heartily welcome any suggestions as to ways in which the level of trade might be raised.

Just at present a further question was causing him great concern. This was the problem of countervailing duties. The Treasury was interested in the question as to whether bounties or subsidies were paid on German exports to the United States through Aski accounts and other devices. In fact, a request for information on these devices had recently been presented to the German Government.15 Mr. Sayre pointed out that, if bounties or subsidies were paid, it was mandatory upon the Secretary of the Treasury to impose countervailing duties.

Doctor Hartenstein indicated that no subsidies were paid by the German Government on exports to the United States; that German exporters had been obliged to find some way of meeting the devaluation of the dollar; that the Aski system had been devised to meet this situation; and that if it were outlawed, this would render the export problem increasingly difficult. Mr. Sayre said that he realized that, when the countervailing-duty provision of the Tariff Act was framed, the authors probably did not have in mind the question of devaluation. He had alluded to the situation, however, in order to indicate the difficulties.

Mr. Sayre again expressed his deep interest in receiving any suggestions calculated to expand German-American trade.

R. E. Schoenfeld
  1. Francis B. Sayre, Assistant Secretary of State.
  2. James C. Dunn, Special Assistant to the Secretary of State and Chief of the Division of Western European Affairs.
  3. Supra.