We undertook not only to supply our allies and after the war also our former enemies but to fill the vacumm that had developed in the outlying markets. This effort put a severe strain on our production facilities and called for their expansion. A great part of our price inflation was thus brought about.

2. As the war-stricken countries progressed toward economic recovery under the Mashall plan, they needed less of our goods and began to seek recapture of their forsaken overseas markets. There they found us entrenched. We, of course, had not pushed the warbeleaguered nations out of their markets. They simply dropped out as trade casualties of the war. Nevertheless we did not become established in various markets far beyond our prewar penetrations. Our position was, however, not a normal attainment of peacetime trade. 3. Our large export interests do not now wish to retreat from these markets. Our ex-allies and ex-enemies have, therefore, been moved to say, in effect, that if we do not return these markets to their prewar suppliers in keeping with prewar trade patterns, we should open yet wider our own domestic market as a substitute sales outlet for the dollar-short countries. Thus they become natural allies of our Exporters.

4. This combination of United States export interests and foreign exporters have waged a far-flung and intensive campaign to press the United States Government into a yielding disposition. Free or freer trade, they expound, would be better for all the people of the United States and for all the free world than would continuation of the existing so-called high American trade barriers.

In order to give a yet deeper coloration of philanthropy and humanitarianism to their plea, as contrasted with the so-called rank selfishnees of our protected producers, they say that only a tiny, insignificant segment of the American economy would be injured by outright free trade. The displaced employees could be transported to more productive centers such as Detroit and Pittsburg for retraining and a happy life in the steel mills and on the moving production lines. The uprooted capital could be shifted with equally pleasant results and with equal facility.

5. They are abetted in all this by most of our metropolitan newspapers. Newsprint was twice bound on the free list in trade agreements with Canada and Finland, early in the trade-agreements proram. Imports of newsprint paper in 1951 amounted to $513 million, and woodpulp to $260 million.

Thus the newspapers are parties in interest but enjoy the advantage of declaming from the precincts of a privileged sanctuary. Their ditorial writers, cartoonists, columnists, and rewrite men fall dutifally into line and besides putting forward in full measure what is id or written in support of freer trade, very effectively scuttle nearly verything that is said or written in opposition. Needless to say, they not print what is said in this statement; or, if they do, the deskwill so efficiently wield his blue pencil on reporters' copy that ly a garbled or discrediting version will see the light of day. Not only are the free-trade or freer-trade proposals which call for further tariff reductions by the United States full of rank fallacies; they hide a veritable pitfall.

1. To assume that our imports should balance our exports no matter how much our exports have been stimulated by strictly noncom

mercial considerations, is to suggest that our import trade should also desert normal commercial considerations and yield to the demands of international political considerations. To do this would be to destroy private international trade; and perhaps that has been one of the objectives of some of the free-trade promoters.

2. We have already vastly increased our imports: 5.5-fold since 1938 in dollar value and over 50 percent in physical volume. Thi expansion has resulted principally from our war-born prosperity. Ou domestic purchasing power was able to absorb both domestic produc tion and a high volume of imports at high prices. Should the era o full employment pass, thus reducing purchasing power and the na tional income, our imports would also decline, as they have alway done, after first contributing heavily to the deflationary pressure.

The notion that we can guarantee a larger market for imports in this country than the present level, is totally false, unless our domes tic purchasing power should expand yet farther. A forced increas in imports, such as would be necessary to balance exports, almost cer tainly would generate deflationary competitive forces that soon would produce an economic earthquake.

3. It is contrary to the national interest, in the world as we hav known it and still know it, to create a greater dependence of ou economy upon export markets than now exists. Already we find ou agricultural products suffering from a decline in exports. Yet thi decline goes hand in hand with record imports by this country and with foreign economic and military aid. If foreign markets can ex hibit no greater reliability than they now show, under the most favor able circumstances, who could wisely counsel a greater dependenc upon exports? Yet the "trade not aid" philosophy rests upon pre cisely such a concept.

4. Fear is expressed that this country is becoming a have-not nation Therefore we should lower the barriers so that we can buy mor abroad.

That was the subject of an official public report.

Yet the fact is that what bothers the world is not our inability t buy and pay for what we need, but just the opposite. Clearly what i called for is a deemphasis of exports in the domain of national policy We are headed in the wrong direction in placing too much emphasi on exports. By doing so we make it mode difficult for other countries that are really dependent on exports, to reestablish multilateral trad and at the same time put pressure on our domestic industries to ac cept ever increasing foreign competition on a basis that can onl put a damper on expansion, new capital investment and market devel opment.

5. The notion that we can outproduce the remainder of the worl is a dangerous outcropping of national pride. Not only is ou industry not composed wholly of mass-production enterprises, but would be a great misfortune if it were. Millions of people work in smaller diversified industries, in agricultural, fishing, and mining pursuits that are not and perhaps can never be brought under th mass-production process. Therefore their unit costs of production necessarily remain higher and this fact places them at a disadvantag in foreign competition.

It would be a national calamity to give credence to the unaccountably false estimate made in the Daniel Bell report with respect to the number of employees that would be displaced by the system of freer trade which the report proposes. Twenty-five percent of our work force, at least, is employed in industries and branches of agriculture that are vulnerable to import competition.

6. We may, indeed, find soon that the import-dependent nations may regain their accustomed prewar markets in spite of our 14-year entrenchment. They, in fact, made great progress through 1951. Unless the peace of the world is further disrupted, they may resume their progress and push us back to prewar positions; if so, they will not need more of the American market; and if we grant them more out of hand we may awaken to find ourselves beset competitively at home whilst the bonanza markets abroad have vanished.

I wish to offer, Mr. Chairman, a table which shows the extent to which the leading export nations succeeded or failed in recapturing the prewar share of various world markets, from 1947 to 1951. The CHAIRMAN. Without objection, it is so ordered.

Mr. STRACKBEIN. In any event, since we do not yet know how far we are already exposed as a result of tariff reductions already made, it would be unwise and even foolhardy to expose ourselves to a yet greater degree before the returns are in, so to speak.

7. The dollar gap has been described as stubborn, and so it is. However, the economic disruption caused by the war and postwar developments have been of such a magnitude that no recovery of a balance need be expected in a short period. Yet, whereas the excess of our exports in 1947 over imports amounted to $8.6 billion it had in 1950 declined to $1.4 billion. The dollar gap, in other words, was on its way out. With the Korean outbreak the unbalanced condition was prolonged. We added military shipments to economic aid and as a result our exports were again stimulated artificially.

However, that such stimulation should create a requirement that our imports should expand proportionately when there has been no like artificial stimulation of them, does obviously not follow; and it is difficult to follow the logic of those who reason that it does. Our exports would not be as high as they are if they were not artificially stimulated. Our imports are not being subjected to such stimulation. They therefore would be expected to remain more normal and that is what they have been doing. The doctors of "trade not aid" would Low administer synthetic medicines to boost our imports and they Would soon indeed have a patient on their hands.

Much is made of the decline in East-West trade in recent years, and particularly since the Korean outbreak. In a recent speech by the Assistant Secretary of State for Congressional Relations, Mr. Thruston B. Morton, he stated that until World War II nearly one-third of Western Europe's commerce was conducted with Russia, Poland, Hungary, Bulgaria, Rumania, and Czechoslovakia.

The following table shows the percent of total exports that went from various western European countries to the Iron Curtain coun

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tries named above, as well as the percent of imports derived from them:

11938 for all countries, except Germany. German figures are for 1936. Sources: Foreign Commerce Yearbook, 1939, 1951 (MS); Accounts Relating to Trade and Navigation of the United Kingdom, 1938, 1952; Tableau General du Commerce, 1938; Statistique Mensuelle du Commerce Exterieur, 1952; Yearbook of International Trade Statistics, 1951, United Nations; Der Aussenhandel der Bundesrepublic, December 1952; Jaarstatistick van den In-Vit-En Doorvoer, 1938; etc.

This table shows that before World War II only one western European country maintained substantial trade relations with the iron-curtain countries, namely, Germany; and both exports and imports to and from the iron-curtain countries were less than 15 percent of the total German trade. In the case of the United Kingdom the trade was less than 5 percent of the total. France, the Netherlands and Benelux carried on a trade in the neighborhood of 5 percent of their total with the iron-curtain countries.

Where did Mr. Morton obtain his figure of one-third?

Similarly false notions exist with respect to the trade between the United Kingdom and China. This trade is not large, nor was it large before World War II.

In 1938 only 0.93 percent of total exports from the United Kingdom went to China, or $21.3 million. In 1952 these exports had declined to 0.18 percent of total outgoing shipments or to $12.7 million. Shipments to Hong Kong, however, rose from $19.2 million in 1938 to $79.6 million in 1952.

Again, in 1938 only 0.55 percentof British imports came from China. In 1952 this had declined to 0.12 percent. Imports from Hong Kong were very small both in 1938 and 1952.

The total trade of Western Europe has in any case increased appreciably in physical volume since 1938 or 1939, more than sufficient to offset the decline in trade with the iron-curtain countries. According to the Daniel Bell report the volume of European exports is now from 50 percent to 70 percent higher than before the war.

Japan is in a class by herself. China, Formosa, and Korea accounted for 42.2 percent of her imports in 1938 and only 3.98 percent in 1951. In 1938 as high as 61 percent of Japanese exports went to these three areas; in 1951; only 5.2 percent.

We believe that H. R. 4294 should be passed in essentially its present form. Section 8, relating to section 22 of the Agricultural Adjustment Act, should be strengthened in view of the apparent nonrenewal of section 104 of the Defense Production Act. However, I offer no specific language at this time to carry out this recommendation.

H. R. 4294 would go far to remove the unsatisfactory character of the escape clause under its current administration. It is a moderate bill in the light of the congressional responsibility in this field.

Proposals for another study of our tariff and foreign trade position have been made and steps have already been taken to launch such a study. Considering the results of the 2 studies that have already been made in the past 2 or 3 years, it is clearly desirable that another study be launched. However, we wish to offer two reservations:

1. H. R. 4294 should be enacted to cover the 1-year interim. In view of the very extensive concessions already made by the United States under the trade agreements program, unmatched in net liberalization of trade by any other country-concessions that have exposed us dangerously, we feel that enactment of the bill would go far to overcome the growing fear of virtual defenselessness of our industry, agriculture and labor against the fast-developing import competition that may in the meantime upset our whole economy.

2. The predominance of the congressional power rather than the executive in direction of the study should be made unmistakable and definite. The field belongs to Congress.

As a final word I think that it is desirable to pose a warning. Our foreign trade policy of the past 14 years, having flourished under the most favorable circumstances, like grasshoppers in the summer sun, bears in it the seeds of a disaster as great as the China policy, if not greater. While our attention was principally directed elsewhere the China policy sprouted and grew and flourished. By the time that we awoke it was too late for effective action and we were left in the unenviable position of hurling accusations and seeking a scapegoat. A little prudent precaution at this time in our foreign trade policy may forestall disaster on the domestic front.

(The material offered for the record by Mr. Strackbein is as follows:)

THE IMPORT QUOTA—SUITABLE INSTRUMENT FOR A LIBERAL TRADE POLICY (By O. R. Strackbein, Chairman, the National Labor-Management Council on Foreign Tade Policy)

Import quotas as a protective device for domestic producers have been employed extensively by various trading nations during the past 3 decades. Recourse to quotas became intensified abroad during the depression of the early thirties. The purpose, however, was not always nor wholly the protection of domestic industry. In many cases the quota was used as a means of protecting the national currency by discouraging unnecessary imports.

The United States, on her part, has utilized import quotas quite sparingly. She has adopted several absolute quotas in pursuance of particular statutes, such as the Sugar Act, section 22 of the Agricultural Adjustment Act, and section 104 of the Defense Production Act. In addition she has negotiated a number of "tariff quotas" under the trade-agreements program. This type of quota is, however, not a true quota but represents a limited tariff concession. It simply permits a given quantity of an article to be imported at a reduced rate while any imports beyond that figure must continue to pay the unreduced rate. Such a quota may or may not be protective, depending upon the level of the unreduced rate. If that rate is not protective, the imposition of a quota at a lower rate obviously confers no protective function.

Import quotas may, of course, be used as highly restrictive devices against imports and if utilized in that fashion may be a more effective barrier to trade than the ordinary tariff. Because import quotas were used in a highly restrictive manner by other countries against imports from us our Department of State unwisely condemned quotas as such and sought their complete elimination. Quotas were and are often combined with other nontariff restrictions, such as import licenses, exchange controls, bilateral trade agreements, and tariff concessions. In the aggregate these devices represent formidable barriers to trade and are generally used to control and direct foreign trade.