As I say, this was 14 years ago. At that time the steel industry was on strike, and the steel imports for the first time in 1959 exceeded our exports.

Quoting from the same speech:

Also, it may be questioned whether steel imports will fall substantially after the strike (1959). They began rising over a year ago before the strike was called and price comparisons with the foreign product would indicate a continuation of imports at a level considerably higher than in the past.

Actually imports of steel did continue to climb and reached some 14 or 15 per cent of our market before the import restrictions were put into effect in 1969.

Again quoting:

Yes, we will live on expansion and expansion-in all directions, across national borders into foreign lands. Optimism and expansion will conquer all! So say the present-day professional optimists.

Of course no one wants a breakdown; but we can import one if we refuse to recognize the realities. Among these realities are:

1. An untenable international competitive position;

2. A heavy and stubborn deficit in our total foreign account;

3. An expansion of imports and a shrinkage in exports;

4. High domestic production costs compared with other countries;

5. A sharp uptrend in foreign productivity per man-hour;

6. A wage lag in relation to rising productivity abroad;

7. Loss of (U.S.) technological leadership among the nations;

8. Increasing trend toward mass production abroad;

9. Emigration of American capital to lower-wage countries;

10. Discouragement of expansion plans among domestic industries, especially suppliers, dedicated to the American market;

11. Increasing importation of parts and semi-manufacturers as a means of competing with imports of finished manufacture;

12. Automation as a means of improving competitive position, resulting in unemployment and failure to absorb millions of additions to the labor force. What does all this mean?

The answer can be given by looking around us. Let me offer a few examples: This, as I say, was in a speech given in 1959.

Steel, automobiles, typewriters, sewing machines, and petroleum are products that we were long accustomed to export while we imported little of them. These were the output of our most advanced industries in point of mass production and technology.

If imports were able to attack and take the very ramparts of our highly productive industries, what can they do and what have they already done to others of our industries?

The prospects are not bright for a pull away by this country. Not at all. The other countries now have all that it takes to catch up with us, including the creation of mass markets. The question is how their catching up is to be accomplished. Must we be torn down in the process, or can we hold our own while the other countries come up?

We need a holding defense. This can best be contrived through a combination of tariffs and quotas, by the use of which suitable shares of our market can be opened to imports while reserving the remainder for ourselves.

From another speech I made before the AFL-CIO Union Label and Service Trades Department, September 15, 1959, San Francisco, I said:

Shall we recognize the fact that we are facing something we have not faced before and take some holding action with which to buy time? . . . To bring up wages abroad

Which was one of the things that was constantly mentioned

will in any case be slow and we must do something in the meantime . . . or we will fall in order to meet them.

We must not be deluded into thinking that our competitive discomfiture is a passing nightmare. In the nature of things, considering all the factors on the horizon, it is an ominous confrontation, not a mirage.

Mr. Chairman, I do not wish to bore you with irrelevant quotations. But there is one more that I would like to make where I spoke before the Washington Trade Association Executives in 1959 in reference to direct foreign investment abroad, which at that time was about $38 billion and is now approaching $100 billion:

We have high wages, high employment, high profits; and these are needed to meet our high national budget as reflected in high taxes. We cannot reduce the major elements of our national income without courting bankruptcy. We cannot go back to a lower price level for that very reason.

Up to now we have managed to juggle sufficiently to avoid facing the facts. Recently it has become apparent that there must be an end to the success even of juggling.

On May 5, 1960, I said:

It took 25 years of doing, including much domestic economic legislation, a world war, a local war (Korea) and the cold war to stack up the international competitive situation as we see it today: . . .

We are on the eve of an earthquake that will shiver us to our economic foundations if we do not soon take thought and reverse some of our romantic policies, If we do not do this, the economic waters of the world will inundate us and the outflow will rend us and swirl us to the common level. We will no longer reside on a plateau, a beacon to other lands. . . Our leadership of the free world will dissolve into a sea of impotence and our ideals for building a peaceful world will be of little avail.

I confess, Mr. Chairman, that that latter part might be characterized as purple prose.

However, such a characterization might be regarded as being on a par with the one that was applied to my warning by a former member of this committee who characterized me as a prophet of doom and gloom.

Now, Mr. Chairman, I believe the principal obstacle to bringing the facts before the public lay with the press which was overwhelmingly committed to freer trade. The press, which is firmly dedicated to the right of the people to know, did not wish the same public to know enough about the results of our trade policy to question its widely heralded blessings. There was a further effective silence by the press that concealed the facts when in 1966 the Senate Finance Committee held hearings on S.J. Res. 115 which called for a revision of our official trade statistics.

The purpose of the resolution was to make these statistics a more faithful reflection of our balance of trade.

Existing statistics undervalued our imports and overvalued our exports so far as private competitive trade is concerned. This they did (1) by reporting imports on their foreign value rather than the landed cost, including freight, insurance, and so forth, and (2) by reporting as exports all the goods that we shipped under foreign aid. food for peace and those we moved because of high Federal subsidies. The result was that defenders of the faith could point to our so-called favorable trade balance and say that we are indeed competitive in foreign markets and could stand further tariff reductions.

In 1972, instead of a deficit of $6.4 billion as officially reported, it was nearer to $13 to $14 billion if the transactions had been properly reported.

Now, after more than 6 years-that is, since the Senate resolutionand after the deficit broke through even the concealing cover, we are about to have official statistics on the basis of c.i.f. import values rather than merely on their foreign value. Landed value rather than foreign value.

Mr. Chairman, in August 1971, some steps were taken to meet what had by that time reached crisis proportions. We put on a 15 percent additional duty on most imports and then devalued the dollar. This action turned out to be inadequate and recently another devaluation was announced. The average devaluation of the dollar is now over 20 percent while the yen has been up-valued close to 35 percent and the German mark somewhat less.

With respect to currency realignment, it should be said that the action was necessary but that it should not be relied on as a long-range solution. It treats all products alike, and they do not all stand on the same competitive level. Furthermore, other countries can take countervailing action at will, and unilaterally, and often do. It is therefore an unsatisfactory instrument because of the uncertainty attendant on recourse to it. Great secrecy and denials usually precede action in this field.

What is needed under the conditions we face today in the world is a restoration or near restoration of the market conditions that made possible and supported the growth of our industries and employment as we moved up the ladder to world industrial leadership.

The foundation of this highly successful system rested on recognition of the fact that consumer income must be sufficient to absorb the output of mass production. This called for higher rather than lower wages as a means of achieving lower production costs. The British had taken the opposite tack. To achieve low costs they sought low wages. Of course, they did this with the idea of producing goods at a low cost so that they could export to the markets of the world. To achieve low cost they sought low wages. Then they could export to the whole world. Henry Ford turned the formula around. Mass production would lower the costs and higher wages would assure a market for the rising output.

This system worked miracles in terms of industrial expansion. After World War II, however, we helped other countries adopt our system and, with the exception of the Communist bloc, they made amazing headway. In many instances they built new industries almost from the ground up, and by installing the most modern equipment gained astounding advances in productivity. We helped them financially and with technical assistance, as I think of course we should have done. Their wages, however, were so low that even though they started upward more rapidly than we, they have not yet caught up, and the competitive gap has not been closed. In dollars and cents it is wider today in many instances than it was 10 or 20 years ago.

Our industry has been accused of inefficiency, and there may be some of that, but we have no bill of particulars. When our industries go abroad, carrying their managerial forces with them, they do very well. If we were so inefficient at home, how is it that the same management can be efficient abroad?

Unless the sea-change brings on greater efficiency, it would appear that they reflect no more than the going level of efficiency in this country, when they do go abroad.

96-00673-pt. 3-22

With so much of our capital moving abroad, near $100 billion to date, and with other countries increasingly well equipped and using our technology plus their own, the domestic industries remaining behind, and particularly their workers, face a different world from pre-1955 or 1960.

We built our system by replacing workers with machinery that was more productive. In those instances in which demand for the product was elastic, mass production, by lowering costs, greatly increased consumption. Before long, employment expanded beyond the level at which it stood when workers were first laid off. The automobile industry after some years employed many more workers than the buggy and wagon makers.

However, if the demand for the product is not elastic, consumption will not respond much to lower prices. Food products are an example of this class; and that is why the farm workers who were displaced by the millions because of the great rise in agricultural productivity, remained unemployed and flocked to the cities to give us our stubborn urban problem.

When coal mining made great strides in productivity, three out of every four miners lost their jobs; and they, too, remained unemployed. The price of coal remained very low but faced an inelastic demand. Recently the price has gone upward, thanks to exports and an expanded demand, but the unemployed Appalachian workers are still with us.

Mr. Chairman, we come now to a very important point.

Imports that bear an appreciable price advantage confront the domestic producers with a situation such as they would face if the demand for their product is inelastic. If they displace workers in order to become or remain competitive with imports, these workers very likely will remain displaced. Imports, if unimpeded, will prevent the expected increase in consumption of the domestic product, even though total consumption of the product does increase. Even if the demand for the product is elastic, the increased employment that formerly took place here will now occur abroad instead. With our population increase we will, under such circumstances, look in vain to the "growth industries" to come effectively to our rescue.

Agricultural exports will not fill the gap. Agricultural employment is down to a little over three million, half of what it was in 1955, and still declining. So we need not expect much help from the present agricultural exports so far as employment is concerned. These booming exports, incidentally, have lifted greatly the price of soybeans, wheat, and corn.

It is often said about import quotas that they raise prices. Of this there is proof to the contrary, but lively exports demonstrably do raise prices. Import quotas usually have the purpose of preventing prices from falling to disastrously low levels, rather than to increase prices.

I would like to offer for the record at this point two short papers, one on the import quotas and prices and the other on exports and prices.

The CHAIRMAN. Without objection, those matters will appear in the record.

Mr. STRACKBEIN. The question naturally arises what can be done to

restore the domestic market conditions so that growth industries may again flourish.

Import quotas should be used judiciously for this purpose, being used to assure the domestic producer of a predetermined share of our market, so that he can be sure that it will be his or that of his domestic competitors when they have developed the product and created a market for it. If his product is patented, the market should be his for the life of the patent while allowing imports to increase, let us say to perhaps 15 percent of the market. The domestic producer would then have restored to him the incentive the pursuit of which brought this country world industrial leadership in the first place.

With import quotas designed with conscious purpose of accomplishing this end, they will have performed their principal function. They may also be used in other instances as our agricultural quotas have been used, to prevent demoralization of the market by low-priced imports.

Such injury as may be done to domestic employment by the multinational corporations would be neutralized if total imports of a product were limited to a share of the market. Such economic benefits as these corporations bring to the developing countries could then continue.

Turning now to the proposal to vest the President with carte blanche powers to modify the tariff and impose quotas, such authorization would be an abdication of powers conferred on the Congress by the Constitution.

We do not regard this as desirable. The likely effect would be an unequal application of the law. The larger and politically powerful groups would gain accommodation while the smaller ones would be left to shift for themselves.

Another important part of the bill is adjustment assistance. It is limited to the workers. We do not believe that such assistance should be relied on as a remedy, but, if it is, industries and companies should be equally eligible with labor.

It has never been satisfactorily explained why imports should be vested with the right of eminent domain over domestic industries and their workers. Foreign competitive advantage usually is unearned in the sense that it is usually based on the simple fact of lower wages.

Our industries are legally bound to pay minimum wages that are usually higher than the average foreign wages. We should not force our industries by law into a competitive disadvantage and then sometimes come to their rescue through adjustment assistance. Rather we should prevent the injury in the first place. If we had a proper import quota system, we would have no need of adjustment system.

Mr. Chairman, I have two more relatively brief papers that I would like to submit for the record.

The CHAIRMAN. Without objection, they will appear in the record at this point.

[The material follows:]

TRADE DEFICIT AND OUR PRODUCTION-COST INFLATION

(By O. R. Strackbein, president, the Naton-Wide Committee on Import-Export Policy, April 24, 1973)

The trade deficit of 1972 at $6.4 billion was a rude reminder that governmental efforts to reverse our adverse trade trend were so far a failure. That the second