This machine was purchased in Britain. 36, 150 5,096 41, 246 Thus, lowered Common Market tariffs will not help American builders export more machine tools, whether they are general or special purpose, despite what you may have heard to the contrary from witnesses who do not manufacture or sell machine tools. Customer: Hindustan Aircraft, Bangalore, India : Kearney & Trecker (United 7 milling machines Delivery Kearney & Trecker-CVA 6-8 6-8 6-8 Delivery (weeks) 36-40 2 plain at $14,868 each___. 2 plain at $22,110 each_-_. 3 universal at $24,730 each_ 2 vertical at $25,080 each-Due to the tremendous difference in price, Hindustan Aircraft decided to purchase universal machines from Kearney & Trecker-CVA (England) and vertical and plain machines from Mammut Co. (Germany) whose prices were even lower than from Great Britain. Here is another comparison-and an order Kearney & Trecker lost to two foreign subsidiaries of an American company: Customer: Simco Do Brazil: Foreign made-subsidies of an From Holland_. From England.. From Holland. From England. From Holland. Price $9,703 9, 652 9, 226 9, 197 0 15, 867 0 16,298 Incidentally, these machines were ordered from England on the following terms: 10 percent with order; 10 percent upon shipment; and 80 percent payable in 8 semiannual payments of 10 percent each. Yes; it is true that some of our high-labor-content manufactured products are presently being exported. Last year American machine tool builders exported over one-fourth their total production. However, this is without question a temporary condition. Just as soon as the rapidly expanding plant capacity of machine tool builders in the Common Market exceeds internal needs-as it must do they will be invading our markets with fast deliveries, and we will no longer enjoy a substantial export market with them. In addition, using their handsome profits and expanded production capacity. Common Market builders will be in a position to duplicate even America's sophisticated, proprietary machines, and at a lower price. This means that we will lose not only our general-purpose export market, but our special-purpose and proprietary machine tool markets as well. The trend in recent months, despite large but nonetheless diminishing European order backlogs, is very clear. Last year, net new orders to American builders from foreign customers reached a peak for the year in September. Since that month, there has been a steady and continuous decline. Indicated orders for February of this year show that foreign orders will be about one-third of the September high: Date: September 1961 October 1961. November 1961_ Am Macht Foreign net new orders $21, 600, 000 18, 750, 000 12, 150, 000 11, 150, 000 7, 700, 000 17, 650, 000 December 1961. January 1962_. 1 Estimated. Source: NMTBA. I am very much concerned about the effect this will have on the American machine tool industry. Without our export sales in 1961, the industry would have operated deeply in the red. If we turn to this side of the Atlantic, we find a different situation. The Olivetti reference to an American machine tool manufacturer operating at 50percent capacity is typical of most American companies manufacturing standard machine tools. The level of imports of foreign manufactured machine tools has generally increased since 1954, but due to the preoccupation of the European industry with home orders, it has not become critical: Because of the substantially lower price tags of comparable European made machine tools, we in the industry fully anticipate that imports will continue to increase. We are grateful for the fact that the tide of increased imports has not yet turned to flood. But the threat of foreign imports has not disappeared. It has simply been postponed. The price and profit advantage of the European manufacturer remains disproportionate. Indeed, European machine tool builders with whom I am acquainted have a very much larger profit cushion which they can draw upon to further reduce prices in the event of any serious competition with U.S. producers. As for comparative laydown costs in this country, let me give you a few examples of the ripe markets for picking by low-wage, low unit-cost foreign builders, both European and Japanese. One typical builder in the Midwest, American Tool Works Co., makes a radial drill in Holland from the same drawings and specifications it uses to make the identical machine in Ohio. Costs of material in Holland and Ohio have proved to be approximately the same, but the wage differential makes it possible to lay down in New York the Holland-made machine for $8,417 as compared to $13,690 for the American-made machine. American Tool Works also reports that it costs $14,076 to lay down another typical Holland-made machine and $22,289 for an identical American-built machine. A Kearney & Trecker No. 4 milling machine made in Milwaukee sells for $27,725 f.o.b. plant. The identical machine, built from the same drawings in England, sells for $17,654 in England. With the 15 percent tariff (soon to be reduced to 12 percent), cost of boxing, freight, and shipping, the f.o.b. New York price is $21,383. It is important to note that without the 15 percent tariff the price would be $18,735 f.o.b. New York. This compares with the U.S. machine price of $27,725. Laba Sundstrand Corp. of Rockford, Ill., provides another example. Its subsidiary in France can manufacture (for $12,104) and sell in the United States a production, bed-type milling machine for $14,830. Again, this price includes crating, oversea freight, and tariffs. Made in Illinois, the identical machine costs $18,705. Apart from the labor cost differential, it has been our general experience that other costs connected with machine tool manufacture are also less in Common Market countries than in the United States. A dramatic example of the usual labor and material cost disadvantage of an American builder is illustrated by the following table: Compor Machine Comparison of British and American costs selling price and profits of a milling machine Costs Manufacturer Needless to say, because of higher labor and material costs, Kearney & Trecker has had to discontinue manufacture in this country of this model of standard milling machine. Despite their instinctive preference for U.S. machines, a few American companies are buying foreign machine tools because of the substantial price differential. The following examples are taken from the purchase records of one of our largest diversified manufacturing companies: 1. Surface grinding machine: Manufacturer: Schneider (German); price, $17,680. Manufacturer: Mattison Machine Works (United States); price, $22,105. 2. Milling machine: Manufacturer: Loewe (Germany); price, $13,750. Manufacturer: Kearney & Trecker (United States); price, $20,105. This company reports that its savings on a large number of machines purchased from foreign builders averaged 25 percent in spite of 15 percent import duties as well as crating and shipping charges. In addition to the labor and material cost disadvantage, the American machine tool industry is now operating at half capacity. Much equipment stands idle. Production runs are shorter and less efficient. Start up and nonproductive time is greater. This compares unfavorably with the situation in the Common Market. All the preceding cost and price comparisons, I think, make it very clear that for machine tools the foreign wage-cost advantage of about 3 to 1 is not offset by American production superiority and efficiency. The explanation for this is not very complicated, but the obvious is often overlooked. The labor content in machine tools constitutes approximately one-half the cost of manufacture. Production runs and other labor-saving techniques are rarely practical in machine tool manufacture, and the more special or complex the machine the higher the labor content. While American productivity has increased overall, Europe's has increased at a much greater rate. While Europe's labor costs are also increasing, commensurate with maximum production and employment, ours are also rising. I see no reasonable prospect, if present trends continue, of equalizing unit machine tool costs in the foreseeable future. On the contrary, we are much more likely to lose the slim technical lead which we now hold. It is the Euro pean, not the American machine tool builder, whose volume sales and high profits can be turned to needed research and development. CONCLUSION I suggested at the very outset of my statement that a current list of industries essential to national security be prepared and maintained, and that the President and the Tariff Commission be required to make an affirmative finding that here would be no injury to national security before a tariff concession could be made. I believe, and I think history confirms, that the machine tool industry should De high on that list of essential industries. The past 7 years have witnessed a deterioration in the strength of the U.S. machine tool industry in contrast to the strengthening and growth of the industries in the Soviet bloc and Western Europe. This decline and its serious implications for the security of the United States mave until now been recognized by all segments of our Government. Not content vith violating the peril point determined by the Tariff Commission, the adminin " twire stration now proposes to eliminate machine tool tariffs completely. machine tool Sin Twice in 11 years this country's defense capacity has been seriously impaired art nati y an acute shortage of machine tools. In September of 1951, for example, the "sec. machine tool bottleneck reached 2 years of unfilled orders. This could well happen again. It need not happen if our Government adopts a realistic approach to world trade and undertakes as an essential preliminary The many steps required to meet the eventual impact of free trade and I believe free trade must ultimately come about. I urge this Congress to maintain the 15-percent tariff on machine tools and to take appropriate steps to insure that the Executive not further reduce this minimal protection until such time as our American industry regains its health and productive efficiency. In addition to the above conclusions addressed specifically to the machine tool industry, I would like to offer the following general plan for eventual achievement of worldwide free trade, which would make it possible for the United States and its industries to achieve equality of competition with other nations. Let us voluntarily undertake a program of reduction in prices, so that all prices except labor, wages, and salaries shall continually go down. Let us also voluntarily see that no costs of any type, including costs of labor, wages, or salaries, shall go up. Let us work for a constant reduction in selling prices and no increase in costs. If salaries and wages remain where they are now, business can reduce the prices of the products it sells through increased productivity. As technological improvements take place, we will reduce the cost of all products. As we reduce the cost of products, we also will reduce their selling prices. Thus, everyone will benefit. Those who earn wages and salaries will benefit because they will be able to purchase more with the money they receive. American industry will benefit in international trade because its products will become evermore competitive with the products of foreign manufacturing. Eventually we will arrive at a point of stability and true competition at which time we shall be able to compete with the entire world. Then we will have true Free trade and free competition. Mr. KING. Mr. Wilken. STATEMENT OF CARL H. WILKEN, DIRECTOR OF RESEARCH, Mr. KING. Please be seated, Mr. Wilken, and identify yourself for Mr. WILKEN. Mr. Chairman, and members of the committee, my name is Carl H. Wilken, director of research of the National Foundation for Economic Stability, 1757 K Street, Washington, D.C. I have a brief statement which I would like to file with the committee and use my 5 minutes for an oral presentation. Sussest Mr. KING. Very well; without objection, Mr. Wilken, your statement will be included in the record. Mr. WILKEN. In the last 2 months I have finished a comparison of the income of private enterprise, made up of 9,200,000 business units with wages and salaries, and the capital cost which this system of private enterprise has to pay in our production and distribution of goods. This study covers the period from 1946 through 1961. In 1946–50, the income of private enterprise was in balance with wages and salaries and capital cost. At this point, we had $212 billion of national income, and our economy was solvent. In the 11 years which have followed, wages and salaries and interest, which reflects the capital cost, have averaged 80 percent more than in 1946-50. On the other hand, the income of private enterprise has moved up only 17 percent. Privak ent is shoot to wages. As a result, in those 11 years, private enterprise, the 9,200,000 business units we have, suffered a loss of $375 million. Private enterprise is an integral part of the United States and we lost this income. We lost the market involved in this shortage of income. To create markets so that we could meet the wages and interest, we added $514 billion to the total debt, public and private, in those 11 years. Čoming up to 1961-in 1961 private enterprise was short $53.5 billion. We again lost the market involved in this income, and in 1961 we added $55 billion to the total debt to offset this operating loss. To illustrate this thing as an end result in terms of fiscal policy and economic development, in 1961 the corporate profit before taxes to balance with the present level of wages and capital costs should have totaled $69 billion. Instead of that, it was only $46 billion, a shortage of $23 billion. The Federal Treasury suffered half of that in loss of tax revenue, or $12.5 billion. That is why you have a deficit. On the other hand, private industry, corporate enterprise, was short $12.5 billion of profits after taxes, or new capital with which to expand. This dislocation was not brought about by tariffs. It developed as a result of a rapid expansion in wages and interest as we borrowed the money to sell the goods to meet the payrolls. While on the other hand we had a downward movement in farm prices and the price of other raw materials which reduced the buying power of rural areas of the United States and also reduced the buying power of countries to whom we would like to sell goods. In 1961 we were losing 35 percent of the market we need in rural areas, and which American industry needs to operate at a fair rate of profit. We are also losing 35 percent of the export market we need to balance with the present wages and capital costs. Tariff revision at this time will not correct that dislocation. Unless this dislocation is corrected, in trying to have a fully operating economy in the United States, we will have to add $70 billion to the total debt each year. In my opinion, a reduction of tariffs at this point will start us downward to the 1942 price level, which is in balance with the income an i wage level in Western Europe, approximately the world average. |