NEW FRONT IN THE COLD WAR

The U.S. searches for a world economic policy

THE U.S. is preparing to open a new front in the cold war--an economic front. On presidential instructions, former Budget Director Joseph M. Dodge hastened back to Washington from his Detroit bank to undertake a sweeping review of "the entire field of cold war economic strategy." Secretary of State Dulles is pressing for a huge expansion of U.S. investments abroad; Foreign Operations Director Harold Stassen. whose department is slated to go out of business next summer, has proposed an ambitious scheme which is already being called "A Marshall Plan for Asia."

The air is full of plans, but they have yet to undergo a purification by budget. Secretary of the Treasury George Humphrey, a hard man with a dollar and a weighty man in the Cabinet, is against any large-scale foreign spending; Banker Dodge thinks Harold Stassen's plans are dangerously dreamy. The foreign-aid enthusiasts think Humphrey and Dodge are dangerously unimaginative. But despite individual differences, the Cabinet is unanimous in its belief that the character of the cold war is changing, and that the U.S. urgently needs to reshape its foreign policy. The objective is to shift the emphasis of U.S. world strategy away from military containment (which leaves the initiative with the Communists), closer to economic "liberation," with the emphasis on advance.

Pax Atomica. Currently, U.S. policy suffers from what one State Department man calls "a heavy military bias." Too many U.S. officials have fallen into the habit of measuring progress (or security) exclusively by the number of nuclear explosions, the number of divisions mobilized. The result is that the U.S. is stuck with a warlike vocabulary (e.g., "massive retaliation"), while the Communists, who continue to aggress, have stolen the words of peace (e.g., "coexistence").

President Eisenhower is convinced that "there is no longer any alternative to peace." The British believe that the world is entering a period of pax atomica, based on a recognition by both sides of a nuclear standoff. The new phrase spreading in both London and Washington is "competitive coexistence."

In the next ten years, warned the State Department last week, the main cold-war battleground may well be economic. "The leaders of the Soviet Union," said one of its experts, "are apparently proceeding on the theory that economics is the Achilles heel of the West." To meet this challenge, which in a period of cold peace might prove more dangerous than all the fleets and armies of Moscow and Peking, the U.S. needs to prove that democracy and capitalism have more to offer--in terms of freedom, justice and plenty--than the Communists ever can. What is needed is no less than a new World Economic Policy.

The challenge is immense: it conjures up a vision of U.S. capital and skill flowing out to far-off lands to dam great rivers, dig new mines, so that millions who know only hunger may share in the freedom and plenty that Americans take for granted. But the businessmen in the Eisenhower Cabinet are not interested in a return to expensive giveaway programs. Their WEP is based on spreading abroad the practices and philosophy that have made the U.S. the wealthiest, most progressive nation in history. Foreign investment is to the advantage of other nations who lack the capital to develop their resources; it is also to the advantage of the U.S.

4,000,000 Dependents. With but 6% of the population, the U.S. produces and consumes almost 50% of the world's annual output of goods and services. Yet if Americans tried to make do without foreign trade, their standard of living would dwindle overnight. There would be no coffee, tea or bananas in the U.S. shops; sugar and pineapples would be priced skyhigh. Telephones (which need 48 different materials from 18 foreign countries), automobiles (300 items from 56 foreign countries) and shoe polish (eight items from abroad) would be scarce and more expensive. Said Harold Stassen last year: "The U.S. depends on the outside world for 100% of its tin, mica, asbestos and chrome, for 99% of its nickel, 95% of its manganese, 93% of its cobalt, 67% of its wool, 65% of its bauxite, 55% of its lead, 42% of its copper."

Still more does U.S. prosperity depend on export markets. Four million Americans work directly for overseas customers. In 1952 U.S. foreign sales of earth-grading machinery were equal to 30% of production; tractors, 23%; textile machinery, 22%; typewriters, 19%; trucks and buses, 16%; refrigerators, 13%; cotton textiles, 9%. U.S. farmers exported the produce of 40 million acres of land--between one-quarter and one-half of all their cotton, tobacco, corn and wheat. About 30% of all U.S. farm marketings are dependent on foreign buyers, and in 1951 farm-export income, divided evenly among U.S. farmers, equaled $1,100 per farm.

Off the U.S. Dole. Every year, still more Americans become dependent on foreign trade. U.S. productive capacity is outrunning U.S. domestic demand--and the result is that thousands of business men are seeking bigger outlets abroad. But if overseas customers are to buy more U.S. goods, providing more jobs for U.S. workers, they must obtain the dollars with which to pay for them. In the years after World War II, U.S. foreign-aid programs helped provide these dollars--35 billion of them, not counting military spending. But the era of "donation diplomacy" is past. "The world must soon stand on its own feet," says Clarence B. Randall, chairman of the U.S. Commission on Foreign Economic Policy. "It must come off the American dole, as it wants to do, and earn its own way, as it is determined to do."

To help the rest of the world stand on its own feet, against poverty and Communism, is the principal objective of a World Economic Policy. Such a policy requires two simultaneous economic offensives: 1) a vigorous expansion of free world trade; 2) a drive to raise living standards in the underdeveloped lands of Asia, Latin America and Africa.

EXPANDING WORLD TRADE

SINCE 1939, world trade has been out of joint. Buffeted by war and cold war, it limps along a narrow defile between the face of the Iron Curtain and the perils of the "dollar gap." This year there has been marked improvement. Europe is back on its feet (TIME, Nov. 29), and eleven of its trading nations, accounting for three-quarters of its imports from North America, are quietly dismantling their restrictions on free trade. In some cases (e.g., Benelux) controls have been removed on almost 90% of all dollar imports. The vast sterling area, which accounts for 40% of all world trade, is slowly and cautiously approaching the day when the pound (and with it, most other currencies) will be declared freely convertible into dollars.

What happens next rests squarely with the U.S. "As the strongest economic power," said the influential Committee for Economic Development last month, "the direction which our tariff policy takes will . . . determine whether the free world moves ahead to widening markets and expanding production."

Cheese & Scarves. Many U.S. tariff policies are still geared to the outdated habits of a nation trying to get onto its economic feet. Others are contradictory, and even self-defeating. Examples: CJ U.S. Marshall Plan experts helped the Danes expand their blue-cheese industry, so that Denmark could earn the dollars it needed to buy U.S. goods. But when the Danes started selling their cheese, the U.S. imposed a quota to keep all but a sliver of foreign blue cheese out. CJ The U.S. lays great stress on the 1921 Anti-Dumping Act, which protects domestic markets from the unfair competition of foreign products sold below cost. Yet under the burden of its surpluses,* the U.S. is peddling abroad $1.4 billion worth of food, some of it in 6,000,000 Christmas parcels to be distributed free by U.S. troops, much more at cut-rate prices that undermine its allies markets.

Complaints about these, and countless other anomalies, pour into Washington each week. Last month GATT (General Agreement on Tariffs and Trade) censured the U.S. for restricting dairy imports by quota. The London Economist wrote: "The U.S. is seeking two worlds--one where it can sell its sur pluses freely, and another where no other country can sell farm products freely to it." Said an angry Japanese businessman: "The Americans tell us not to trade with the Communists, then they turn around and raise their duties on silk scarves. It doesn't make sense."

Foreign businessmen consider these the biggest U.S. obstacles to expanding world trade:

P: The U.S. Tariff Wall. Yearly, the U.S. imports about $11 billion worth of goods: of these, half enter duty-free, and two-fifths pay duties of less than 30%. Yet cheap sun glasses pay 335.7% ad valorem, pocket knives with folding blades 89.5%, concentrated lemon juice 85%.

P: The Buy American Act, which prohibits the U.S. Government from buying foreign products unless the equivalent U.S. product costs at least 25% higher. Cost to the U.S. taxpayer in unnecessary federal expenditures: $100 million per year. Already, in individual cases, the Eisenhower Administration is seeking ways to get around this depression measure.

P: U.S. Customs Procedure. "Many goods take longer to pass through customs than it took Columbus to discover America," said a 1953 U.S. Government report. There are 20 different chargeable rates on fine animal hair, half a dozen for leather gloves, depending on whether the seam is sewn by hand or by machine. Charges often vary as much at 25% between New York and New Orleans, and at the end of 1953 there were some 750,000 unsettled customs entries-the equivalent of a full year's work--pending on inspectors' desks.

Advice to Congress. To remedy the worst of these abuses, the Randall Commission proposed a cautious middle-of-the-road program (TIME, Feb.1) It advised Congress to:

P: Extend the Reciprocal Trade Agreements Act for at least three years. Cf Empower the President to cut all tariff rates by 5% each year over a period of three years.

P: Authorize the President to slash existing tariffs to not more than 50% ad valorem at his discretion.

P: Simplify tariff classifications and customs procedures.

P: Change the Buy American Act to permit foreign companies to bid on U.S. Government contracts without discrimination.

The timidity of the Randall Commission's recommendations was rooted in the notion that a bolder program could not get past high-tariff Republicans in Congress. President Eisenhower did not back the Randall proposals with his full prestige, and protectionists in Congress killed the program anyway. But Ike has decided to try again in January, and he should have more luck, since low-tariff Democrats will occupy the key committee chairmanships in both House and Senate.

RAISING LIVING STANDARDS

WHAT Europe needs is trade; what Asia, Latin America and Africa need is capital and know-how. Perhaps one billion people in these continents are experiencing what economists call "a revolution of expectations." A fairly simple Western notion--that poverty, disease and illiteracy are not inevitable--is spreading like fiery crosses among folk who for centuries have remained apathetic to advance. Having emancipated themselves from colonialism, millions of human beings are consumed by an aching need to pull themselves up from economic servitude. They look to "industrialization" as a magic panacea.

This blind and touching belief, and the rising expectations that impel it, have been seized upon by the Communists as a powerful lever of influence. From Moscow and Peking, Communism is held out as a short cut to material progress. Recently John Foster Dulles warned Americans that the Communists' "cruel system . . . does have a certain fascination for the peoples of underdeveloped countries who feel that their own economies are standing still." The danger is that those who compulsively hunger for economic advance will opt for the Communist alter native, if democracy's methods are too slow.

Partnership for Growth. To meet this need and challenge, the Eisenhower Administration is considering an imaginative proposal originally offered to the Government by M.I.T.'s Center for International Studies. Backed by a powerful segment of the State Department and by FOA's Harold Stassen, it calls on the U.S. to launch and lead a free world "Partnership for Economic Growth."

To start it going, the U.S. would earmark between $2 and $3 billion a year (about one-fifteenth of its arms budget) for the next five years, to provide an investment fund for underdeveloped nations. Britain and other industrial nations would be asked to supply additional billions; private investors, most of them American, would be encouraged to add to the kitty. Loans from this giant fund would be made available to the have-not nations without military or political strings, but each borrower would be expected to concentrate on those industries for which climate and resources best fitted it: there would be no "partnership" money to set up uncompetitive prestige industries, which might require high-tariff protection.

Favorable Battleground. Partnership protagonists in Washington expect to avoid the big error of the Marshall Plan--that of handing over U.S. aid on a government-to-government basis. As soon as the pumps are primed, partnership loans to governments would be quickly tapered off, and the building of dams and factories left to private capital, operating for profit. The partnership would also provide U.S. and European technicians, to teach Indians, Bolivians, Egyptians, how modern industry is run. U.S. experts believe that atomic-energy reactors might be used efficaciously to provide some of the power for industries in fuel-scarce areas.

State Department planners have accepted as a target M.I.T.'s cautious estimate that, once started, World Partnership for Growth would make possible an overall 1% annual increase in income per capita for the underdeveloped nations of the world. Considering the poverty and vast size of the populations involved, this is no mean target. But it is easily within the giant capabilities of the U.S.

Together with the President's program for expanding world trade, some such world-investment program is indispensable to 1) the security, and 2) the future prosperity of the U.S. For if the West loses the struggle for one billion in-betweens, on three continents, the balance of world power may go in favor of Communism.

There will be resistance to a World Economic Policy--at home and abroad. But economics, a field in which Americans excel, is a battleground which the U.S. might gladly choose to fight on.

*As of Sept. 30, the U.S. was holding history's greatest hoard of unsold food and fibers: $6.4 billion worth, including 377 million Ibs. of butter, 550 million Ibs. of cottonseed oil, 743 million bushels of wheat, 2,000,000 Ibs. of tobacco.

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