3 ^ 2 . "A Reprinted from The Annals of the American Academy of Political and Social Science, Philadelphia, March, 1921. Publication No. 1500. The Foreign Trade of the United States Since the Signing of the Armistice By Simon Litman Professor of Economics, University of Illinois T HE abnormal conditions resulting from the War and the slowness with which the world is recovering from its saturnalia of destruction are clearly reflected in the foreign trade sta¬ tistics of the United States. Whether one considers our foreign trade from the angle of the relationship between quantities and values of goods shipped or from that of the ex¬ cess of exports over imports, whether one views it from the standpoint of the character and the direction of the commodities moved or from that of the methods used in financing shipments, I one must conclude that the world in its industrial life is yet under the shadow of the Great War. The turbulent ; waves set into motion on the seas of I international commerce have not yet [subsided, and the movement of goods [and of payments is yet far from what [one would expect it to be in an era of peace and prosperity based upon an [intelligent utilization of the natural re¬ sources in the various regions of the globe. B Four years of exaltation and of jagony, of fear and hope, of hatred and pevotion, four years of roaring cannons [and of bursting shrapnel have left [Europe, the main workshop of the [world, wounded, dazed, incapable of [quickly returning to the sustained effort land the humdrum existence of mill and factory towns. Those who expected [that with Germany’s acknowledgment pf defeat a new industrial Europe pvould immediately emerge from the ruins of the old one proved poor econo- Inists and poorer psychologists. It is somewhat difficult to foretell at present how soon a normal basis in our commercial intercourse with foreign nations will be reached. However, cer¬ tain tendencies are beginning to mani¬ fest themselves which corroborate the contentions of those who have been pointing out the utterly artificial char¬ acter of our trade development since the memorable days of August, 1914. Growth of Export Trade The rapid growth in the value of our foreign commerce which commenced in 1915 and continued through the war was not checked by the cessation of hostilities. During the year ending June 30, 1919, our exports were val¬ ued at $7,232,282,000 and our imports at $3,095,720,000, giving us a total of $10,328,002,000 as contrasted with a total tradeof $8,865,367,000 in 1918 and $4,258,505,000 in 1914. The excess of exports over imports, the largest in the history of the country, equalled $4,136,- 563,000; the excess in 1918 was $2,974,- 056,000 and in 1914, $470,653,000. One of the main characteristics of our trade in 1920 was a rapid advance in the value of imports; they rose to $5,238,622,000, which represented an increase of $2,142,902,000 over the previous year. Exports rose during the same period to $8,111,040,000 and the total trade to $13,349,662,000. Be¬ cause of a much more rapid advance in the value of imports than of exports our so-called “favorable” balance of trade declined to $2,872,418,000. That the high peak in our excess of exports over imports has been reached 1 2 The Annals of the American Academy and passed may be inferred from the fact that for eleven months ending November, 1920, our exports equalled $7,508,424,000 and our imports $5,013,- 299,000. Preliminary estimates of our foreign trade for the calendar year 1920 place the exports at about $8,191,000,- 000 and the imports at approximately $5,468,000,000, leaving a balance in our favor equal to $2,723,000,000; the bal¬ ance of trade in the calendar year 1919 was $4,016,000,000, or 48 per cent above that of 1920. This decline in the excess of exports over imports may be hailed as one of the most satisfac¬ tory developments in our commercial relations with foreign countries; only through such a decline, if it is carried far enough, shall we, as a creditor na¬ tion, be able to place our foreign com¬ mercial intercourse on a sound busi¬ ness basis. A study of our foreign trade by groups according to use and degree of manufactures shows that finished prod¬ ucts ready for consumption occupy at present the most prominent place in our exports; the exports of this group advanced from $724,908,000 in 1914 to $2,384,018,000 in 1919, and $2,835,- 999,000 in 1920; in percentages of the total the advance was from 31.11 per cent to 33.66 per cent and 35.67 per cent; during the eleven months ending November, 1920, the exports of manu¬ factures ready for consumption rose to $2,898,000,000 or 39.3 per cent of the total. The value of exported crude mate¬ rials for use in manufacturing ad¬ vanced from $792,716,000 in 1914 to $1,226,486,000 in 1919 and $1,968,- 118,000 in 1920. Crude materials played a more important role in our pre-war exports than in the exports of 1919 or 1920; they constituted 34.03 per cent of the total in 1914, 17.32 per cent in 1919 and 24.75 per cent in 1920. Exports of foodstuffs in crude con¬ dition and food animals increased from $137,495,000 or 5.9 per cent of the total in 1914 to $719,340,000 or 10.16 per cent in 1919; this was followed by a decline to $626,577,000 or 7.88 per cent in 1920; during the eleven months ending November, 1920, the exports in this group advanced to $826,000,000 or 11.2 per cent. The. sharp advance in the exports of foodstuffs, partly or wholly manufactured, carried the fig¬ ures from $293,218,000 or 12.59 per cent of the total in 1914 to $1,783,567,- 000 or 25.19 per cent in 1919 and $1,514,616,000 or 19.05 per cent in 1920; a considerable decline took place during the eleven months ending No¬ vember, 1920, which brought down the exports to $1,028,000,000 or 13.9 per cent. Manufactures for further use in manufacturing advanced from $374,- 224,000 in 1914 to $953,036,000 in 1919 arid $991,921,000 in 1920; they constituted 16.06 per cent of total ex¬ ports in 1914, 13.46 per cent in 1919 and 12.48 per cent in 1920; during the eleven months ending November, 1920, the exports in this group declined to $888,000,000 or 12.1 per cent. United States’ Imports Turning to imports, one finds that crude materials for use in manufactur¬ ing advanced from $632,866,000 or 33.42 per cent in 1914, to $1,250,711,- 000 or 40.4 per cent in 1919 and $2,141,- 645,000 or 40.89 per cent in 1920; the imports in this group declined to $1,684,000,000 or 33.6 per cent during the eleven months ending November, 1920. Imports of foodstuffs in crude con¬ dition and food animals rose from $247,947,000 in 1914 to $376,223,000 in 1919 and to $622,440,000 in 1920; there was a slight decline in the relative im¬ portance of this group; it dropped from 13.09 per cent in 1914 to 12.15 per Foreign Trade of the United States 3 cent in 1919 and 11.88 per cent in 1920; the decline continued through the calendar year of 1920, bringing down the absolute figures for eleven months ending with November to $535,000,000 and the percentage of the total to 10.7. A marked increase took place in the value of our imports of foodstuffs partly or wholly manufactured; the ad¬ vance carried the value from $227,644,- 000 or 12.02 per cent in 1914 to $456,237,000 or 14.74 per cent in 1919, $891,336,000 or 17.02 per cent in 1920 and $1,185,000,000 or 23.6 per cent for the eleven months ending November, 1920. Our imported foodstuffs include such commodities as tea, coffee, cocoa, sugar, bananas, pineapple, cocoanuts, sago and tapioca. While these foods can not be considered as essential to our existence, they have become just as indispensable in the daily diet of our people as rubber, jute, raw silk and many other tropical products have be¬ come indispensable in our industries. We are likely to increase our domestic supply of some of these commodities but, largely because of lack of a suita¬ ble climate, we shall continue to draw upon the tropics for them. The imports of manufactures for fur¬ ther use in manufacturing grew from $319,275,000 or 18.86 per cent of the total in 1914 to $605,806,000 or 19.57 per cent in 1919 and $800,713,000 or 15.28 per cent in 1-920. Imports of manufactures ready for consumption were affected by a disorganization of European industries. In 1914, im¬ ported manufactures were valued at $449,318,000 and constituted 23.72 per cent of our total imports; in 1919, their value was $393,223,000 or 12.7 per cent. The gradual recuperation of Europe is indicated by the rise of our imports in this group to $745,126,000 or 14.22 per cent in 1920, and to $821,- 000,000 or 16.4 per cent for eleven months ending November, 1920. Shipments of War Supplies Decline With the signing of the armistice came a marked decline in our ship¬ ments of war supplies; thus, the exports of refined copper fell from $235,000,000 in 1918 to $118,000,000 in 1919, the exports of steel billets from $165,000,- 000 in 1918 to $77,000,000 in 1919, the exports of explosives from $373,890,000 in 1918 to $122,731,000 in 1919. The decline of our shipments of war supplies was more than counterbal¬ anced by a rapid rise in our shipments of foodstuffs and raw materials to the devastated countries of Europe. While in November, 1918, we exported to Europe goods valued at $297,363,000, by January, 1919, exports to that con¬ tinent rose to $370,479,000, and by June of the same year to $644,604,000. Europe was clamoring for our goods and was willing to pay any price for them as long as we were willing to ex¬ tend her credits. Shipments to Europe were stimulated partly by our desire to feed the hungry and to help the allies in their work of reconstruction and partly by large profits which we were making on our sales. These increased ship¬ ments after the cessation of hostilities were made possible by the discontinu¬ ance or modification of war-time re¬ strictions on trade and by the release of a large amount of shipping space pre¬ viously employed by the military forces. Our total exports to Europe rose from $3,732,174,000 in 1918 to $4,644,937,000 in 1919, most of the in¬ crease having occurred since the armis¬ tice. European demand continued un¬ abated throughout 1920, our exports in that year having reached the figure of $4,864,155,000. These are figures for the fiscal year. A material falling off in our exports to Europe took place during the eleven months ending November, 1920; the decline brought our exports down to 4 The Annals of the American Academy $4,078,584,000, as contrasted with $4,765,537,000 for the eleven months ending November, 1919. One of the reasons for this decline was a marked falling off in our exports of meat and dairy products, Europe beginning to draw more and more upon her own re¬ sources and upon countries other than the United States. During the eleven months ending November, 1919, our shipments of meat and dairy products were valued at $1,044,083,000, while during the same period in 1920 we ex¬ ported these products only to the ex¬ tent of $491,107,000; this represents a decline of 55 per cent. The gradual re¬ cuperation of Europe is also indicated by the falling off in the value of our exports of finished commodities, espe¬ cially consumers’ goods, in favor of raw materials, partly manufactured goods, and finished producers’ goods, such commodities as tools, implements, machinery, mineral oil, etc. The rise in the value of our imports from Europe after the signing of the armistice was slight at first. Imports increased from $20,418,000 in Novem¬ ber, 1918, to $21,816,000 in January, 1919, and to $53,385,000 in June of the same year. Total imports from Europe declined from $895,603,000 in 1914 to $411,578,000 in 1918 and $372,957,000 in 1919; in 1920 they advanced to $1,179,461,000 or more than triple the imports for the previous year; for the eleven months ending November, 1920, our receipts from Europe equalled $1,160,414,000. In connection with the increase of importations from Europe it is worth while to note that a part of this increase has been due not to the reestablishment of European in¬ dustries but to the resumption of Brit¬ ish merchandising activities, England rapidly regaining her former position as an intermediary; thus, out of $524,- 021,000 of goods which came to us in 1920 from the British Isles, about one- half consisted of British re-exports of such commodities as rubber, wool, fur, raw cotton and tin. Effect of War on European Exports The disastrous effect of the war on European exports to the United States may be inferred from the fact that while in 1914 our imports from Europe constituted 47.2 per cent of our total imports, in 1919 they represented only 12.2 per cent; and in 1920 there was a rise to 22.6 per cent. Europe’s re¬ covery is beginning to be felt in our markets as well as in the other markets of the world; and in the not too dis¬ tant future, European competition is likely to become an important factor in international commerce. The changes in our exports and im¬ ports by Grand Divisions, are shown in the accompanying table. The figures show that outside of Europe our best customers were our neighbors of the North American con¬ tinent; it is also from them that we draw a great many of our foreign sup¬ plies. Our total trade with North America rose from $2,340,728,000 in 1919 to $3,122,273,000 in 1920 and $3,341,657,000 during the eleven months ending November, 1920. The fall in prices will doubtless adversely affect the value statistics of this trade as it will affect also the value statistics of our total commerce, but the amount of our imports and exports to and from Canada, Cuba and Mexico is not likely to decline. One of the reasons for the growth of this trade is to be found in the recent investments of American capital in these countries; such invest¬ ments will not be withdrawn; on the contrary, they will, in all probability, be increased. The showing of our trade with South America is not as satisfactory as that with North America, though a Foreign Trade of the United States 5 Exports 1914 1919 1920 11 months ended November, 1920 To Europe. $1,486,499,000 528,645,000 124,540,000 113,426,000 83,568,000 27,902,000 $4,644,937,000 1,288,158,000 400,646,000 604,721,000 208,622,000 85,157,000 $4,864,155,000 1,635,813,000 490,944,000 798,137,000 193,235,000 128,756,000 $4,078,584,000 1,767,391,000 556,614,000 716,788,000 239,977,000 149,070,000 North America. South America. Asia. Oceania. Africa. Imports From Europe. $895,603,000 $372,954,000 $1,179,461,000 $1,160,414,000 North America. 427,399,000 1,052,570,000 1,486,460,000 1,574,266,000 South America. 222,677,000 568,375,000 860,944,000 725,138,000 Asia. 286,952,000 830,904,000 1,368,699,000 1,222,898,000 Oceania. 42,144,000 190,008,000 157,892,000 183,758,000 Africa. 19,149,000 81,066,000 185,196,000 146,828,000 certain improvement is noticeable for the calendar year 1920; our exports to that continent advanced from $490,- 944,000 for the twelve months ending June, 1920, to $556,614,000 for the eleven months ending November of the same year. We have not developed the markets of Argentine, Brazil, Peru, Chile and other South American re¬ publics as well as we might have done especially in view of the fact that our imports from these countries have grown considerably during the past few years; the excess of our imports over exports reached in 1920 the sum of $350,000,000. Neither have we in¬ creased our exports to Asia in propor¬ tion to the growth of our dependence upon that continent for its products; our exports to Asia in 1920 were $798,137,000 while our imports equalled $1,368,699,000, representing an excess of imports over exports equalling $570,562,000. Thus, while we have been piling up enormous balances in our favor in Europe, we have been ac¬ cumulating liabilities in other parts of the world. Our investments in Asia and South America are too small as yet to view the excess shipments as representing payments of interest to us, and while some of these shipments may have been made in fulfilment of European obliga¬ tions, the proportion of such ship¬ ments was comparatively small. One must not overlook the fact that the financing of American exports to Europe by the Government did not end with the war. At the time of the signing of the armistice the credits ex¬ tended to the allies were $8,500,000,000 out of $10,000,000,000 appropriated by Congress for that purpose. The ex¬ tension of government credit contin¬ ued until the total sum appropriated was reached. This occurred in the middle of 1919. Since then private in¬ terests took upon themselves the finan¬ cing of sales. The extent to which our credits to European customers have been stretched may be realized when 6 The Annals of the American Academy one reflects that during the two years since the termination of the war Europe’s debt to us increased by about $8,000,000,000, of which$3,500,000,000 represents a floating debt, largely open book accounts. Our shipments to Europe have been kept up month after month and year after year without any serious consideration of the ability of European purchasers to meet their obligations. We have thus accumu¬ lated a large volume of book credits with little likelihood of their being liquidated within a reasonably near future. The abnormal growth in the value of our commerce during the war was due largely to a rise in prices. Measured in terms of quantity our gains in exports and imports were considerably smaller than value statistics indicate. Price inflation continued after the signing of the armistice, prices of many commod¬ ities having risen above the war level. It is only recently that price declines have set in. Value statistics of the post-war commerce of the United States are thus just as misleading as indicators of the actual movement of goods as were value statistics for the years 1915-1918. Mr. O. P. Austin in the October, 1920, issue of The Americas compares the quantity and value of exports and imports for 1914, the fiscal year just preceding the war, with 1920, the first year of peace. By using those com¬ modities for which both weight and value are stated in governmental re¬ turns, he arrives at the following re¬ sults: While the weight of our im¬ ports increased from 34,992,000,000 pounds in 1914 to 57,978,000,000 pounds in 1920 or 65.6 per cent, the value of these imports rose from $1,163,000,000 to $3,999,000,000 or 243.9 per cent; the weight of exports rose from 110,409,000,000 in 1914 to 148,693,000,000 in 1920 or 34.6 per cent; the value rise was from $1,667,- 000,000 to $5,474,000,000 or 225 per cent. If one applies the 1914 prices to 1920 quantities, one obtains as the value of imports in 1920, $1,977,000,000 and the value of exports, $2,308,000,- 000. Assuming that a similar relation of 1920 prices per unit of quantify oc¬ curred in those articles in which weights are not shown, Mr. Austin arrives at the conclusion that the total domestic exports of 1920, the value of which was $7,950,000,000, would, if stated in 1914 prices, have amounted to only about $3,340,000,000, and the total imports would have amounted at the same val¬ uation to $2,600,000,000 instead of $5,239,000,000. Reasons for Our “Favorable” Bal¬ ance of Trade Those who have been viewing with apprehension our recent large excesses of exports over imports and who have been asking themselves the question as to how such excesses may be reduced, will derive some comfort from the knowledge that one of the reasons for our “favorable” balance of trade may be found in the fact that the rise in prices of the articles exported by us was much greater than the rise in prices of the articles imported. Our imports were mostly from areas not affected by the war and they con¬ sisted mostly of commodities which were not necessary for military pur¬ poses, while the majority of our exports were goods urgently needed; first, to carry on the conflict, and then to feed the starving millions of Europe and to assist in the rehabilitation of their industries. Urgency of demand, coupled with limitation of supply, forced the prices of our export goods sharply upwards. It was only after the signing of the armistice that many of the import prices went up anywhere in proportion The International Trade Situation in Canada 7 to the advance in export prices. While prices and not excessive exports were our shipments, especially those to mainly responsible for the top-heavy Europe, were large, it is nearer the condition of our war and post-war truth to say that excessive export commerce. .