Come War, Come Peace

The most explosive European crisis in 25 years last week scrawled a big question mark over the future of U. S. business:

If Europe goes to war, U. S. industry, especially heavy industry, expected to be able to live briefly on exports, to sell its No. 1 customer, the United Kingdom, as much war material as her $3,499,000,000 gold reserve will buy (her 1938 purchases in the U. S.: $521,124,000). It expected to have another customer in France, with a $2,776,000,000 gold chest (1938 purchases in the U. S.: $133,835,000). If atop all this, the U. S. also goes to war, the U. S. economy would face a first-class war boom.

If Europe goes back to peace, last week's crisis will also leave an indelible mark on the U. S. economy, forcing agriculture to recognize that its continental market is gone. The new German-Russian agreement ends hope of the U. S. regaining its lost German markets for cotton and foodstuffs, may mean that U. S. trade will be squeezed out of Central Europe altogether. Germany's new economic tie-up with Russia might enable her to reduce her 1938 purchases here ($107,588,000, down from an average of $400,364,000 in 1926-30) to zero. Perhaps more important to U. S. trade was what the crisis did to the British pound. The precipitate markdown in the price of the pound sterling (it hit $4.12 early this week) makes British goods some 10% cheaper in world markets than they were August 1. If the crisis passes without the war the pound is not likely soon to return to $4.86 or even $4.68. So unless the dollar is competitively devalued U. S. manufacturers will face new British underselling. If Argentina, Australia and other crop exporters (in the sterling area) also mark down their currencies, as is likely, their cotton, grains and meats will grow cheaper, intensifying the U. S. crop crisis (which only a war could ease).

At stake in all these calculations is only a fraction of U. S. business. In 1937 the U. S. exported 7.8% of its production of movable goods; in 1938 (when domestic production was down) 9%; this year it is probably running around 8%. In dollars it amounts to about $3,000,000,000 of business--about two-thirds as much as before Depression I.

Part of this trade is what the U. S. stands to lose, but the loss will probably be concentrated in goods which have already taken an export beating. Agricultural exports were 36% of pre-Depression. Of smaller post-Depression total exports, agricultural exports are down to 27%.

Examples (in millions of dollars) of exports :

1926-30 1938

Average

U. S. Total 4,687.8 3,056.9

Cotton 765.7 228.7

Grains 230.6 101.3

Petroleum, etc. 524.4 388.6

Machinery 488.0 486.1

Autos, etc. 406.2 270.4

Iron & Steel 170.7 184.3

Copper 150.0 86.8

Aircraft 4.9 68.2

At 1919's export peak the U. S. exported 16% of much less production than World War II would stimulate. If war comes, and the U. S. is in it, exports are not likely to take this much of production.

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