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UNIVERSITY DAILY KANSAN
Tuesday, March 19, 1968
Dollar dilemma shadows international trade
WASHINGTON —(UPI) - The storm clouds hovering over the dollar now are also casting their shadow on trade between the rich countries and the economic development of the poor nations.
The dollar is endangered by by international speculators and by the continuing U.S. balance of payments deficit.
World trade is endangered by protectionist pressure, as the U.S. foreign aid program is dying.
Trade and aid both serve the same purpose: to satisfy the material needs of mankind. The dollar is the main vehicle to help accomplish this. The three are thus closely connected. When the dollar is in trouble, trade and aid are in trouble, too.
How did the dollar's troubles start?
The United States emerged from World War II as the richest and most powerful nation on earth. Except for the United States, victors and vanquished alike practically were broke. Their industries were in ruins or hopelessly out of date. Their monetary reserves were depleted. More than half the world's gold reserves had found their way to the United States.
For more than a decade after the war, U.S. economic and financial policy was guided by the need to rejuvenate world economy.
Results spectacular
Through the Marshall Plan and other aid programs, the United States pumped billions of dollars into Western Europe and Japan. In a few years, Europe and Japan financed themselves by trade instead of American aid. World trade had been restored.
But beginning in 1958, the United States began to run a persistent balance of payments deficit; that is, year after year more dollars left the United States than came back.
In trade the United States was stronger than ever. Throughout this period, except in 1958 and 1959, the United States sold more abroad than it bought, earning a healthy balance of trade s urplus. But these surpluses were not enough to cover the outflow of capital and military expenditures abroad, and such smaller dollar losses as were involved in development aid, and tourist spending overseas.
The United States allows other countries to use their accumulated dollars to buy gold from the government at a fixed price of $35 an ounce. U.S. gold reserves during the last 10 years fell from $23 billion to $12 billion. During the same period the amount of dollars held by foreigners increased from $9 billion to $26 billion. The potential claims against U.S. gold by far exceeded the amount of gold available.
If they had chosen to do so, foreign governments could have cleaned out the remaining U.S. gold reserves overnight. But this would have pushed the world monetary system into chaos—and nobody is interested in that, for selfish self-interest if no other reason.
The dollar did come under considerable pressure, however, when Britain devalued the pound from $2.80 to $2.40 last Nov. 18. Immediately, speculators around the world began buying gold as a hedge against devaluation of the dollar.
To keep the price in the London gold market down, the United States had to sell about $900 million worth of gold in December alone. Six other countries, Britain, the Netherlands, Belgium, West Germany, Switzerland and Italy, helped the United States protect the dollar by also supplying gold for the London market.
But as speculators continued to buy gold, these countries advised the United States they could not go on indefinitely supporting the dollar. The United States, they told Washington, would have to take drastic steps to restore confidence in its currency.
Johnson acted
On Jan. 1 this year President Johnson moved to do just that. He announced a program aimed at reducing the payments deficit by $3 billion in 1968. The program included a $1 billion cut in investments abroad, restrictions on loans made to foreigners, restrictions on foreign travel by Americans, cuts in government expenditures abroad, and a drive for increased exports.
Some governments, including among them some of those which had earlier urged the U.S. government to "do something" were not too happy with the Johnson administration's proposed way of doing it. And it didn't have much effect on lessening the gold pressure which, after a short holiday, built to new peaks this month. As the devalued pound trembled in the world's market, being shoved dangerously down toward the $2.39 level, a new flurry of gold buying hit Europe. In one 24-hour period, March 7-8, London reported that up to 60 tons of gold had changed hands, reflecting speculators' worries about paper money values as well as the desire to gamble against a break in the fixed gold price.
Criticism of the U.S. government's steps to help the foreign payments deficit ran generally along the line that they weren't enough and probably not in the right direction. Europe's concern was summed up for Washington, for instance, by Jean Rey, chief administrator of the European Common Market, when he visited Washington and called on President Johnson early in February.
Rey pointed out that throughout its deficit period the United States actually had consistently earned a surplus in its international trade. The balance of payments deficit, he said, was not caused by an unfavorable trade position but, rather, by U.S. spending abroad and other factors. He warned that efforts to cut the deficit by tampering with trade would invite retaliation.
Another danger, Rey maintained, was that the dollar's troubles might, under the wrong program, drag all world trade into trouble, too.
Whenever a country runs a persistent balance of payments deficit it is tempted to curb imports.
Britain did this in 1964 when it put an across the board surcharge of 15 per cent on most tariff duties. The United States so far has resisted this temptation. For years the administration has successfully opposed attempts by members of Congress to restrict imports by increasing tariffs, or by imposing quotas on a variety of imported goods.
Now, the continuing pressures on the dollar have provided protectionists with new steam. There is a good chance that Congress will legislate higher tariffs and/or import quotas this year. Quota bills now before Congress call for limiting imports of a large range of goods running from steel to strawberries.
Some of the United States' major trading partners have already indicated in plain terms they will retaliate against U.S. exports if the United States raises its import barriers. This raise the specter of a "trade war" and a return to the welter of restrictions that wrought havoc with world trade in the 1930s.
Retaliation foreseen
Furthermore, U.S. trade restrictions and retaliation measures by other countries would tend to destroy the results of the "Kennedy Round" of tariff reductions. What is known as the "Kennedy Round"—because the talks started during the Kennedy administration—consisted of four years of hard bargaining among 50 countries. Besides the United States they included Japan, Canada, the six Common Market countries and the European Free Trade Association (EFTA) consisting of Britain, Austria, Denmark, Norway, Sweden, Portugal and Switzerland.
A Kennedy Round pact was
concluded in May, 1967, and resulted in a reduction of most existing tariffs among the countries by an average of about one-third. Tariffs on three-quarters of the world's trade in industrial goods were cut in half or more.
Former KU prof to recite poetry
Professor Adam Gillon of the State University of New York at New Paltz will speak on "Problems of translating Russian and Polish poetry into English" at 8 p.m. Wednesday in the Kansas Union Cottonwood and Meadowlark Rooms.
He will recite poetry in Russian and Polish as part of the program.
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