COMPETITION FROM ABROAD

Is the Foreign-Aid Program Too Successful?

In the postwar race for world markets, the U.S. gave itself a heavy handicap. It poured $35 billion of foreign-aid money into the economies of other countries (e.g., $207 million into Europe's iron and steel industry, $35 million into its auto industry). To many businessmen, the foreign-aid program has succeeded too well; they complain that they are losing business to their eager new competitors abroad.

The gripe is often legitimate. In six years, the U.S. shipped $254 million worth of machine tools to Europe. But European imports died down after Europe's machine-tool output soared from $481 million in 1948 to $778 million (in 1948 dollars) last year. Imports of machine tools into the U.S., less than $1,000,000 a year before the war, were $5,900,000 in the first quarter of 1954 alone. Exports, meanwhile, have dwindled from a prewar average of 32% of total output to a scant 6%. Electrical equipment makers complain that overseas manufacturers, many of them helped directly or indirectly by Marshall Plan dollars, have consistently underbid U.S. firms on generators and transformers for Government power projects. The mining industry is also alarmed about foreign competition. A Senate committee reported that 85% of the U.S. stockpile of strategic and critical materials has come from abroad. In less than three years, the U.S. has spent $594 million to expand foreign mineral resources, only $530 million for expansion in the U.S. In the U.S. lead and zinc mining industry, employment has dropped sharply, while small, marginal producers have been forced to shut down.

Recently the Foreign Operations Administration granted $20 million to India to buy 100 steam locomotives and 5,000 freight cars. India insisted that the U.S. do the purchasing. To get the best deal, the Government asked for competitive bids. Baldwin-Lima-Hamilton, the only U.S. firm that still makes steam locomotives, bid $178,200 per locomotive, v. the low bid of $81,470 from Japan. The low U.S. bid for freight cars was $2,912 per car, while other bids ranged from a German company's $1,006 to a Japanese firm's $1,860. Though U.S. car and locomotive builders are in a slump, the Government would be hard put to justify placing them at home.

A large part of U.S. foreign-aid funds has gone into building up the defense of NATO allies, or into industries that created no competitive problems, such as electric power, railroads and housing. However, such projects helped other industries, and better-equipped war plants were able to improve production of civilian goods. For example, the U.S. sent $126 million worth of badly needed machine tools to the British aircraft industry. While used primarily for military production, the tools can also be used to make civilian transport planes and parts.

Nevertheless, many of the complaints about competition from Marshall Plan-aided industries are hardly justified. Some of the keenest competition has come from industries that got little or no Marshall Plan money, such as British bicycles, Italian sewing machines and Swiss watches. And indi vidual companies were not handed new plants and tools, but had to pay for them just like any U.S. manufacturer. Marshall aid furnished dollars to for eign governments, and the foreign companies then paid for the equipment in their own currencies.

These companies have made such good use of U.S. help with dollars and technical advice that Great Britain, France, Germany, Italy and Japan have all come back full steam into world markets. The United Kingdom, which exported 22.4% of the world's manufactured goods in 1937, is now back to 22.1%. Germany's share dropped from 23.4% prewar to 7.6% in 1950, is now up to 13.7%. However, the U.S., with 27.1% last year, was still well ahead of its 1937 slice of 20.3% of the market.

For industries that have been hard hit, such overall statistics are no substitute for empty order books. Some of these industries have already been helped, e.g., President Eisenhower has authorized $300 million in stockpile purchases from U.S. mines. Others are now hoping for tariff increases. But many can do better by helping themselves. The wood screw industry, for example, is being undersold 25% by foreign competitors (using American-made machines), chiefly because of low wages abroad. But the National Machine Co. of Tiffin, Ohio, exporter of wood screw machines since 1935, is now working on new models that are better than those exported. It expects to sell them almost exclusively to U.S. manufacturers.

Foreign aid was designed to give industries in other countries an even start with those in the U.S. But it gave foreign industries no permanent advantage. Now that competition is back, the best way for American businessmen to compete is to find new and better methods and machines to do things--and step out ahead again.

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