298. Memorandum From the National Export Expansion Coordinator (Goldy) to Secretary of Commerce Connor1
SUBJECT
- Analysis of Trade Account—1965
I. Introduction and Summary
Exports during the first nine months of 1965 have been running at a seasonally [Page 768] adjusted annual rate of $25.7 billion. This is about the same as 1964’s rate for the entire year of $25.6 billion, and about 3 percent higher than the seasonally adjusted annual rate for the first nine months of 1964.
Exports rose sharply during the final quarter of 1964 and, consequently, it may be that the 3 percent spread between the seasonally adjusted annual rates of 1965 over 1964 will diminish by the time the total year-end figures are available. We anticipate that the total performance for 1965 will be slightly larger than the total performance for 1964.
Imports on the other hand are currently running at a seasonally adjusted annual rate of approximately 12 percent above the seasonally adjusted annual rate for the same period in 1964. The final import figures at the end of the year are likely to be about $20.7 billion, representing an increase of approximately 11 percent. This increase compares with a 9 percent increase in imports in 1964 over 1963.
If, at year’s end, 1965 exports have maintained their 3 percent spread over 1964 and our projections on imports are accurate, it will result in a trade surplus of $5.5 billion—a decline of almost $1.5 billion from the $6.9 billion surplus of 1964. If, however, the spread between 1965 and 1964 exports narrows in the fourth quarter, the surplus could be as low as $5.1 billion—a drop of approximately $1.8 million.
The more optimistic of these estimates is reflected in the attached Chart No. 1,2 which depicts the trends in exports and imports since 1960 and projects the 1965 figures.
Whether or not the projections are accurate, it is clear that imports in 1965 have risen at a somewhat higher rate than in 1964, but exports, which rose 14 percent in 1964, have flattened out this year and will rise only slightly.
The $6.9 billion trade surplus of 1964 could have been maintained in 1965 notwithstanding the increase in imports this year had exports risen 7.5 percent, which compares with the 8.5 percent average annual rate of increase during the past three years.
The sharp decline in the U.S. trade surplus and the leveling off of the export curve raises some questions: Are U.S. exports merely reflecting the trends in worldwide imports in 1965? Notwithstanding the leveling off of exports, has the U.S. maintained its shares of the major import markets of the world, or has the U.S. been supplanted in some of these markets by increased exports from competitor nations? Which of the industries which contributed most significantly to the 14 percent increase in exports last year have lagged in exporting this year? Which of the geographic areas which contributed significantly to our export increases in 1964 account for the slowdown in exports in 1965? And, finally, what are the factors which may have produced the difference in export performance in 1965 as compared with 1964?
In seeking answers to these questions we have reviewed carefully all of the statistical data we could obtain. There are technical reasons why the data is inadequate. One of the more serious problems is that the U. S. trade classification system was changed in 1965, and, as a consequence, difficult corrections must be made for the 1964 data to be comparable. Moreover, certain statistical adjustments have been made in the figures for 1964 and 1965 which add to the difficulties in measuring changes from year to year. In addition, some information is available month by [Page 769] month, and some on a quarterly basis. Consequently, an analysis of the 1965 experience as contrasted with 1964 can be done more accurately when all of the data are available for 1965.
Notwithstanding the above limitations, we are setting forth herein such information as we have been able to glean so that the Cabinet Committee on Balance of Payments may be as fully informed as possible.
II. U.S. Shares of World Markets
Most of the data on the shares on the world markets are available at this time only through June. Such data as we have shows that the U.S. share of free world exports to destinations other than the U.S. declined from 20 percent (January to June 1964) to 19 percent (January to June 1965).
If one looks at the manufactures segment of world exports, the decline in the U.S. percentage share for this same period was greater than for all commodities—from 24.3 percent in the first half of 1964 to 22.6 percent in the first half of 1965. Within the manufacturers category, the items in which the significant declines occurred were chemicals, 26.7 percent in the first half of 1964 to 24.2 percent in the first half of 1965, machinery and transportation equipment, 29.6 percent in the first half of 1964 to 28.7 percent in the first half of 1965. Within the machinery and transportation category, electrical apparatus declined from 26.4 percent in the first half of 1964 to 24.2 percent in the first half of 1965, and transportation equipment declined from 28.5 percent in the first half of 1964 to 27.7 percent in the first half of 1965, notwithstanding significant increases in aircraft exports. The decline in the transportation equipment category is believed to be due in large part to the relative decline in road vehicle exports.
The category of Other Manufactured Goods declined from 17.5 percent in the first half of 1964 to 15.3 percent in the first half of 1965, and within the category, metals declined from 15.3 percent in the first half of 1964 to 14.2 percent in the first half of 1965.
When one examines the latest available data on U.S. shares of imports into all foreign areas, one finds that our share has declined by 1 percentage point. Within the category, significant differences are noted in the change in U.S. shares of total imports by geographic area. The most significant declines in shares occurred in Japan where the U.S. share (January to August 1964) was 30.2 percent and had declined in the same months of 1965 to 28.8 percent. U.S. share of total imports into all developing countries declined from 29.4 percent (January to June 1964) to 28.4 percent during the first six months of 1965. With respect to 19 Latin American Republics, the U.S. share of total imports was 50.3 percent (January to June 1964) and the U.S. share is estimated to have declined to 48.6 percent during the first six months of 1965.
[Page 770]The United States has come close to holding its share of total imports into Western Europe, and this is true whether or not trade between the Common Market countries is excluded as being internal.
The United States has actually increased its share of the Canadian market, going from 69.6 percent of total imports (January through August 1964) to 70.5 percent during the first 8 months of 1965.
The conclusion to be derived from the foregoing figures is that the United States has not maintained its share of world trade during the first half of 1965, and that its exports have declined more than can be accounted for by worldwide export and import trends. A further indication of this is that Western Europe has increased its exports during the first half of 1965 to countries other than the U.S. by 10 percent, and Japan has increased its exports during that period by 36 percent.
III. Changes in Export Performance by Industry
There is attached as Table I3 a breakdown of U.S. exports by various major categories for the period 1960 through September 1965. This table reflects the values and percentage changes in exports that have occurred in each year and as between January–September 1965 and January–September 1964. Some of the more significant changes which have occurred are as follows: Agricultural exports [Page 771] during the first nine months of 1965 are off about 3 percent from 1964. This is reflected in Table I in the 4 percent decline that has occurred thus far this year in the Food and Live Animals category as contrasted with a 12 percent increase in 1964; the 9 percent decline in Beverages and Tobacco thus far in 1965 as contrasted with a 4 percent increase in 1964; the 4 percent drop in crude materials in 1965 as contrasted with the 19 percent increase in 1964; and a 28 percent increase in the Animal and Vegetable Oils and Fats section as contrasted with a 36 percent increase in 1964.
Another significant category is chemicals which increased 1 percent during the first 9 months of 1965 over the first nine months of 1964, but had increased 19 percent in 1964 over 1963.
Still another significant change in performance is in the Machinery and Transport Equipment category which has increased 7 percent in the first nine months of 1965 over 1964, but had increased 13 percent during 1964 over 1963. Within this category the most significant difference has been in the machinery component which has increased 6 percent during the first nine months of 1965 over 1964, but had increased 16 percent in 1964 over 1963.
It will be noted that the transport equipment category reflects a higher percentage increase in 1965 over 1964 than in 1964 over 1963. This reflects particularly the sizable increases in aircraft exports—29 percent during the first nine months of 1965 over the first nine months of 1964 as contrasted with a slight decline in 1964 over 1963. There has been, however, a significant change in the Road Motor Vehicle category which has increased only 4 percent during the first nine months of 1965 over 1964 as contrasted with a 12 percent increase in 1964 over 1963.
The broad category, “Other Manufactured Goods,” which includes metals, paper, textiles, and most consumer goods, also shows a significant change in that exports have increased during the first nine months of 1965 over 1964 by 4 percent as contrasted with a 13 percent increase in 1964 over 1963.
While it is possible to refine further some of the above figures by using a more detailed classification, there are dangers in doing so because of the change in classification between 1965 and 1964, and the resulting noncomparability of some of the data.
IV. Changes in Export Performance by Major World Areas
Attached is Table II which sets forth U.S. exports to major world areas 1960 through August, 1965. This table reflects the export values and percentage changes year by year in broad geographic groupings. (The most recent detailed data with respect to imports from the U.S. into 50 of the major world markets and the U.S. share of those markets is contained in the World Market Report in the October 25 issue of International Commerce.)
An examination of Table II shows the following changes in export performance during the first eight months of 1965 as contrasted with the first eight months of 1964, and as compared with previous years: During the first eight months of 1965 exports to Western Europe were up by about one percent as compared with the same period of 1964, whereas in 1964 exports to this area increased by 11 percent over 1963. Similarly, exports to the American Republics declined in the first eight months of 1965 3 percent from 1964, whereas in 1964 exports increased 16 percent over 1963. Exports to Canada have increased 13 percent during the first eight months of 1965 over 1964, whereas they had increased 15 percent in 1964 over 1963. With respect to other developed countries (Japan, Australia, New Zealand, and South Africa), exports have increased 10 percent during the first eight months of 1965, whereas they had increased 20 percent in 1964 over 1963.
With respect to the Other Areas of the World grouping, exports neither increased nor declined in the first eight months of 1965 over 1964, whereas they increased 13 percent in 1964 over 1963.
V. Analysis of Export Performance
Although final figures for 1965 are not available, it can be concluded that the export performance of the United States in 1965 will be significantly [Page 772] less favorable to the trade account than was the performance in 1964. Many reasons have been offered to explain the difference. Among them are: The adverse effect on exports of the dock strike affecting our East and Gulf Coast ports in January and February; a slow-down in economic growth rates in certain countries of Western Europe and in Japan; reduced export earnings of certain less developed countries due to declines in world commodity prices and, hence, a reduced import capability; a reallocation of resources by U.S. companies to meet the demands of a booming domestic market; and the impact on exports of the inclusion of export credit within the foreign loan restraint program.
Undoubtedly, all of these factors have had some influence on U.S. exports in 1965. The economic slow-down in Japan and the reduced export earnings of the less developed countries could account for reduced exports from the United States but would not explain the reduction in U.S. shares of those markets.
Estimates have been made that the dock strike resulted in over-stating the 1964 trade balance by $160 million and understating the 1965 trade balance by approximately $170 million. If these estimates are correct, the dock strike could account for $330 million of the decline in our trade surplus comparing 1965 with 1964.
While comprehensive data are not available, there is some statistical evidence to demonstrate the likelihood that there has been a significant reallocation of resources by U.S. companies in favor of the domestic market as against the export markets in 1965. We have been told by company executives that this was being done. They indicated that generally sales in the domestic market were more profitable than sales in the export market, and consequently when their companies had to choose in allocating their resources, in most instances the domestic market was favored.
For example, in the non-electrical machinery category, U.S. exports increased during the first nine months of 1965 4 percent over the first nine months of 1964. During the comparable periods of 1964 there was an increase of 16 percent in exports over 1963. In the first nine months of 1964 there was a 9 percent increase in production in this industry whereas in the first nine months of 1965 there has been a 12 percent increase in production. Thus, in 1964, this industry increased its exports by a larger proportion than the total increase in production, and in 1965 it increased its exports by a substantially smaller percentage than its increase in production.
An even more dramatic example is that of machine tools. In 1964 exports of metal cutting tools increased more than 40 percent over 1963. This increase occurred at a time when employment was increasing by 11 percent. In the first nine months this year, exports of metal cutting tools have declined by 17 percent at a time when employment has increased by 10 percent.
[Page 773]Similarly, with respect to metal forming machine tools, exports in 1964 rose about 10 percent over 1963 while employment increased by 8 percent. During the first nine months of 1965 exports have declined by 15 percent while employment has continued to increase by 4 percent.
With respect to the iron and steel mill products category, exports increased in 1964 over 1963 by approximately 29 percent and its production increased by 15 percent. In the first nine months of 1965 exports have declined by 7 percent while overall production has risen by 21 percent.
With respect to automobiles, parts and accessories, exports increased 12 percent during the first nine months of 1964 over the comparable period of 1963 at a time when production was increasing by 1 percent and employment was increasing by 4 percent. During the first nine months of 1965 exports increased only 4 percent notwithstanding an increase of 6 percent in production and 12 percent in employment.
With respect to chemicals, exports increased 19 percent in the first nine months of 1964 over the comparable period of 1963 at a time when production was increasing 8 percent. During the first nine months of 1965, exports increased only 1 percent while production increased 6 percent.
In the case of plastics, exports in 1964 were approximately 25 percent above 1963 while employment increased 6 percent. During the first nine months of 1965, exports increased only 5 percent above 1964 while employment increased 11 percent.
Exports of fertilizers increased 60 percent in 1964 over 1963 with no increase in overall employment. During the first nine months of 1965, however, exports increased only 15 percent over the comparable 1964 period while employment was increasing 5 percent.
With respect to beverages and tobacco, exports increased 4 percent in 1964 over 1963 while employment rose by only 1 percent. Exports during the first nine months of 1965 declined by 9 percent as compared with the comparable period of 1964 while employment remained unchanged.
Exports of textiles other than clothing increased by 19 percent in 1964 over 1965 at a time when production was rising 5 percent. During the first nine months of 1965, exports declined by 8 percent at a time when production was rising by 9 percent.
A final example is in the telecommunications industry whose exports rose by 4 percent in 1964 over 1963 at a time when employment in the industry was declining by approximately 4 percent. During the first nine months of 1965, exports declined 17 percent at a time when employment was increasing 3 percent.
The banks have reported to us that there has been a significant tightening of export credit since the imposition of the 105 percent ceiling on foreign loans. The industries which are most dependent on export financing to maintain their competitive position in foreign markets are: [Page 774] The capital goods industry; other machinery; transport equipment; farm equipment; telecommunications equipment; power equipment; and the engineering-construction industry.
It is interesting to note that most of these industries are included in the list above as among those whose export performance in 1965 has been significantly less favorable than in 1964, and who appear to be allocating more of their resources to the domestic market. In addition to the information already presented with respect to non-electrical machinery, machine tools, iron and steel mill products, automobiles, parts and accessories, and telecommunications, we have noted that the export of agricultural machinery and parts increased by approximately 30 percent in 1964 over 1963, but that during the first nine months of 1965 exports increased only 5 percent over 1964. The export of tractors and parts increased 35 percent in 1964 over 1963, but increased only 7 percent in the first nine months of 1965 over 1964. The export of textile and leather machinery increased approximately 21 percent in 1964 over 1963 but declined by 9 percent in the first nine months of 1965 as compared with 1964.
While these data are by no means conclusive, they do reflect the results we had anticipated based on the restrictions that have been placed on export financing.