by SUMNER WELLES

1

THE lobbyists have staged a comeback. They have been having a field day in Washington. The corridors of the Capitol have been illuminated by their smiles. And the smiles are justified. Not since the days of the Hawley-Smoot Tariff Act have the privileged interests they represent been able to exercise so dominating an influence. Not since the enactment of that fatal measure has the Congress favored legislation which so gravely jeopardizes our national interest.

The lessons to be learned from the results of our economic policy during the years between 1921 and 1933 are being quickly forgotten. The public memory is short, particularly at a time of apparent prosperity. Yet if there was ever any clear-cut demonstration of the damage done to the structure of our modern civilization by the abandonment of those liberal trade policies whose observance by the major European powers was so largely responsible for the peaceful and prosperous world in which we lived at the dawn of the twentieth century, that demonstration is to be found in the effects of the trade and financial practices of the United States after the First World War. They helped to bring on the world depression of the nineteen-thirties. They played no small part in stimulating the growth of those conditions which led to the Second World War.

Two years have passed since V-J Day. Only a few remember these lessons of the recent past. If the present trend persists, we may anticipate a return to precisely the same policies of economic isolation as those of the decades after the Treaty of Versailles.

In 1921 our allies owed us vast war debts. At the same time Germany had agreed to pay them reparations over a period of many years. There was no way in which either of these two sets of obligations could be paid except in gold, in goods, or in services. With the United States already the world’s greatest creditor nation, only a small part of these debts could be paid in gold. Unless the creditor nations were willing to accept goods and sendees front their debtors in discharge of a major part of their obligations, the impoverishment of the debtor countries, and a general default, could not long be postponed.

At that juncture the United States embarked upon a policy of economic as well as political isolation. It demanded the payment in gold of the Allied debts. Yet it repeatedly raised its tariffs so that the debtor nations could not sell their goods in the American market in exchange for gold. While refusing officially to support the Allies in their insistence that Germany should and could pay the reparations due them, it approved the extension of huge credits to Germany by private American interests, although our government knew that these advances were not being used to increase peaceful production for the payment of reparations, but rather for the construction of industries and public works capable of being utilized to prepare the German Reich for a new war of aggression.

So long as the United States refused to a Howother countries to sell their goods here, not only were the Allies prevented from paying their debts to this country, but there could also be no healthy increase in production in other parts of the world.

Moreover, since the United States would not buy foreign goods, she could no longer expect to export her own surpluses of agricultural or manufactured goods unless she was willing to lend foreign purchasers the money with which to buy them, and resign herself to the fact that these new loans could not be repaid. And let it be remembered that the export trade of the United States normally accounts for one tenth of our national income.

If foreign countries were unable to sell to this country it was obvious that they would raise their own tariffs, and resort to exchange controls and to every form of trade preference and discrimination, in the hope that they might thereby at least temporarily bolster their own national economies.

Under such conditions the movement of goods between countries rapidly dwindled. International trade was stifled. A world depression was brought on. Unemployment, poverty, and suffering, and ultimately the triumph of totalitarianism were its consequences. The stage was then prepared for the catastrophe of 1939.

We are accustomed to condemn unsparingly the system of imperial trade preferences agreed upon by the British Commonwealth of Nations at Ottawa in 1932, and the autarchic trade policies adopted by so many other nations at that time. It would be more helpful and more honest were we to ask ourselves the measure of responsibility which the United States must accept for the adoption of these practices.

The world situation which the American people today confront is far more ominous than that which faced the victorious powers in 1919. It is true that Lend-Lease has spared us the problem of Allied debts. But now, as then, a large part of the world’s accumulated wealth has been destroyed or spent in destruction. Now, as then, much of the initial post-war effort must be devoted to the mere rebuilding of houses, factories, and communications. But this time the reconstruction needs are far larger than they were a quarter of a century ago, for the wastage has been infinitely greater. The peoples of Europe and of the Far East have none of those reserves upon which in 1919 they could still draw. What also renders the task of rehabilitation more difficult this time is the fact that the Soviet Union, which after the First World War was a negative force, has today become not only a most positive force, but a force which until now has, unfortunately, shown every inclination to obstruct rather than to join in the work of reconstruction.

A universal coöperative effort is needed if the world is to recover. If the United States reverts to the policy of economic isolation which it pursued so disastrously after the First World War, we shall have not even the glimmer of any hope for prosperity and for a stable international order in the years to come.

2

THERE is no more striking example of the way in which our predatory interests have recently been able to get our government to supply them with fat subsidies at the expense of the American consumer, and to the prejudice of our foreign policy, than the Sugar Act of 1948, forced through the Congress in the closing hours of the last session.

The domestic sugar industry has long been a potent influence in drafting our tariffs. Whenever legislation affecting sugar comes before Congress, the beet sugar industry of the Middle Western and Rocky Mountain states joins hands with the sugar cane industry of Louisiana and of Florida, and with the refining interests of the Atlantic and Pacific seaboards. These politically powerful groups have a working agreement with the great banks controlling sugar production in Puerto Rico, Hawaii, and the Philippines.

It has long been notorious that our own sugar industry is uneconomic. It could not survive except for the subsidies paid to it by the American consumer — directly through compensation handouts, and indirectly through tariff protection, if the American consumer could buy the sugar he needs from Cuba, and from the other sugar-producing areas of the tropics, he would be paying a much lower price.

The combination of these domestic interests in 1930 succeeded, through the Hawley-Smoot Tariff Act, in raising still higher the already exorbitant duties on foreign sugar. Cuba, on the brink of economic depression, and dependent upon her sugar crop for approximately 80 per cent of her national income, was ruined. Most of the Cuban people, and particularly the Cuban workers, were reduced to starvation. The Hawley-Smoot Tariff Act was the chief cause of the social and political upheavals which subsequently afflicted the Republic of Cuba for more than a decade.

The Jones-Costigan Act, sponsored by the Roosevelt administration, and passed by the Congress in 1934, was a constructive and far-sighted attempt to repair the damage done by the special interests responsible for the Hawley-Smoot tariff. The act of 1934 provided for a quota system under which the domestic and territorial producers were allotted an equitable participation in the American market, while Cuba was also given her fair share, as well as the assurance that if consumption should exceed the estimates upon which the quota allocations had been based, Cuba would be permitted to supply the major part of the additional sugar needed.

A trade agreement was then negotiated which reduced the duty on Cuban sugar. Thus the Cuban producers were enabled to obtain a reasonable profit, and once more to provide employment on fair terms for Cuban labor.

In 1937 the Sugar Act of 1934 was extended for a further period. In the new act the so-called fullduty countries of the Western Hemisphere — primarily Peru and the Dominican Republic, since Cuba was granted a 20 per cent preference after her independence — were also given a share in the American market whenever the sugar consumed here was in excess of the annual quota estimates.

The sugar legislation in force during the past fourteen years, by providing a guarantee of an assured market at a fair profit, saved the domestic industry from extinction, as our American sugar producers well know. But it also served the American consumer by preventing the further expansion of an uneconomic industry at the expense of the public. It restored prosperity to the Cuban people, and raised the national incomes of the other American republics which could now sell some of their sugar in this market.

The benefits which the people of the United States secured through this legislation were by no means limited to lower sugar prices, nor to the satisfaction derived from altruism.

Cuba is one of the greatest foreign markets for American exports. Cuba not only buys our manufactured goods; in times of normal prosperity Cuba has also been buying an increasingly large amount of our agricultural products such as lard and rice. But unless Cuba can sell us at a fair profit at least half of the sugar she produces, she cannot pay for the exports she would otherwise buy from the United States.

The influence which the pressure groups were able to exercise in drafting the Sugar Act of 1948 has eliminated the advantages which the American consumer and the peoples of Cuba, Peru, and the Dominican Republic secured from the earlier legislation. Domestic interests have given themselves a share in the American market larger than the total amount of sugar the domestic industry has ever yet been able to produce in any one year. We may be sure that they will press for a still larger share later on.

Such full-duty countries as Peru and the Dominican Republic are now deprived of any chance to sell here. The new act gives Cuba a quota that is less than one half of the amount Cuba has sold us in recent years. To make matters worse, a provision which was inserted in the bill threatens Cuba with a still greater reduction in the amount of sugar she can sell in the United States unless she agrees to pay the claims of a few large American corporations.

Public opinion in the United States does not yet appreciate the impact which all this is having upon our inter-American relations. The inter-American system did not grow up solely because of the political features of our Good Neighbor Policy. It developed because this Government between 1933 and 1946 was willing also to undertake a policy of economic and financial coöperation with the other American republics, and to buy from them as well as to sell to them. The Hawley-Smoot Tariff Act, to the Latin Americans, symbolized our total disregard for their legitimate interests and for their welfare. Had our previous economic policy, as well as our previous interventionist policy, not been reversed in 1933, there would be no inter-American system today.

The economic condition of every one of the Latin American nations is becoming increasingly precarious. They see no sign of any early reconstruction of Europe, where they have always sold a large percentage of their exports. They are faced with rising inflation. Consumers goods and capital goods arc in short supply. Development programs cannot be carried out unless industrialization can be expedited. The dollar reserves they had accumulated during the war will be generally exhausted before the end of the current year. It was for these reasons that so concerted an effort was made by the Latin republics at the Rio Conference to persuade the United States to agree to an inter-American economic program of reciprocal assistance.

Under such conditions the passage of the Sugar Act of 1948 has had disastrous repercussions. It has been regarded throughout the Hemisphere as an indication that the United States is abandoning its coöperative policy toward Latin America and that economic decisions in Washington are once more being made by the same privileged interests that wrote the Hawley-Smoot Act.

3

THE extent to which the lobbies are hamstringing this Government in its attempt to achieve the major objectives of its foreign policy is becoming daily more glaring.

It has become axiomatic to most Americans that the preservation of the British Commonwealth of Nations is essential to the security of the United States and to the maintenance of some form of free enterprise system in the world. The Marshall Plan, the credits already extended to Great Britain, and recognition by this Government that further assistance to London will be necessary so that Britain may emerge from her present collapse are all concrete evidence that the preservation of the British Commonwealth of Nations has properly become a cardinal principle in American foreign policy.

That a majority of the colonics held under the Empire will soon become autonomous nations is apparent. That transformation, however, would strengthen rather than weaken the British Commonwealth were it to increase and not diminish the number of its independent and component democracies, all of them sharing on equal terms with the United Kingdom in the obligations and responsibilities which their partnership involves. Should any of the individual members of the Commonwealth be so shaken by the world crisis as to suffer political or social changes leading to their secession and to their alignment with the authoritarian states, the prejudicial effect of such developments upon the future of the United States would be incalculable.

It would, therefore, seem logical for this Government, in its trade relations with the Commonwealth nations, to adopt measures designed to strengthen their national economies; to increase rather than to lessen the means by which they can secure the dollars they so urgently require.

The prosperity of Australia and New Zealand depends largely upon the profitable sale of their wool to Britain and the United States. Yet, had it not been for a Presidential veto, the Congress in June would have enacted legislation imposing an import tax, in addition to the existing duty, on wool produced in Australia and New Zealand, and would thereby have seriously restricted, if not abolished, the opportunity of these countries to sell their chief export in this market. If the Congress had had its way the blow to the economies of both countries, already greatly strained by the war and by postwar difficulties, would have been shattering. The effect upon public opinion in those two Commonwealth nations can be imagined. The action of the Congress undermined the very real feeling of friendship which had grown up during the war, and did much to check the growing desire on the part of the peoples of both dominions for closer relations with the United States.

Yet here again, in order to provide still fatter subsidies to a single American industry — an industry which cannot supply the various qualities of wool we need nor the total quantity we need, and an industry capable of prospering without further benefits at the expense of the American consumer — the pressure groups in Washington were able to force a majority in the Congress to vote for a measure wholly at variance with one of the most vital objectives in our foreign policy.

4

THE greatest immediate domestic threat to our foreign policy is to be found in the determination of a large number of Republicans and a few Democrats to amend the Trade Agreements Act so as to permit the Congress to nullify in future trade agreements tariff concessions made by the Executive.

For thirteen years the Trade Agreements Act has stood out as the one enlightened and constructive achievement in the field of international trade relations. It has been a beacon in an economic world darkened by autarchy, trade discriminations, and every other kind of impediment to the free flow of commerce between nations.

If the Congress amends the act as proposed, our liberal commercial policy, which has proved itself to be of immeasurable value to American labor, industry, and agriculture, and which has contributed so much toward keeping international trade alive, wall go by the board. Unless the delegation of powers to the Executive granted in the original Trade Agreements Act is continued, the State Department will be prevented from negotiating agreements providing for the continued reduction of barriers to trade between the United States and foreign countries. For if foreign governments are now to be warned that every tariff concession granted by the American Executive may subsequently be canceled by the Congress, what incentive would there be for them to grant corresponding reductions in their own tariffs? If the suggested amendment is adopted, we shall return to the old system of Congressional logrolling, and the people of the United States will then see the speedy erection of a new tariff wall around the United States quite as high as that raised in 1930.

The Marshall Plan has rightly been heralded as the one method so far proposed by which some advance might be made in the economic reconstruction of Western Europe, and by which the social and political collapse of the European democracies could be prevented.

The implications in the Marshall Plan and in the program formulated by the sixteen countries of Western Europe that responded to the suggestions offered in it were clear. The United States, in its own self-interest, would help Western Europe to reach a higher level of production: a level of production sufficient to provide a greater proportion of Europe’s needs, and sufficient to enable Europe, either by selling to us the commodities which she produces and which we need here, or through the operation of triangular trade operations in which the United States would take part, to obtain the dollars required to buy in the dollar area the foodstuffs, raw materials, and manufactured goods which she has to import in order to live and to produce. Unless Europe is permitted thus to procure these additional dollars she needs she cannot recover.

If the pressure groups succeed in their efforts to raise American tariff rates, and to impose other obstacles to the importation of foreign goods, the help we may give Western Europe under the Marshall Plan will prove to be money thrown down the drain. The proposed economic and social reconstruction of Western Europe would be impossible. Whatever hopes the American farmer and the American manufacturer may today possess for the expansion, or even the maintenance, of their export trade must be then abandoned.

It is unfortunate that our State and Commerce Departments should have done so little to make these simple truths clear to American public opinion.

The economic and financial features of our foreign policy are being handled by officials of varying schools of thought. One group is composed of exponents of the principles of the liberal trade policies of the nineteenth century. The theoretical validity of their beliefs is unimpeachable. But they do not seem to be aware of the fact that in a desperately sick world such as we now live in, the immediate application of these classic principles in their entirety may accentuate the ills from which the world’s economy is suffering.

The rigidity of our negotiators was shown by the terms upon which they insisted when the original credit was granted to Great Britain. As the price of making that loan our negotiators demanded that pounds be made freely convertible into dollars in all international transactions after one year, and that Britain should not reduce her imports from the United States without making proportionate reductions in her purchases from other countries.

In a normal and peaceful world such demands on our part would have been altogether desirable if currency restrictions and preferential arrangements were to be eliminated from international trade. Yet our insistence upon these terms, when conditions in every part of the world outside of the Western Hemisphere were altogether abnormal and when Britain could not find outside of the sterling area a market sufficient for the volume of exports upon which her recovery depends, can only be compared to feeding an ailing baby with beefsteak and raw brandy. Such a diet may be tonic for a healthy adult. But it will be bound to kill a sick child.

Now, less than two years after our credit was extended, the United States has reluctantly been compelled to agree to suspend the operation of the terms exacted. But in return for this relaxation of the original terms, it froze the dollars still available to Britain under the credit, and this at the very moment when Britain has a deficit, of $2,800,000,000 in her balance of foreign payments and when this dollar balance is indispensable if the British are not to be forced to use up the last small reserves they possess.

Our negotiators failed accurately to estimate the significance of the underlying factors in Britain’s tragic crisis.

Britain is producing more for export and for her indispensable borne consumption than ever before. Yet the British no longer possess their greatest source of dollars, the returns they received in prewar days from their investments in dollar countries. They are selling only 15 per cent of their exports to the dollar area, while 40 per cent of their imports have had to be bought within that area. At the same time price inflation in the United States has reduced by one third the purchasing power which our $3,750,000,000 credit possessed in this market at the time it was granted.

Under such conditions how can the United States expect Great Britain to apply the liberal trade principles of normal times? How can we expect to assist Great Britain to recovery through credits unless we allow her to sell to us a total approximately equal to what she buys from us?

Among the officials who are handling our economic and financial policies are those who seem bent upon overbargaining. In every international negotiation their sole concern appears to be to stimulate the immediate expansion of American exports. Under present world conditions such insistence is grotesque. When the crying need of every country of the world is more American dollars, for this Government to press further American exports upon countries which cannot pay for them in dollars, particularly at a moment when we are making it increasingly difficult for them to pay for these exports in goods and services, is nothing short of suicidal. It is equally fatal to the rest of the world. And the penalty the United States will pay is that very world depression that the members of the Politburo in Moscow are so avidly anticipating.

Every nation of the world, including the United States, has been living beyond its means. The increased productive effort which the American people have been able successfully to make, safeguarded as they so far have been from the physical destruction resulting from war, has temporarily placed the United States in the position of being the one country which can still maintain its high standard of living and at the same time supply the essential needs of a great part of the rest, of the world.

But this cannot continue indefinitely. Our seeming prosperity cannot last unless the impoverished or ruined nations of the world are enabled speedily to increase their own production. No matter how many Marshall Plans may be devised, no matter how many theoretically unassailable principles may be written into the Charter of the International Trade Organization, and no matter how much financial assistance the United States may be able for the time being to hand out to other peoples, increased production in the rest of the world can only be achieved, and can only be maintained, if the United States permits foreign countries to sell to the American consumer an amount equivalent, in value to the goods they buy from the United States and to the money lent them by the United States.

This issue underlies every phase of our foreign policy. The objectives of our present policy are the strengthening of the United Nations, the prevention of the imperialistic expansion of the Soviet Union, and the political and social reconstruction of those nations whose economies the war has shattered, so that a peaceful and durable world order may at last be established.

If the American people permit the pressure groups in Washington who represent our subsidized interests so to dominate the Congress as to force this country to pursue an economic policy similar to that followed during the years between 1921 and 1933, not one of these objectives in our foreign policy can be attained. The immense sacrifices which the American people made in the Second World War in life and in treasure would then have been made in vain. There could be no surer means of making the Third World War inevitable.