Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX
13. Letter From the President’s Deputy Assistant (Persons) to the Chairman of the Subcommittee on Foreign Trade Policy (Boggs)1
Dear Mr. Boggs: In your letter to the President, dated April 8, 1957,2 you requested from the Executive Branch “an analysis of the requirements and objectives of foreign economic policy … ,3 the manner in which the various instruments of policy are designed to effect these objectives, including the relationship of our trade and tariff policy to other components of foreign economic policy, whether the various components of foreign economic policy constitute an integrated and adequate program and what our foreign economic policy in general and trade and tariff policy in particular can properly be expected to accomplish.” You also asked for the Administration’s views on “the appropriateness of the existing trade agreements legislation and administration in the light of general policy objectives,” and proposals for revision of existing legislative provisions where appropriate.
Attached is a report, submitted on behalf of the Executive Branch in response to your request, for the use of the Subcommittee on Foreign Trade Policy. This material is supplemented by the more detailed reports4 from the various Departments concerned and the Office of Defense Mobilization, prepared in response to your separate requests to them.
As noted in the letter to you of April 13, 1957 from Mr. I. Jack Martin,5 Administrative Assistant to the President, the detailed views of the Administration with respect to the form of the trade agreements legislation next year will not be determined until later this year. For this reason, it has not been possible to include in the report comments on specific features of the trade agreements legislation. It may be said, however, that the Executive Branch strongly favors the continuation of the reciprocal trade agreements legislation.[Page 59]
It is hoped that the attached paper together with the reports from the various Departments and Agencies will be useful to the Subcommittee.
FOREIGN ECONOMIC POLICY AND THE TRADE AGREEMENTS PROGRAM
I. Objectives of Foreign Economic Policy
The broad objective of United States foreign economic policy is identical with that of our general foreign policy and, in fact, of the over-all policy of the United States Government: to protect and advance the national interest, to improve the security and well-being of the United States and its people.
This broad objective of our foreign economic policy has three major components:
A. To promote the economic strength of the United States.
This is the traditional objective of foreign economic policy: expanding foreign markets for the products of our factories, mines and farms; insuring ready access to overseas sources of supplies needed by our economy; permitting the nation to take reasonable advantage of the economies which flow from specialization in production throughout the world; improving conditions for U.S. citizens to invest and do business abroad.
Foreign trade is one of the most important business activities of the United States. Statistics tell an impressive story of the vital role of our international commerce. It is estimated, for example, that the families of at least 41/2 million American workers, or about 7 percent of our labor force, gain their livelihood from foreign trade. A commensurate share of the profits of American business firms is traceable to foreign trade activities. As for exports alone, the value of U.S. goods marketed abroad last year exceeded that of all non-farm home building, or of consumer purchases of automobiles, or of farmers’ gross receipts from either crops or livestock.
Exports comprise about 9 percent of the value of our production of movable goods—8 percent for manufactured goods and 11 percent [Page 60]for agricultural products. For many specific commodities, the proportions of U.S. output sold abroad run substantially higher than the average—for example, according to the latest available annual figures in each case, about 19 percent for trucks, 40 percent for tracklaying tractors, 11 percent for machine tools, 26 percent for construction and mining equipment, 14 percent for coal, and between 25 and 40 percent for cotton, wheat, rice, fats and oils, and tobacco. The vital importance of exports in such cases is beyond dispute; and even among those manufacturing industries with below-average ratios, the great majority depend upon foreign markets for at least some significant share of their sales, profits, and jobs.
It should be noted that the available ratios for many specific commodities seriously understate the true importance of export markets for their producers, since they cover only exports of an industry’s products in the form in which they leave that country. Much of an industry’s output may be exported only in some other form after further processing by other industries, or, even though not physically exported, may be utilized by other industries in production for export. This is particularly true of such primary manufacturing industries as iron and steel or nonferrous metals.
Through foreign trade the United States obtains from abroad a wide range of goods which are not otherwise available here at all or in adequate quantities for industrial needs or consumer demand. Many of these imports are vital to keep factory wheels turning and assembly lines moving. We obtain from foreign sources about one-sixth of our crude petroleum, almost one-fourth of our iron ore, one-third of our copper and rubber, over one-half of our raw wool, and the great bulk of our supplies of tin, nickel and newsprint. Most of our supplies of various ferroalloying ores and metals come from abroad as do industrial diamonds, mica and asbestos.
Altogether, about one-fifth of the crude and semi-manufactured goods imported by the United States in 1956 were officially classified as strategic materials for stockpiling purposes, and another one-fifth consisted of materials (other than those in the stockpile group) obtainable wholly or almost exclusively from foreign sources. Many other raw material imports also represent high proportions of U.S. requirements, and still others supplement predominantly domestic supplies to an important degree.
Imports of foods and manufactured goods bulk smaller in the total than those of industrial materials. Nevertheless, every American household enjoys the variety contributed to our established consumption pattern by imports both of foreign foodstuffs and manufactured consumer goods.[Page 61]
B. To promote the economic strength of the rest of the free world.
This objective has become of major importance within the past decade. We recognize, first of all, that a prosperous world brings economic advantages to our own country. Furthermore, foreign economic growth is necessary for the establishment and maintenance of stable, peaceful and friendly societies abroad. Economic stagnation is a source of unrest which can threaten political stability and, eventually, the peace of the world we are so earnestly seeking to make durable and just. The moderate leadership groups which are in power in most of the less developed countries are under tremendous pressure to speed millions of their countrymen into the Twentieth Century. Failure of these leaders to achieve reasonable economic progress would result in these governments being replaced by others more extreme, more likely to be totalitarian, either of Communist or indigenous origin, and more likely to resort to violence as a means of achieving their objectives. Economic strength abroad also is a prerequisite to the building of solid military forces with which to deter potential Communist subversion or aggression.
C. To build and maintain cohesion in the free world.
Our present foreign policy is built upon a web of relations among virtually all of the free nations. Through the North Atlantic Treaty Organization and the Baghdad Pact, through the Organization of American States, through a variety of other organizations and treaties, we have undertaken to work with friendly countries in building our common strength and in defending ourselves against Communist aggression.
These ties have not been and could not be purely political or military. Without adequate economic support they would be weak and unreliable. Modern power depends upon the basic economic strength of the nations involved. This in turn depends upon the efficient use of domestic and foreign resources, and is reduced when each nation tries to build on its own resources alone.
Moreover, economic disputes can weaken or destroy political and military alliances. For most countries, it is vital to have easy access to foreign markets and foreign sources of basic materials and capital. The jobs and well-being of their people depend on it. Most of our allies are particularly sensitive to this because they depend much more on foreign trade than does the United States.
Countries of the free world are under external and internal pressure to align themselves with the Communist bloc or at least to become neutral in the great power struggle between Communism and the way of life represented by the democracies. To oppose this [Page 62]pressure the United States has used its economic resources and political leadership.
The most difficult problems are posed in the developing countries, particularly those in Asia and Africa. Between our country and those countries today are vast differences in culture, language and social tradition as well as economic attainment. Mutual confidence must be established. This cannot be achieved by words alone.
By working together with the free world countries for their and our economic advancement and for the building of a durable and just international economic order, we can do much to achieve our broad aspirations as a nation. We can demonstrate the community of interest of the peoples of the free world. We can encourage the growth of the idea of democratic and limited government and the basic values on which this rests.
II. The Role of Economic Policies
To achieve these objectives the United States Government has followed three basic economic policies: the expansion of trade, in both goods and services, through the gradual and reciprocal reduction of unjustifiable governmental and private barriers; the promotion of private investment; and the provision of mutual assistance. These policies and their roles are discussed below.
These three policy subjects, however, do not begin to exhaust the immense range of economic matters that are dealt with in our international relations. There is the complex and difficult field of aviation policy. There are problems of shipping, telecommunications, agricultural surplus disposal, currency exchange, East-West trade, and special problems surrounding key commodities such as petroleum, cotton, wheat, and rubber. Our participation in United Nations economic programs is a subject in itself. Foreign policy today is pervaded by economics, and in all these activities the Government seeks closer cooperation with other peoples to the mutual advantage of them and us.
These various components of foreign economic policy are inextricably interrelated. Actions taken with respect to one have a bearing on one or several other components. None can be treated in isolation. They form an integrated whole.
A. Expansion of trade.
The trade and financial policies of the United States Government are designed to help to achieve all three basic objectives of foreign economic policy; to increase the economic strength of the United States, to increase the strength of other countries and to promote the unity of the free world. To the fullest practicable degree [Page 63]they call for the gradual and reciprocal reduction of unjustifiable public and private barriers to trade and payments.
Governmental restrictions have in the past throttled mutually profitable world commerce to the detriment of the United States and of every other nation. To remove unjustifiable barriers and to promote the productive interchange of goods and services is a major task of United States policy.
This task is undertaken primarily through the trade agreements program including the General Agreement on Tariffs and Trade (GATT) and through the International Monetary Fund (IMF). Through the trade agreements program we seek the gradual, selective and reciprocal reduction of tariffs and the elimination of quantitative restrictions on imports and of other governmental barriers to trade. Through the Fund, we seek the promotion of a sound financial basis for the development of international economic relations, including the maintenance of equitable, stable exchange rates, the provision of short-term financial resources to countries short of foreign exchange, and the elimination of governmental restrictions on international payments. Experience through the years has demonstrated clearly the superiority of multilateral discussions and negotiations over bilaterals in achieving the objectives of United States policy in these fields.
By removing or reducing barriers to foreign trade, the United States contributes materially to its own economic advancement and, simultaneously, to that of other countries. When foreign nations reciprocate in tariff reduction, as they must do, and remove restrictions on international payments, the stimulus to our and their economies is increased.
The United States over the years has taken the lead in this program. We have undertaken this task not only because our foreign commerce is greater than that of any other country, but also because of our basic philosophical attitude towards the role of government in economic life. The general philosophy underlying the GATT and the IMF is a practical application of the emphasis in our political thought on the importance of limiting the role of government in economic life and expanding the opportunities for individual choice, initiative and experimentation.
GATT and the IMF are important forums for considering differences which now frequently arise between friendly nations in the area of trade and payments. These differences are largely created as governments, attempting to protect the industrial, agricultural or financial resources of their countries, adopt measures which come in conflict with the objectives of other nations.
Finally, there are U.S. Government policies designed to reduce or eliminate abroad non-governmental barriers to trade, that is, private restrictive business arrangements, and to encourage free [Page 64]competitive enterprise. Policies in these fields are designed to aid American businessmen to operate more freely in foreign commerce and to strengthen the economies of the free world countries.
B. Private foreign investment.
In the interest of United States economic growth—the development of foreign markets and sources of supply—and in the interest of assisting foreign economic growth, the United States has encouraged the outflow of private capital. Private investment not only provides financing but it also takes with it the managerial, entrepreneurial and technical talents which are essential for successful enterprise but are seriously lacking in the less developed countries.
Some of the measures employed, such as Treaties of Friendship, Commerce and Navigation, are designed to improve the investment climate abroad. Others, such as loans to business from the International Finance Corporation and the Export-Import Bank, and the removal of tax impediments, offer a direct stimulus to United States private capital to go abroad.
As the less developed countries achieve a substantial degree of economic growth and as they achieve a greater degree of trust in us and confidence in themselves, the opportunities for private capital will grow. The opportunities are already large in much of Latin America. In the long run, private capital can reduce the demands on the United States Government for financial assistance to foreign countries.
C. Foreign economic and technical assistance.
The Marshall Plan, the United States economic assistance programs for the underdeveloped countries of the free world, the technical cooperation programs, the Export-Import Bank and the International Bank for Reconstruction and Development have been major factors in the growth of both economic strength and a sense of community in the free world.
The success of the Marshall Plan in Western Europe was striking. Economic output quickly reached and exceeded pre-war levels. Economic nationalism, which in the pre-war and immediate post-war periods dominated European governmental policy, has had serious setbacks. Quantitative restrictions upon European trade have been substantially reduced. Limitations on the use of the major European currencies, particularly in the non-dollar world, have been virtually eliminated. U.S. economic aid there, of course, has ceased.
The problems of the less developed countries are much more difficult than those of Western Europe. Many of the former are already overpopulated in relation to their low levels of production. Moreover, the populations are growing rapidly as death rates fall [Page 65]sharply with the introduction of low-cost health measures. Capital is lacking and domestic savings are low. The labor force needs to acquire the basic skills required for a modern economy; these requirements vary from learning to read simple instructions to the strengthening of high-level manpower resources, especially managerial, supervisory, technical and scientific talents. A business or entrepreneurial class must be created or enlarged. In general, basic changes in attitudes and institutions are necessary. Many of these problems can only be resolved slowly and require long-term and persistent measures for their solution.
III. The Trade Agreements Program
Modern U.S. trade policy has its roots in the Trade Agreements Act of 1934.8 Our trade policy rests on the doctrine of reducing unjustifiable government interference to allow international trade to expand in response to market forces. Foreign trade allows nations to take advantage of the specialization of production which is the distinguishing feature of modern economic life. It is the international counterpart of the domestic specialization of function which has been one of the foundations of U.S. national strength.
As discussed above, foreign trade is of great importance to the American people both as consumers and producers. The world’s largest economic power, the United States, is also the world’s largest foreign trader. We have a large stake in a healthy, expanding international trade.
As important as foreign trade is to U.S. employment, production and consumption, it is even greater importance to most of the nations of the free world which cannot match the size and diversity of U.S. natural and human resources. For the major industrial countries such as the United Kingdom, West Germany and France, the ratio of exports to gross national production is three to four times as great as for the United States. For smaller advanced nations, such as Belgium, the Netherlands, Sweden and Switzerland, it is five to nine times as great. For many of the underdeveloped countries, exports are the single largest component of the market part of their economy.
In fact, trade with the United States alone is of significant proportions for many countries. Over two-thirds of total exports of Colombia, Mexico and Cuba go to the United States. For Canada the ratio amounts to 60 percent, while for Brazil and the Philippines it is at least 50 percent.[Page 66]
For many particular commodities the United States is the dominant market. For example, Chile sends two-thirds of her total copper production to the United States; Cuba sells us half of her sugar; Indonesia sells one-quarter of her rubber; Bolivia, one-third of her tin; Brazil, over one-half of her coffee production.
Even Western European countries with relatively large markets on the continent depend to an important extent on exports to the United States. Specific industries depend heavily upon the American market. For example, Switzerland exports to the United States over half of her total production of Emmenthaler and Gruyere cheese and over one-third of her production of watches and watch movements; United Kingdom sends about one-third of her total production of Scotch whiskey to America; Portugal exports about 40 percent of her cork production to this country.
These facts suggest the extent to which the United States has come to occupy a dominant role in critical segments of the economies of many foreign countries. A decline in sales to the United States fundamentally affects income and savings abroad. The availability and growth of the American market is of vital importance to them.
The trade agreements program is designed to contribute to the development of mutually beneficial international trade. In so doing it plays an important role in the achievement of our foreign economic policy objectives. Experience with the program since 1934 demonstrates this conclusively. The Executive Branch strongly favors continuation of the trade agreements program including the extension of the Trade Agreements Act. The life of the program should be extended by the Congress for a sufficient period to provide the essential stability to the program and adequate authority to vouchsafe and expand the gains that have been made in world trade.
The trade agreements program is designed to be realistic and practical. It is recognized that abrupt lowering of barriers to trade can create serious problems in our own as well as foreign economies. Some U.S. industries are particularly sensitive to import competition. A sudden increase in imports may have relatively important effects on their output, profits and employment. The fact that these industries tend to be localized in particular areas of the country increases the magnitude and seriousness of the problem. Thus, the policy of the U.S. Government has been one of gradual and selective tariff reduction, one which gives public consideration to each item before any reduction in tariffs is made, and which provides opportunity for reconsideration when serious injury occurs or is threatened.
The case-by-case approach to tariff reductions permits the Executive Branch to administer the program in a way to provide reasonable assurance that serious injury will not be threatened any [Page 67]industry as a result of a tariff negotiation. The peril point findings of the U.S. Tariff Commission, as required by the Trade Agreements legislation, play an important role to this end. Likewise, provision for reconsideration of a tariff reduction when serious injury does occur or is threatened makes possible the use of appropriate measures for the removal of such threat or serious injury. The Executive Branch subscribes fully to the principles underlying both the peril point and the escape clause provisions of the Trade Agreements Act.
The special consideration given in the Act to protecting essential defense industries has the full support of the Executive Branch. So also do the limitations on imports of agricultural products as provided for within the trade agreements program, and in the controlling legislation, in those instances in which this country has a policy of supporting domestic prices and as a result limits the production or sale of the domestic products.
The GATT has been the instrument by which thirty-five nations, accounting for 80 percent of world trade, have agreed to reduce tariffs and to eliminate quantitative restrictions and other harmful discriminatory practices. It has provided a forum where governments can discuss their trade problems and submit complaints. In this forum differences of policies can be discussed and discord among friendly countries can be reduced. The effectiveness of the GATT can be greatly increased by establishment of an administrative unit, the Organization for Trade Cooperation. The Executive Branch will again urge the Congress to authorize membership in the OTC.
The results of the trade agreements program have been gratifying in terms of reductions in unjustifiable trade barriers, the expansion of world trade, the economic growth of the entire free world, and the development of closer, friendlier international relations. Continuation of this record of achievement depends on the ability of the United States to carry on a constructive program. This is in our own interest as well as that of the entire free world.
Much has been accomplished but much remains to be done. Moreover, there is always the danger that if momentum is lost there will be a lapse into economic nationalism around the free world. This lapse may be confined to individual countries or may be expanded to groups of nations which would have as a major objective discrimination against American goods.
Regional trading plans of all sorts are being proposed throughout the world. Whether such plans, particularly the European Common Market and Free Trade Area, will contribute their full potential to the development of world trade or become restrictive depends very largely on the attitudes and outlook toward trade adopted by [Page 68]the member countries. In part, this depends on the example the United States sets in its own trade policy.
- Source: Eisenhower Library, CFEP Records. Official Use Only. Formerly the Subcommittee on Customs, Tariffs and Reciprocal Trade of the House Ways and Means Committee, the Subcommittee on Foreign Trade Policy was reestablished by the 85th Congress to conduct a study of U.S. foreign trade in the context of general U.S. foreign economic policy. One of the subcommittee’s objectives was to consider questions relating to the extension of the Trade Agreements Act of 1955, scheduled to expire on June 30, 1958.↩
- A copy of this letter is ibid.↩
- Ellipsis in the source text.↩
- Not printed. (Eisenhower Library, CFEP Records)↩
- Not printed. (Ibid.)↩
- Printed from a copy which bears this typed signature.↩
- Official Use Only.↩
- The Trade Agreements Act (P.L. 316), enacted June 12, 1934, was embodied in Section 350 of the revised Tariff Act of 1930 and entitled “Promotion of Foreign Trade”; for text, see 48 Stat. 943.↩