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economic advancement of the less developed countries, but it has not been nearly enough. More aid is needed but so is more trade. To date exports have played a much greater role than foreign aid and they should continue to do so. In the case of one country, India, it earned between 1958-60 nearly $4 billion through trade which was more than the total foreign aid received by that country from all sources during the 10-year period, 1949-59.

THE PROBLEM IS NOT ONLY ECONOMIC

If the developing countries of the world are to grow then they must increase their trade. They need to begin to develop their own industries and they must find markets for these industries. A large domestic market no doubt exists but alone it is not sufficient. The levels of real income need to increase so that there dividual and national incomes trade plays a crucial role.

UT for LDC is hard cash to back up these demands. In this process of increasing both in

It has been clearly demonstrated that if the West is unwilling to aid these countries then the Soviet Union and its satellites will. Between 1954 and 1959 the Communist bloc stepped up its trade with carefully selected less developed countries from $860 million to $2 billion-an increase of 170 percent. Estimates by the Commerce Department suggest that the Sino-Soviet countries supply more than 10 percent of the trade of Turkey, Finland, Iraq, Jordan, Sudan, Cambodia, and Uruguay. It accounts for more than 20 percent of the total trade of Iceland, Guinea, Iran, and Greece. In the recent case of Cuba it is admitted that the U.S. embargo on their products will merely force Cuba to consolidate and expand her already well developed trading patterns with the Communist world. In Africa the Soviet Union has sent much aid in the forms of equipment and manpower to try and win these nations to their particular philosophy. The less developed countries fully realize that they must increase their trade if they are to develop and grow economically. If they find that the nations of the West discriminate, by means of tariff walls, against their goods they will seek markets elsewhere which, of course, means the Sino-Soviet bloc. Thus, not only for economic but also for political reasons we must endeavor to expand our trade with these areas.

THE ROLE OF THE NEW TRADE BILL

Realizing the importance of the role of trade to these nations, President Kennedy in his message to the Congress presenting the proposed new trade bill. H.R. 9900, said:

"Our efforts to aid the developing nations of the world and other friends. however, depend upon more than a demonstration of freedom's vitality and benefits. If their economies are to expand, if their new industries are to be successful, if they are to acquire the foreign exchange funds they will need to replace our aid efforts, these nations must find new outlets for their raw materials and new manufactures. We must make certain that any arrange ments which we make with the European Economic Community are worked out in such a fashion as to insure nondiscriminatory application to all third countries. Even more important, however, the United States and Europe to gether have a joint responsibility to all of the less developed countries of the world-and in this sense we must work together to insure their legitimate aspirations and requirements are fulfilled."

The bill itself in section 213 (a) would give the President powers to reduce or eliminate tariffs on any tropical or forestry commodity or primary product provided that the European Economic Community has made commitments to make comparable reductions and provided that the commodity is not produced in significant quantities in the United States.

Also section 241 of the act explicitly continues the "most favored nation principle so that any tariff cut negotiated with the Common Market will automatically apply to the less developed nations.

Trade with the developing countries of the world is crucial not only to them but also to the continued economic growth of this country. The new tariff legis lation will enable such trade to expand and in so doing enable growth and progress in these countries. Such developments it is hoped will make these na tions less susceptible to the pressures of international communism.

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Source: "A.B.C.'s of Foreign Trade" published in January by the U.S. Department of State.

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HIGH U.S. WAGES HAVE NOT "PRICED UNITED STATES OUT OF WORLD MARKET"

Summary

I. The U.S. competitive record shows that the United States is very much inevid world markets:

in wid (a) The 1960-61 export rise produced a substantially favorable balance markets of trade as the United States sold more than $5 billion worth of goods abroad than the United States bought from abroad. The United States has a sizable favorable trade balance.

(b) Finished manufactures accounted for much of U.S. export rise in those years, and such exported finished manufactures are often produced in high wage U.S. industries.

(c) Finished manufactures account for U.S. favorable trade balance, since the United States exports more than $5 billion more finished manufactures than the United States imports.

(d) The U.S. favorable trade balance is largely with the industrialized countries to Western Europe, Japan, etc., where the U.S. sales are much greater than U.S. purchases.

(e) Major U.S. export industries include high wage industries with average earnings higher than average hourly earnings in all U.S. manufacturing. Their export-related employment represented not only high proportions of their total employment but much of all U.S. export-related employment.

(f) Business, Government, and academic sources are no longer willing to consider "pricing ourselves out of the world market" a realistic statement. II. Competition between U.S. and foreign firms is based on many different Le net factors, of which labor costs is only one, often relatively unimportant item:

(a) Tough U.S. wages are the highest in the world, U.S. firms often can compete in labor costs, because a wage rate is not the wage cost, and fringes and productivity factors also affect the unit labor cost.

(b) United States is competing even in many instances where labor costs are higher in the United States, because other costs, such as raw materials, power, etc., are lower in the United States and because labor costs are a relatively small share of total costs for many products.

(c) Costs are not necessarily the determinant of prices. Costs and prices do not necessarily show a close relationship either here or abroad. III. International wage and price trends show the United States compares favorably with other industrial nations:

(a) Studies show that U.S. wage rises, however measured, compare favorably with those in other countries.

(b) U.S. price changes, either wholesale or retail, compare favorably with major industrial nations.

(c) Trends in wages and prices abroad will probably be upward, as they have been in most recent period, while United States has improved its positions.

IV. Concentration on other aspects of competition, besides wages and labor costs, should be the major effort of a democratic nation, intent on expanding its economy and improving its living standards. Salesmanship, design, and styling for specific markets are important. For the problems caused by low-wage imports, international action is needed. Cutting or curbing U.S. wages would hurt the base of the U.S. economy.

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compet record 1959-61

I. U.S. competitive record

(a) 1960-61 export upsurge widened U.S. favorable balance of trade to $4.9 billion in 1960 and $5.7 billion in 1961.

1959.
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(b) Finished manufactures exports were responsible for much of 1959-60 export rise, accounting for over $1 billion of the over $3 billion rise.

Overall export rise, 1959-60-

Food and agricultural industrial materials--
Nonfarm industrial materials_

Billions

$3.2

.9

1.1

1.2

Finished manufactures___.

(c) Finished manufactures exports caused favorable trade balance in 1960, exceeding finished manufactures imports by about $5.2 billion.

Exports of finished manufactures___

Imports of finished manufactures___

Total____

Other exports__.
Other imports--

Total___.

Billions

$10.5

5.3

5.2

8.9

9.4

-0.5

(d) The favorable trade balance in 1960 was largely with industrialized countries-Western Europe, Canada and Japan, and in the first 9 months of 1961, this favorable balance continued. Various industrial areas showed the following favorable trade balance in 1960 and the first three quarters of 1961. In the first 9 months of 1961 the U.S. exports to Japan were 73 percent more than imports from Japan.

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(e) Major U.S. export industries included high-wage industries with average hourly earnings higher than U.S. average hourly earnings. U.S. average hourly earnings in 1960 for all factory workers were $2.29. Average hourly earnings for major export industries, included $2.83 primary metals, $2.76 transportation equipment, $2.57 machinery except electrical, $2.51 chemicals, and $2.30 electrical machinery.

(f) Quotations from business, Government, and academic sources say United States has not priced itself out of world market:

"I would like to comment specifically on four conceptions, or misconceptions. being given wide circulation these days: One, American producers have priced themselves out of the world markets *

In commenting on the widespread belief that American firms have priced
emselves out of the world markets, I want to sound the note first that, as with
many things, generalizations here are dangerous. In the first place, there is
single 'world market,'"

In any event, on the basis of these figures it is clear that many U.S. producers
many different businesses were able in 1960 to sell their products throughout
e world at competitive prices."-John T. Connor, president, Merck & Co., Inc.,
ompetition in the World Markets." Address delivered at the Eastern Union
unty Chamber of Commerce dinner, Elizabeth, N.J., April 11, 1961.
The question is sometimes asked: 'Have we priced ourselves out of the inter-
cional markets?' This cannot be answered by a simple yes or no since the rela-
nship between American costs and foreign costs varies greatly from one in-
stry to another. Furthermore, in the dynamic world of today it is inevitable
t such relationships will change, and in some types of product we will be gain-
an advantage in cost, whereas in others we will be losing ground."-National
sociation of Manufacturers, "Foreign Competition-a Challenge for America,"
26.
We tend to agree with the NAM's assessment. Though U.S. overall price levels
y be a critical factor inhibiting some sales-a subject discussed more fully in
pter 5-they do not now, in our judgment, represent the primary challenge to
erica's export potential."-"The United States and World Trade," final report
the Committee on Interstate and Foreign Commerce, U.S. Senate, March 1961,
36.
Even allowing, however, for the likelihood that the current balance was helped
the increase in aid and private investment and for the possibility that 1960
I prove to be an abnormally favorable year, it remains true that the perform-
e of the trade balance has been relatively satisfactory. This does not make
present deficit less worrying, but it does cast some doubt on the view which
ometimes expressed, that the United States has been prising herself out of
world markets."-Essays in International Finance No. 35, D. MacDougall,
ember 1960. "The Dollar Problem: A Reappraisal," p. 13.

Competition and costs

1) U.S. money wages are the world's highest :

Comprrison us wages wy Uk

Average hourly earnings in manufacturing in March 1961

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ut U.S. firms compete in costs for two reasons:

Wage rates do not measure the wage cost or labor costs. A simple, hypoical example explains why unit labor or wage costs, not money wage rates the only possible means of comparing competitive costs:

Wage cost:

If 10 U.S. workers at a $2 hourly wage rate make 100 products per hour, the wage cost per product is 20 cents.

If 20 foreign workers at a $1 hourly wage rate make 100 products per hour, the wage cost per product is 20 cents.

Thus a foreign worker can make half the U.S. wage rates with the same wage cost.

ficiency and skills of workers and management, the kind of machinery and r capital equipment available for production, therefore, are important. Any le rate of payment for any part of production by itself it meaningless as a sure of our competitive position.

the National Industrial Conference Board book, “Costs and Competition,"
ins, p. 44:

The critical point turns not on how high the rates are but on how the gap
een domestic and foreign wages is bridged by this country's higher pro-
ivity and relatively lower costs for the other components of production."
it labor costs usually include wage rates and fringe benefits related to the
per of units produced and the number of people required to produce them in
en time period.

Geographic breakdown

Fringes as a proportion of total hourly earnings were lower in the United States than in any other industrial nation in 1960, except the United Kingdom. But any measurement of fringe costs is difficult for the following reason: "***Problems of definition and accounting procedure make comparisons between nations difficult. Many benefits in the United Kingdom for instance, are financed through general tax resources and thus do not appear as a firm's labor cost but as part of its overall tax burden.

"There are also sizable differences among nations in the composition of the fringe package. Family allowances represent a large share of fringe payments in France and Italy; pay for time not worked-vacations, holidays, and sick leave-is a large item in the United Kingdom, Canada, and the United States. In the latter two countries, pension and insurance programs constitute an important part of total fringe cost. Under 'Other benefits' in the chart are included medical programs, which are a significant item in the United States and Canada, and lodging provided by employers, a practice found in France and Italy." "The New Competition," National Industrial Conference Board, pages 16-17.

(b) Other costs are usually more important than labor costs in cost competition with the only exception being goods requiring extremely high number of workers to produce the goods.

at finds in Materials costs (according to NICB study "Costs and Competition of 101

cost non-labor factors of

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Firms Producing Here and Abroad,” p. 27) were uniformly the most important— the "most decisive factor in the comparative cost of manufacturing here and abroad." In Europe materials costs were about one-half total costs, and in the United States only slightly more than one-third (p. 19–27).

Plant labor costs (according to same survey, p. 20) were "uniformly one of the least important cost categories."

"Other costs, such as for raw materials, fuel, power and construction, may be higher than in the United States. It is overall unit cost that must be considered." Chase-Manhattan Bank, "Report on Western Europe,” June-July 1960.

Forty percent of cases with higher U.S. labor costs showed lower U.S. total costs. Or, "impressively large scattering of cases where total domestic production costs are lower despite a relatively larger labor expenditure" (NICB, pp. 52-53).

Overhead and other costs in NICB study showed that higher overhead costs were usually associated with higher total costs.

Fuel and power costs: Lower in United States than anywhere except Canada.
Selling and distribution costs: Higher in United States.

Only 6 percent of U.S. firms went overseas primarily for labor cost advantages according to McGraw-Hill survey, "Oversea Operations of U.S. Companies," 1960-61.

Only 3 of 13 companies which decided to locate overseas for cost advantages listed labor cost as major reason, according to NICB survey (p. 174).

Most companies did not make decisions on cost basis primarily and of those that did, labor cost was usually not the major factor. Most companies located abroad because of trade restrictions and growth of foreign markets. The National Industrial Conference Board survey found the U.S. firms were competing successfully largely because of "the apparent inability of foreign countries to exploit fully the enormous advantages they enjoy in wage rates" (p. 55). (c) Prices do not show a necessarily close relationship to costs either here or abroad:

(1) NICB did not even include questions on prices in its survey because it would have "complicated the questionnaire" and "run the risk of reducing participation." In other words, companies very often will not give price information or relationships to costs. P. 4, "Note 2: Cost and Competition.") But the NICB recognizes that "it is obvious that price rather than cost is the more immediate focus of competition in the marketplace" (ibid). (2) Arthur Homer, Bethlehem Steel official, testimony before Kefauver subcommittee: A few years ago, Bethlehem Steel President Arthur Homer refused to give the Senate Subcommittee on Antitrust and Monopoly the cost data for his company. He declared, the subcommittee reported, "they were of no importance to the subcommittee because 'differences in costs as between various companies have very little, if any, effect on the prices at which products are sold.'"

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