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Part 3.-SELLING THE AMERICAN MARKET
Chapter IX.--WHY WE IMPORT
It is generally accepted that only those goods should be imported which can be sold at a reasonable profit or which may be put to profitable use by the importer. Profit, in some form, is the ultimate goal of importing, as it is in all other business. It is proposed to describe here the factors which should be given consideration by the importer in deciding what to import, and the various conditions under which foreign goods have been and may be imported profitably.
For practical purposes there are six general reasons for looking to foreign countries as a source of supply for marketable goods. This division is made on the basis of past experience in importing into the United States, and the examples cited in each case are of conditions which actually exist.
LACK OF DOMESTIC SUPPLY
The primary reason for importing foreign goods is to supply a demand for merchandise for which there is no source of supply in the importing country. It is the basis on which international trade was founded. The natural resources of the earth are not distributed equally throughout its surface and subsoil, and from an early date nations not possessed of a share of this wealth have imported their requirements from abroad.
Many of the products upon which the American standard of living and American manufacturing leadership depend are obtainable only in other countries. An outstanding example is the case of coffee. Coffee is not grown in the United States, all the coffee consumed in this county being imported from foreign countries, principally those of South America. Even granting that the abandonment of coffee drinking would not seriously affect the welfare of the Nation, such is not the case with rubber, the supply of which is also obtained entirely from foreign sources. There are many uses for rubber, but probably the one of the greatest economic significance is its use in the manufacture of automobile tires. For this
reason the tremendous developments in motor transportation, including the construction of highways comprising a network over the whole country and giving employment to millions of people, would never have occurred without the availability of an adequate supply of rubber from abroad.
Bananas, tin, and raw silk are other notable examples falling within this classification and serve to illustrate that although the United States may possess more than its share of useful raw materials, nevertheless there is lack of certain goods, which, if we are to maintain our present mode of living, must be imported into this country.
INADEQUATE DOMESTIC SUPPLY The second condition under which the importing of foreign merchandise may be profitable is to meet a domestic demand for goods which is greater than the domestic market is able to supply. Many factors may combine to create this situation, but most frequently it is caused by an insufficiency in soil and climatic conditions. This is best illustrated in the production of sugarcane. Any demand for sugar greater than that which can be supplied by Louisiana cane and by beet sugar must be supplied from sources outside continental United States. This demand at present is being met by large importations from Cuba, and to a lesser extent from Puerto Rico, Hawaii, and the Philippine Islands.
The case of pigskin is somewhat different. It is estimated that a sufficient number of pigs are slaughtered each year in the United States to supply the entire domestic demand for pigskins. However, since pigs are killed mainly for eating purposes and most pork products are cured or processed with the skins intact, there is a domestic shortage of this commodity so that users of this type of leather are dependent upon imported skins to fill their requirements.
Pulpwood, nitrate of soda, manganese, asbestos, nickel, linen, and certain grades of raw cotton also come in this group and are imported because of the inability of domestic sources to supply fully the domestic requirements.
PREFERRED FOREIGN MERCHANDISE
A third reason for importing foreign-made goods is to supply a domestic demand for which foreign sources offer equal or betterquality merchandise at better prices. In this classification there is a potential capacity in the domestic market to supply the entire demand, but because of price competition foreign goods are able to enter the domestic market successfully. Tariffs and other import restrictions are mainly directed toward goods imported in this group. Such types of merchandise now being imported are too numerous to classify, but changes in tariffs, exchange rates, foreign production costs, shipping and insurance costs, etc., which materially affect the landed cost of such goods, determine whether they may be imported or not. Since these factors are of a highly variable nature, the kinds of merchandise imported likewise undergo frequent changes. This category includes practically all manufactured goods and a great number of semimanufactured products.
CHEAPER FOREIGN MERCHANDISE Supplementing the imported foreign merchandise which competes with United States manufacture, there are several groups of manufactured products which are imported purely because of a cheapness in price and quality which cannot be met by American producers because of the relatively high wages of American labor and other local conditions which are favorable to the foreign manufacturer. Toys and low-priced novelties are illustrative of this type of imports.
IMPORTS TO COMBAT MONOPOLIES
Foreign goods are sometimes imported to combat a domestic monopoly. Thus, when virtually the total domestic supply of any commodity is under the complete domination and control of a single producer or distributor, and the supply is being held off the market for price manipulation or for any other reason, it is frequently practicable for users of the commodity to import the goods from abroad. In the United States the antitrust laws are designed to prevent groups of producers or distributors from combining in unreasonable restraint of trade.
IMPORTS RESULTING FROM DOMESTIC CATASTROPHE
In addition to monopoly commodities there are other conditions under which a temporary domestic shortage of supply may occur. Occasionally Nation-wide strikes, famines, floods, droughts, etc., may cause such a decrease in the normal supply of goods that imports from foreign sources become necessary.
IMPORTS TO ENHANCE QUALITY PRESTIGE Foreign goods are also imported for the purpose of creating local prestige for the importers. This group includes many luxury goods and novelties having a well-established name, for which å ready market exists among the consumers of the higher income classes. They are neither imported because of price advantages nor because of better quality. In some cases the quality of a similar domestic article is as good as, if not better than, the imported foreign product. Examples of goods in this category are Russian caviar, Madeira wines, French perfumes, Belgian lace and linens, Swiss watches, German scientific instruments, Japanese silk garments, and English cutlery. The prestige value of this type of goods lies in its country of origin, and it will command a price commensurate with the dependability and reputation of each product.
IMPORTS FOR SCIENTIFIC PURPOSES A sixth reason for importing foreign goods is for scientific and experimental purposes. Many research organizations, both industrial and agricultural, are constantly importing materials of every description to be used in their scientific studies and analyses. Although the volume of goods imported for this purpose is extremely small, the importance of scientific discoveries and technological improvements in the development of this country make the value of this type of imports ultimately high.
For the majority of the classes of imported merchandise listed above, the price at which they can be purchased abroad and the price at which they can be sold in this country are the most important factors to be considered. In this respect the importing of foreign goods differs very little in principle from the purchase and sale of domestic goods. It is in the determination of these prices that difference occurs in the marketing of foreign and domestic products.
MARK-UP ON IMPORTS
While the mark-up on imports is determined in much the same way and includes the same factors as are used in the mark-up of domestically produced goods, there are several additional elements which must be considered in marking up imported goods. When goods are imported from overseas and are subject to delay in shipment either from unforeseen causes in the exporting country or from perils of the sea or other natural causes related to ocean transportation, an allowance is often made for possible losses sustained by such delays and included in the mark-up. Delays arising from customs difficulties, such as may be caused by improper documents, markings, packaging, or errors in classification for duty purposes, are also allowed for when determining the mark-up. The time elapsing between the decision to purchase goods in a foreign country, their actual purchase, and their sale to the ultimate consumer in the importing country is generally much longer than the time consumed for the same operation in the domestic market. Not only are prices thus subject to greater change, but there may also be a complete reversal in styles and even, in extreme cases, a lost market where substitutes have been discovered to supplant the need for the imported product. These variable factors must also be supplemented by a consideration of possible tariff changes and exchange fluctuations which may adversely affect the landed cost of the goods and which may occur without adequate warning.
QUALITY CONSIDERATIONS The quality of imported products is often the ruling element of comparison with similar goods of domestic origin with which they compete. Perhaps nowhere in the world is "quality" so important as in the United States. While the American buyer may not be as thrifty in making purchases, or attempt to drive as hard a bargain as buyers of other nationalities, it is well known that he demands durability, dependability, and reasonable wear in every article purchased. The United States is a quality market rather than a price market.
QUANTITY CONSIDERATIONS The quantity of goods to be imported is closely related to the capacity of the domestic market to absorb the goods, in long-term forecasts. In making quantity estimates, the stability and capacity of the market should be given careful consideration before a decision is reached. Import statistics covering a comparatively long period are a valuable index in this connection.
QUANTITY DISCOUNTS The foreign seller, like the domestic seller, will grant material concessions in prices to importers placing large orders. The reason for this is the saving in selling costs and other administrative expenses, and the decreased risk involved in handling large orders and in dealing with larger and financially more responsible firms. For the same reasons the large importer may also receive better terms and better