Senator FLANDERS. If it continues unabated, it would seem to make it difficult for us to export, and it would seem to render us open to competition that we cannot meet from imports.

Now, the question I want to ask is this: Do you feel that this particular type of inflation which we are experiencing now is one which has been contemplated in the background of support for the reciprocal-trade movement in general? Isn't it a new phenomenon?

Mr. SPARBOE. It certainly has been accelerated since during and since World War II, and I do not suppose it could be said that anybody in or out of Congress or business could foresee or anticipate or relish the prospects of inflation, so I don't suppose in any of our deliberations it ever was taken into account. I don't think it can ever be. Senator FLANDERS. Of course, the fact that we do not relish it does not mean that we should not look at it.

Mr. SPARBOE. No.

Senator FLANDERS. It won't go away if we stop looking at it. Mr. SPARBOE. Would you go so far as to say we should try to avoid it?

Senator FLANDERS. Yes.

Mr. SPARBOE. Increasing imports tend to moderate the tendency toward inflation; I am sure you recognize that. It is, Senator Flanders, one break.

Senator FLANDERS. It moderates it by making it impossible for us to compete with foreign imports; that is the way it moderates it. Isn't that true?

Mr. SPARBOE. It tends to, should I say, reduce the appetite for keeping on raising our own costs; that is what we do, raise our own costs. Senator FLANDERS. Your remedy, then, for the wage-price-profit spiral would be to be a little bit freer with letting in imports as a check on that?

Mr. SPARBOE. Just as I would expect your State to have an opportunity to compete vigorously in Minnesota as a good asset to us to sort of hold down our idea of increasing our costs and wages, I think, to the same extent, imports would provide the same protection; yes,

sir.

Senator FLANDERS. Our region has been subjected to that internal competition in connection, particularly, with our textile industries. Mr. SPARBOE. Yes, sir.

Senator FLANDERS. Large portions of it have moved down into the South. We have not, therefore, been-well, we have not thought seri ously of leaving the Union on that account. We have regretfully accepted it. We have tried every possible means of replacing the lost business with new business.

Mr. SPARBOE. Very well done.

Senator FLANDERS. And we have, in general, found that possible. However, as to carrying out of the same thing on a worldwide scale it is a little different. It is psychologically different, of course. We are more resigned, psychologically, to losing business to Alabama than we are to losing it to Japan.

That, probably, is a rationalization, but it, nevertheless, is one of the facts of life. The Alabamians are fellow citizens, and we have lost to them. We have done the best we could, which has been pretty good, by the way.

When it comes not to this industry or that industry but, apparently. wholesale rise of production costs in this country, doesn't that make a different situation from such a thing as the loss of the textile industry to Alabama?

Mr. SPARBOE. Well, permit me to say I do not think it changes it one iota basically, economically. As you said, psychologically, we like to think it should, but I do not think the economics in Windsor, Ontario, are any different than they are in Detroit.

Senator FLANDERS. I cannot accept that notion that there is nothing critical in the wholesale clear-across-the-board. We are suf fering at the present time from inflation. It seems to me that it puts a different aspect on reciprocal trade, because it puts a different aspect on foreign competition.

It does not mean that our whole range of industry at once comes into competition, but it does mean that our whole position is weaker than it has been.

Mr. SPARBOE. May I volunteer something, Senator?

Senator FLANDERS. Yes.

Mr. SPARBOE. I am glad you used the name "foreign trade" because so many people think of merely exports and imports.

I should remind all of us that just like you cannot have just white meat or dark meat on a chicken, you have got to be either in favor of the chicken or you have not got any chicken.

You have got to have foreign trade which as you say is imports and exports. So whether we have got inflation or whether we have not or whether we have a competitive situation or not, if you don't like the imports, the dark meat, you won't have the exports or the white meat, so jobs are involved there too and huge industries and agriculture, as Mr. Carlson well knows, are involved.

So I do not think that is as relevant as some people would like because if you are going to destroy one you do both, you destroy the whole chicken.

Senator FLANDERS. I would like to make an irrelevant comment on the subject of dark meat and white meat.

Mrs. Flanders prefers white meat, and I prefer dark meat and it makes a very good combination. [Laughter.]

Mr. SPARBOE. I am not so fortunate

Senator FLANDERS. Perhaps you could draw some moral from that in the case that you are presenting here.

Mr. SPARBOE. I wish my family were so situated.

Senator FLANDERS. The whole picture of foreign trade and the balance of trade, of course involves a lot of items visible and invisible. Mr. SPARBOE. Correct.

Senator FLANDERS. Material, goods and services, travel and remittances, and whatnot, a whole list of things. I wish you could agree with me that the particular kind of inflation that we are undergoing now is one which, at the moment, presents serious problems with rela tion to competition from abroad, and that if not stopped in some way, will increase those complications.

Mr. SPARBOE. I agree with you, sir, except instead of trying to accommodate ourselves to the disease, it seems we should address ourselves toward the disease and cure the inflation rather than the re

verse.

I think we are just going to dig our graves if we go in the other direction.

Senator FLANDERS. The real remedy is to cure the disease, and I wish that we had that subject up for discussion, because it is a very pertinent question.

The only remedy I see within the limits of the subject we are discussing at the present time, would be to stimulate somehow the same kind of inflation abroad that we are having here. Have you any suggestions as to that?

Mr. SPARBOE. You mean let them get the measles too?

Senator FLANDERS. Yes.

Mr. SPARBOE. I think some of them are getting them rapidly. Some countries, Colombia, Brazil, Chile in Latin America, they are really suffering from a greater degree of inflation than we are.

Senator FLANDERS. Yes, it is taking hold here and there.

Mr. SPARBOE. Yes, that is true.

Senator FLANDERS. But that is about the only practical or impractical remedy that I have seen for this particular situation. I just simply, Mr. Sparboe, wish to express my concern with the dangers inherent in our inflationary spiral, and to earnestly suggest that at least the administration of the act, and possibly the act itself, take more serious account of this competitive situation than it has in the past.

It is from a conviction that we are facing a new situation with regard to foreign competition, that I am expecting to move for a 3-year extension only. I would also want to see a somewhat more competent and objective examination of the conditions of reciprocal trade, than any report that I have seen has previously made. My present inten tion is not to put myself in the position of an enemy of the reciprocal trade.

I am simply saying that I think present conditions require a better look at it than we have had in the past. So if you see me or hear of my speaking or voting in that direction, you must not be surprised. That is all, Mr. Chairman.

Senator FREAR. I suppose to be forewarned is to be forearmed.
Senator Flanders, have you finished?

Senator FLANDERS. Yes.

Senator LONG. Do you regard a protective tariff as a subsidy, Mr. Sparboe?

Mr. SPARBOE. An indirect subsidy, yes, sir.

Senator LONG. A subsidy?

Mr. SPARBOE. It is an indirect subsidy. I do not think it is a direct subsidy, generally speaking, yes, sir.

Senator LONG. You can qualify or modify it, but, if a tariff keeps out the competing product and permits the American industry to sell its product at a higher price, it does amount to a subsidy, does it not? Mr. SPARBOE. Yes, sir.

Senator LONG. The ideal for trade is that each nation produce those things which it can produce most cheaply and import those things which others can produce most cheaply. Under ideal circumstances this permits a higher standard of living for all peoples, does it not? Mr. SPARBOE. Certainly.

Senator LONG. What is your view of a nation that tends to become a higher cost producer of practically everything?

How should they go about trading?

Mr. SPARBOE. There is no hocus-pocus way, whether it is General mills or Pillsbury or Uncle Sam. It is our job as producers to accommodate ourselves to the willingness of customers to pay for a thing, and all the other nations are going to have a dandy time trading around us until we wake up to that fact.

And it is the same way with companies who permit their costs to get out of whack.

Senator LONG. Your theory is (a), you should not permit that to happen

Mr. SPARBOE. Well, you should certainly not encourage it. I know it happens. It happens in companies. We should not permit it but we do sometimes.

Senator LONG. It occurs to me that American costs sometimes tend to keep going up and I wonder what will happen when we become a high cost producer of everything.

Mr. SPARBOE. Well, we will be a more isolationist nation in everything.

Senator LONG. You have to decide what you want to export if you are going to continue to import it and then subsidize that which you decide to import?

Mr. SPARBOE. I would hate to be in that kind of an economy. Compared to what he is scared about, I do not know where it would end up but I think it would be awful."

Senator LONG. Aren't we doing that when we subsidize our farm exports?

Mr. SPARBOE. We are certainly starting on the road.

Senator LONG. This Nation can produce farm commodities much more easily, than most nations.

We have better land, more mechanization and ideal conditions in many respects. We have replanted pine or other types of trees on most of our hill lands under different programs, and the land we are cultivating is that on which production is most economical. We nevertheless tend to be a high-cost producer of some farm commodities and have to subsidize them to get them on the world market; don't we?

Mr. SPARBOE. I think you have neglected to mention the high price support. High costs are one thing, high-price supports are another thing; would you agree?

There are lots of farmers who are getting rich under what you have called, I think erroneously, a high-cost situation. The high cost is there to accomodate the highest cost producers in the country and makes the fellow who has low costs absolutely rich, the result is we have got suffocating surpluses.

Senator LONG. I am not saying we do not have subsidies with regard to the agricultural program. We have surpluses in quite a few other things. I just want to see where all this leads us, because I think we are going to be a high-cost producer of a great many things. Mr. SPARBOE. Would you agree we are low cost in some? Senator LONG. We would have to be because we are now exporting more than we are importing; are we not?

Mr. SPARBOE. Yes, sir.

Senator LONG. What do you think about the investments of Americans in established industries whose goods a foreign producer can manufacture more cheaply?

Do you feel that we should try to protect the investments indefinitely or to arrange some standard or period of time in which they would have protection? Or do you think we ought to allow them to be driven out of business at the time the foreign producer becomes the low-cost producer?

Mr. SPARBOE. Senator, I have been in foreign trade nearly 40 years and in domestic trade very little.

But I have never been able to observe any particular difference, if we believe in the private enterprise system and the competitive system as vigorously as we profess to in the United States where we have the Federal Trade Commission and Department of Justice whacking you over the head to compete to death.

I have never been able to convince myself there was never anything wrong in the long pull expecting to do that the minute you get over the border and keep on going, if you expect to deal in the market.

If you want to go for the moon or stay around the wall then you could accommodate ourselves to whatever we choose to do but we cannot, as Mr. Carlson knows, cannot afford to-you are not going to eat all the stuff we are going to produce in agriculture.

You are not going to wear and utilize all of the things that many of our basic industries are capable of producing so it is not a question of what are we going to do; it is a question of what we have got to do, because the customer over there is the boss over whether he is going to take our things and at what price.

Senator LONG. I wonder, Mr. Sparboe, if you would feel the same way if you were in the textile industry.

Suppose that after the war you had said Japan should do things the way we do. Suppose that you had gone to Japan and said, "You have got the wrong kind of machinery. Use mine."

You would have arranged a loan for them, and helped them to get the kind of machinery you had. You would have said, "You have not got your production line organized the right way; do it like we do it."

You would have shown them how to do that and said, "Your labor is not turning out the best way, do it like we do."

They would have had a low labor cost and lower cost of materials and been in a position to produce any given item cheaper than you. What would you have done then? Would you have gone out of business or would you have said, "Wait a minute, let's see if we can't slow this down or turn away from ideal trade."

Mr. SPARBOE. Have some of the textile companies come because of competition in the United States? I am sure they have, some are more clever, more ingenious, have better machinery, and so forth.

It seems to me are we going to concern ourselves about that, keep the fellow out of business who could not compete? Is it bad to do that and yet is it good to deal with the Japanese?

I am not forgetting that the Japanese, but I am reminded that they take and have taken for the last 3 or 4 years more agricultural products than any other country in the world, including cotton. They buy cotton in Memphis exactly like the man in Memphis and have to