i^ /^.' ^ GIFT or Henry ¥. Grady THE FOREIGN TRADE OF THE UNITED STATES THE FOREIGN TRADE OF THE UNITED STATES ITS CHARACTER, ORGANIZATION AND METHODS BY L. C. FORD AND THOMAS F. FORD WITH AN INTRODUCTION BY W. L. SAUNDERS ASSOCIATION CHARLES SCRIBNER'S SONS NEW YORK CHICAGO BOSTON re 7 Copyright, 1920, 1922, by CHARLES SCRIBNER'S SONS Printed in the United States of America CONTENTS CHAPTEK PAOB I. The Nature, Purpose, and Growth of In- ternational Trade i OCCASION FOR COMMERCE — THE CONTROL AND DIREC- TION OF COMMERCE — NATURE'S HANDICAPS REMOVED — THE EFFECT OF IMPROVED TRANSPORTATION FACILI- TIES — THE REVOLUTIONARY EFFECTS OF STEAM — THE GROWTH OF WORLD COMMERCE — THE COUNTRIES LEAD- ING IN INTERNATIONAL TRADE — FOREIGN TRADE AND NATIONAL PROSPERITY — A WIDER INTERNATIONALISM. II. Development of the Foreign Commerce of THE United States 13 COLONIAL COMMERCE — COMMERCE FROM 1 776 TO 1 876 — COMMERCE FROM 1876 TO I9OO — THE FIRST FOURTEEN YEARS OF THE TWENTIETH CENTURY — SUMMARY. III. The War Trade of the United States . . 28 NEW GRAND TOTALS IN BOTH EXPORTS AND IMPORTS — ANALYSIS OF EXPORTS — THE EXPORTS BY CONTINENTS AND COUNTRIES — ANALYSIS OF IMPORTS — THE CONTI- NENTS AND COUNTRIES FROM WHICH WE BOUGHT — THE LATIN AMERICAN TRADE — THE RE-EXPORT TRADE. rV. Exports of the United States — Articles and Destination — Trade Opportunities . 42 NATURE OF OUR EXPORTS — COTTON — IRON AND STEEL MANUFACTURES — MEAT AND MEAT PRODUCTS — WHEAT — PETROLEUM, COPPER, WOOD AND LEATHER MANU- FACTURES — DESTINATION OF OUR EXPORTS — OUR TWENTY BEST CUSTOMERS. V. Imports of the United States — Articles and Sources 58 NATURE OF OUR IMPORTS — ARTICLES BOTH IMPORTED AND EXPORTED — SOURCE OF IMPORTS — LATIN AMERICA AS A SOURCE OF IMPORTS. V MiS234.1 vi CONTENTS CHAPTER PAGE VI. Export Sales Organization — Manufactures 70 DIRECT AND INDIRECT EXPORTING — SALES ORGANIZA- TION OF LARGE CORPORATIONS — STEPS IN DEVELOPING A SALES ORGANIZATION — SALES ORGANIZATION OF THE STANDARD OIL COMPANY — THE UNITED STATES STEEL CORPORATION — SALES METHODS COMMONLY USED — SALESMEN — FOREIGN AGENCIES — ADVERTISING CATA- LOGUES, CIRCULARS, DIRECT CORRESPONDENCE — IN- TERNATIONAL PARCEL-POST. VII. Export and Import Commission Houses . . 84 IMPORTANCE IN DEVELOPMENT OF INTERNATIONAL TRADE — SERVICES OF EXPORT COMMISSION HOUSES — DIFFERENT TYPES OF EXPORT HOUSES — ADVANTAGES OF SELLING THROUGH AN EXPORT HOUSE — PROMOTING TRADE THROUGH EXPORT HOUSES — THE HANDLING OF STAPLE PRODUCTS — THE COMMISSION HOUSE IN LATIN AMERICAN TRADE. VIII. The Exportation of Raw Materials and Foodstuffs 93 METHODS IN GENERAL — COTTON — WHEAT — CATTLE — TOBACCO. IX. Export Documentation and Freight For- warding 108 THE DOCUMENTS AND DETAILS OF AN EXPORT SHIPMENT — EXPORT INVOICES — THE SHIPPING PERMIT — CONSULAR INVOICES — shipper's EXPORT DECLARATION — RAILROAD BILL OF LADING — STEAMSHIP BILL OF LADING — THE shipper's AGENT AT THE PORT — FREIGHT-FORWARDING AGENCIES — manufacturers' EXPORT AGENTS — OTHER FORWARDING AGENTS. X. Import Machinery and Methods 120 IMPORT REGULATIONS — IMPORT DOCUMENTATION — BONDED WAREHOUSES — THE APPRAISEMENT OF IM- PORTS — IMPORT METHODS, MANUFACTURES — MER- CHANDISE FAIRS. XI. The Importation of Raw Materials and Foodstuffs 128 METHODS IN GENERAL — WOOL — HIDES AND SKINS — RUBBER AND GUTTA-PERCHA — SUGAR — TEA — RAW SILK — COFFEE. CONTENTS vii XII. The Transportation of Our Foreign Com- merce 142 MEANS OF TRANSPORTATION — RAILROADS OF THE UNITED STATES — INLAND WATERWAYS — FORTS AND TERMINAL FACILITIES — THE AMERICAN MERCHANT MARINE — THE DEMAND FOR FREE PORTS — OCEAN TRADE ROUTES. XIII. Ocean Freight 160 IMPORTANCE OF OCEAN TRANSPORTATION — TYPES OF OCEAN TRAFFIC — OCEAN FREIGHT RATES — PARCELS RECEIPTS — OCEAN FREIGHT-AGENTS — C. I. F. QUOTA- TIONS — PACKING 6VERSEAS SHIPMENTS — THE EFFECT OF PACKING ON FREIGHT AND TARIFF CHARGES. XrV. Marine Insurance i74 IMPORTANCE — LLOYD'S ASSOCIATION — DEFINITION OF TERMSj — THE STANDARD POLICY — LOSSES INSURED AGAINST — PARTIAL LOSS — WAR RISK — FIRE — GENERAL AVERAGE — BARRATRY, SEIZURE, AND OTHER PERILS — ADDITIONAL CLAUSES — TAKING OUT MARINE INSURANCE. XV. The Extension of Credit 184 THE IMPORTANCE^OF CREDIT — NECESSITY FOR CREDIT — CREDIT CAUTION — METHODS OF EXTENDING CREDIT — CREDIT AGAINST ACCEPTANCES — OPEN CREDIT — LONG- TIME CREDITS — FOREIGN CREDIT DEPARTMENT — HOW TO ASSEMBLE CREDIT INFORMATION — HOW TO SAFE- GUARD FOREIGN CREDITS — HOW TO KEEP IN TOUCH WITH FOREIGN RISKS — THE COLLECTION OF FOREIGN ACCOUNTS. XVI, Financing Export Shipments 200 HANDICAPS TO OUR EXPORT TRADE — BANKING FACILITIES NEEDED — EFFECTS OF THE FEDERAL RESERVE ACT — METHODS OF FINANCING EXPORTS — BANKERS' ACCEP- TANCES — DISCOUNTING DOCUMENTARY DRAFTS — DEL CREDERE GUARANTY — A TYPICAL TRANSACTION — COM- MERCIAL LETTERS OF CREDIT — CONFIRMED CREDIT. XVn. Foreign Exchange 213 DOMESTIC EXCHANGE — PRELIMINARY DEFINITIONS — OC- CASION FOR EXCHANGE — THE BUYING AND SELLING OF EXCHANGE — THE DISCOUNT RATE — MONETARY SYS- TEMS — THE MINT PAR OF EXCHANGE — THE RATE OF EXCHANGE — THE GOLD POINTS — FIXING THE RATE OF EXCHANGE — FLUCTUATIONS IN EXCHANGE — EXCHANGE QUOTATIONS — ADVANTAGES OF DOLLAR EXCHANGE — THE NEED OF RECIPROCAL TRADE RELATIONS — ARBI- TRATED EXCHANGE. viii CONTENTS CHAPTER »AGB XVIII. The Balance of Trade 232 THE MERCANTILE THEORY — BARTER IN INTERNATIONAL TRADE — THE TRANSFER OF GOLD AND THE BALANCE OF TRADE — ANALYSIS OF OUR TRADE BALANCE — EQUILIB- RIUM IN FOREIGN TRADE — TWO CLASSES OF NATIONS IN INTERNATIONAL TRADE. XIX. Government Aid to Foreign Trade ... 245 THE KIND OF ASSISTANCE GIVEN — THE CONSULAR SER- VICE OF THE UNITED STATES — CONSULAR REPORTS — OTHER CONSULAR AID TO EXPORTERS CONSULAR AID TO IMPORTERS — PUBLICATIONS OF THE BUREAU OF FOREIGN AND DOMESTIC COMMERCE — SPECIAL AGENTS OF THE DEPARTMENT OF COMMERCE — FOREIGN TRADE AD- VISERS — DIPLOMATIC AIDS TO FOREIGN TRADE. XX. The Value of Foreign Investments and of a Merchant Marine as Exemplified by the Commerce of the United Kingdom . . . 258 POSITION OF THE UNITED KINGDOM IN INTERNATIONAL TRADE — CAUSES OF COMMERCIAL SUPREMACY — THE MERCHANT MARINE — MANUFACTURING — ENGLAND'S FREE-TRADE POLICY — FOREIGN INVESTMENTS — PROG- RESS IN FOREIGN TRADE — IMPORTS — EXPORTS — DIREC- TION OF TRADE — TRADE OF I915-I918. XXI. Organization and Co-operation in Foreign Trade as Exemplified by Germany . . . 279 FOREIGN TRADE ESSENTIAL TO THE EMPIRE — FIVE FAC- TORS IN GERMAN ORGANIZATION — EDUCATION — GOV- ERNMENT CONTROL OF RAILWAYS AND WATERWAYS — THE WORK OF SYNDICATES — THE CO-OPERATION OF BANKS IN INDUSTRY — GERMANY'S BARGAINING TARIFF — THE GROWTH OF GERMANY'S FOREIGN TRADE — IM- PORTS — EXPORTS — DIRECTION OF TRADE — SUCCESS OF THE GERMAN SYSTEM. XXII. The Foreign Trade of Other Nations . . 294 FRANCE — ITALY — THE NETHERLANDS — BELGIUM — POR- TUGAL — RUSSIA — OTHER EUROPEAN COUNTRIES — CAN- ADA — MEXICO— CENTRAL AMERICA — THE WEST INDIES — THE SOUTH AMERICAN REPUBLICS — AUSTRALIA — NEW ZEALAND — THE PHILIPPINE ISLANDS — JAPAN — CHINA. CONTENTS ix PAGE Questions 311 Appendix 327 BIBLIOGRAPHY ON THE TARIFF RATES OF FOREIGN COUN- TRIES — TABLE OF IMPORTS AND EXPORTS OF PRINCIPAL COUNTRIES IN THE LAST PRE-WAR YEAR — COMMERCE WITH CUBA. PORTO RICO, HAWAII, AND THE PHILIPPINES THE TWELVE GREATEST SEAPORTS COUNTRIES EX- CELLING IN PRODUCTION — THE WORLD'S PRODUCTION OF COTTON — THE WORLD'S CONSUMPTION OF COTTON — THE world's production OF WHEAT — THE WORLD'S PRODUCTION OF RUBBER — THE WORLD'S PRODUCTION AND CONSUMPTION OF COFFEE. Index 335 INTRODUCTION The youth of the United States compared to the age of other great nations has given her the advantage over them that she could profit by their experience. But in another way it has worked to her disadvantage: she has from time to thne been drawn into fields of enterprise v,^holly new to her in competition with old nations accus- tomed to them from the first and participants in each stage of their development. But she has never entered one with less knowledge of principles and methods than that with which she now takes a hand in the complicated game of foreign trade. In diplomacy and in war, to mention two departments of international competition into which she has been drawn as a novice, the United States has shown a capacity for rapid learning which, with beginners' luck perhaps, has brought her out with credit. This new activity of inter- national trading she will master too; but since time is pressing, few greater services could now be rendered her people than that of diffusing an understanding of its prin- ciples and practice. It is therefore a pleasure to intro- duce a book so ably designed for the purpose as The Foreign Trade of the United States. Particularly is it so designed in being simple, elementary, and complete: smce international tradmg in this country is in its infancy, it should draw to itself a large number of beginners who must in great measure prepare themselves for the unusual opportunities it offers of rapid advancement. Indeed, only the rising generation can completely master the prob- lems and the technic of foreign trade— and this book is primarily planned for beginners. The basic reason why we must become foreign traders in a large way resides in the irresistible action of economic lav/. Far-sighted commercial men have long recognized XI xii INTRODUCTION both the opportunity and the inevitability of engaging in this field; and of course we have long done so to some extent, but in the main in a spasmodic way, regarding foreign markets rather as a dumping- ground for a surplus of products created by temporary conditions. But now, as older nations did long before us, we have reached a stage where our productive capacity is such that we shall nonnally have a constant surplus beyond our needs. This situation was predestined: we have vast re- sources — no nation possesses so immense a supply of the basic raw materials of industry. The question was simply one of a lapse of time sufficient to allow for the requisite growth of population and its natural concomitants before we should produce such a surplus for export. The output of our manufactories is now greater than that of any other country. To this degree of development we were brought suddenly because of the stimulation of the European de- mands upon us during the war, which quickened our de- velopment in plants, organization, and skill. At the same time the war acted to reduce the disadvantage we were under in the large item of the cost of labor by increasing the rates of wages in Europe to a greater proportional de- gree than it has increased them here. We should show a singularly uncharacteristic lack of enterprise if we did not recognize our opportunity and press our advantage; but to do so we must absorb the methods of foreign trade with a rapidity corresponding to that with which our situ- ation was changed instead of learning more gradually, as we should naturally have done had this development been subjected to no adventitious acceleration. For instance, we must overcome our somewhat contemp- tuous ignorance of foreigners, which results simply from our inexperience with them. The great nations of Europe have, by the mere fact of contiguity, learned to adjust their points of view to those of foreign peoples. Our com- parative geographical remoteness, partly, but even more. INTRODUCTION xiii the nearly absolute economic independence conferred by a small population and great but undeveloped resources, freed us until recently from any pressure of necessity in this direction. Accordingly we are too prone to ignore national differences: the Uttle peculiarities of other peo- ples seem to us insignificant details, although in. their effect upon business relations they come to have a great importance. We must then learn to understand the ex- ceedingly intricate mechanism of foreign commerce — the methods of procuring and handhng foreign business, the details incident to export shipment such as the proper documentation, packing, insurance, credit arrangements, and the whole general question of financing. These mat- ters are admirably explained by the authors of this book: in a very complete exposition of export technic, for example, an order is traced from the time it is received through all its stages until delivery is made; and this same concrete method of explanation is followed in the explanations of the other phases of commerce. But any true perspective of foreign commerce such as even a purely practical mastery of the business of export- ing and importing demands will be based upon a compre- hension of the principles of foreign trade. They are elusive, and can only be mastered by close study. For instance, no one has mastered the subject without understanding foreign exchange; this indeed is the pivotal point in the economics of foreign trade. Nor can any one properly be said to understand it w^ho has not completely freed him- self from the old fallacy which even so g?eat a mind as Napoleon's accepted — that it is desirable the nation should sell but not that it should buy. As the authors of this volume explain in their early pages, which set forth the principles of the subject, foreign trade is an exchange of goods and services; its ideal condition is one of a bal- ance of imports and exports. A nation's aim should not be, as it was until the day of Adam Smith, to sell her xiv INTRODUCTION products in vastly greater quantity than that in which she buys the products of others; but rather, through a multitude of transactions in exporting and importing, to strike an exchange something like equal in the total. The sale of goods abroad is, therefore, but one half of the opera- tion, and it cannot continue indefinitely unless the other half is fulfiUed. At present our exports enormously exceed our imports. This excess, accumulating in something like geometric pro- gression since 1914, has transformed us from a debtor into a creditor nation. The unprecedented fluctuations in ex- change which have brought the dollar to a premium in all of the countries of the world but those whose sales to us have exceeded their purchases, are due principally to the large excess of our exports over our imports. It is this condition as revealed in these extreme fluctuations that has made the problem of payment for our exports one that is bafHing our financiers, manufacturers, and ex- porters. Whatever temporary reHef may be given by the contrivances of credit, a proper adjustment can only be reached when our exports are paid for to a far greater ex- tent than now, by means of imports. The principles underlying such matters as these are ex- cellently handled in this book — a book that will give sound and valuable information wherever it is read or where- ever it is used for reference. To the inexperienced, the student, or the beginner, it should be invaluable: one can easily imagine it in use as a text- book in business schools, and in universities which give practical courses in political economy, or in foreign trade itself. But even the seasoned importer and exporter will prize it. W. L. Saunders, President American Manufacturers* Export Association. New York, April 28, 1930. THE FOREIGN TRADE OF THE UNITED STATES THE FOREIGN TRADE OF THE UNITED STATES CHAPTER I THE NATURE, PURPOSE, AND GROWTH OF INTERNATIONAL TRADE Occasion for Commerce. — The principle of barter is one that has its foundation in human needs, human de- sires, and human ambitions. Even in the most primitive state of society, commerce in a restricted form exists. The Indian tribes of North America, long before they were brought into touch with the civilization of Europeans, exchanged wampum for pottery, ornaments, skins, and food. Savage tribes of remote regions, quite outside the sphere of the influence of civilization, invariably carry on some trade with neighboring tribes, not being willing to subsist on what they find at hand or on what they can produce. The saying *' Distant fields are always green" is well illustrated in the realms of commerce. Strange products from far-off lands have always had a fascination that has been of immense importance in the development of com- merce. The wilKngness of savage tribes to exchange food, furs, and even services for multicolored baubles of glass, sparkling trinkets, fantastic articles of clothing, and other intrinsically worthless trifles has been the means of build- ing up vast private fortunes and of opening up new trade routes. The trade in tobacco, which reaches mammoth proper- 2 FOREIGN TRADE OF UNITED STATES r re tions, lis an example of a great industry founded on an arti- ficial taste deliberately cultivated. All of the luxuries, such as diamonds, beautiful fabrics, hand-wrought works of art, pictures, and even books, each forming a large item in the world's commerce, are supplied in response to a de- mand for something more than the tiresome necessities of life, which basically is not so different from the longing of the savage soul for beads and trinkets. No single locality, however favored by the climatic and other conditions, is capable of supplying the multifarious wants of civilized man. In order to have these wants sup- plied, the surplus products of one district or country must be exchanged for the surplus products of many other regions, some located in the far corners of the earth. Commerce is thus the handmaiden of civilization, cater- ing to the wants of man and enabling him to exchange what he has in superabundance for those other commodi- ties not produced in his locality. The Control and Direction of Commerce. — One of the fundamental tenets of economics is that the law of supply and demand is the basis of commerce. Where the sup- ply of any product is abundant it will be sent to other places where the demand for this commodity is greatest. If no efforts were made to promote trade between nations, if astute business men and powerful financiers did not spend their lives and efforts in building up trade to redound to their advantage, if all over the world there were no con- certed effort to create a demand for certain commodities produced by certain nations, if transportation routes and transportation facilities did not influence and even de- termine trade, if tariff laws were not made and abolished in the interest of trade, if there were no government inter- ference whatever in commerce, if, in short, the most primi- tive conditions of barter prevailed, this law would still hold, but the nature and trend of commerce would be al- together different. GROWTH OF INTERNATIONAL TRADE 3 But the wide-awake, progressive commercial nations of to-day are not content to produce only those commodities nature has most clearly indicated for each district, nor to curb their production until a demand develops spon- taneously. The energetic, aggressive captain of industry is ever looking for new fields to conquer, the production and exchange of those commodities demanded by a ready- made market being a simple task \\ath little appeal to the constructive genius. It is the business of the leaders of trade to create markets, arouse demand, construct trans- portation facilities, develop new industrial regions, to con- trol and direct industry and commerce. Nature's Handicaps Removed. — Does a nation lack the raw materials essential to the development and mainte- nance on a large scale of the industry of manufacturing? Immediately, it constructs or arranges for the transporta- tion facilities necessary to a world-wide trade and brings from far-off lands those raw materials it lacks, converts them into finished products, and sells the surplus back to the very countries from which it obtained the essential raw materials. This is well illustrated in the case of England, v/hich has for years imported great quantities of raw cotton from the United States, and exported manufactured cotton in the form of textiles to the United States; has imported wool from x\ustralia and Argentina, converted it into yarn, worsteds, and other fabrics, and sold these finished prod- ucts to those countries, among others, supplying the raw material. Germany, likewise, built up a tremendous for- eign trade by going beyond her own domains for many of the raw materials of commerce, expending time and thought and ingenuity in converting these into valuable manufactured products and selling them to the various nations of the earth. The restrictions placed upon in- dustry by conditions of climate, soil, and population have thus been effectually removed, and nations heavily handi- 4 FOREIGN TRADE OF UNITED STATES capped by nature have risen to positions of industrial and commercial eminence through sheer enterprise and am- bition. The Effect of Improved Transportation Facilities. — The effect of adequate transportation facilities on indus- try and commerce is little short of the marvellous. When transportation is expensive and dangerous, extensive commerce can be carried on profitably only in those com- modities possessing a high value. When the caravan was the principal means of transportation, the only commodities commanding a wide market were rare and expensive articles such as the precious metals, ivory, costly woods, spices, and other luxuries of the rich and powerful. The ships of Solomon which came every three years from Tarshish bringing ''gold and silver, ivory and apes, and peacocks" are typical of early commerce. Under such conditions, commerce catered to the few, while the great mass of the people were obliged to depend upon those commodities produced in their own or in near-by locaHties. Such staple commodities as rice, wheat, corn, meat, fruit, cotton, wool, leather, and machinery, now the principal articles of international trade, were of Httle importance in world commerce until comparatively recent times, because the expense incident to transportation was too great to make a profitable world-wide trade in them possible. Water transportation has always been the cheapest, and from earliest times those nations having excellent har- bors and ports have led in world commerce. From the time that the Phoenician cities of Tyre and Sidon, in the sixth century B. C, sent out their ships to trade with every settlement on the islands and on the coasts of the eastern Mediterranean and of the Black Sea, everywhere founding trading-stations and carr)dng the products of one region to another, returning with rich and varied car- goes to be distributed far inland by means of caravans, every great nation has attempted in one way or another GROWTH OF INTERNATIONAL TRADE 5 to develop an overseas commerce that would enable it to exchange its surplus products for those of other nations. Revolutionary Effects of Steam. — Until steam was made the motive power of both land and water transportation, world-wide commerce w^as for the most part confined to those regions near the sea. The steamboat has been a factor in commerce for less than a century and the rail- road for less than eighty years, yet these two have revolu- tionized it. Now, a far inland region can sell its products in the most remote parts of the world and secure for its own use every article made desirable by need or whim or fancy. With their corn the farmers of Illinois and Iowa can and do purchase the products of every race and clime. French silks and laces and gloves; cunningly wrought toys, porcelains, and fabrics; English cutlery, cotton and woollen fabrics; Japanese silks and bric-a-brac; Chinese tea, lacquered ware, and ivory carvings; Swiss clocks and toys; Latin- American coffee, spices, and bananas, and a myriad of other articles, are the commodities of every-day life in regions that were, not many decades ago, far remote from commerce. The most obscure farmhouse to-day boasts of luxuries which, less than a century ago, were beyond the dreams of avarice. The effect of the railroad in developing commerce and promoting industry is difficult to realize. With it come settlers, traders, speculators, adventurers, whose com- bined efforts result in the development of long-neglected latent resources, and where was a barren waste, a lonely grassy mesa, or an inaccessible hill country flourishes a land of farms, homes, banks, manufactures, and allied in- dustries, each taking an active part in the world's trade. Thus new fields 'for the extension of commerce are con- stantly developing, and the resources of the world that once seemed so limited are found to be incalculable. Recent Growth of World Commerce. — The last half- century, with its marvellous developments in industry and 6 FOREIGN TRADE OF UNITED STATES its world-wide improvements in transportation facilities on both land and water, has witnessed the greatest growth of the centuries in the international exchange of commodi- ties, culminating in 1913, when the combined value of all articles entering the trade between nations exceeded $40,000,000,000, which was just double that of 1900. The reasons for the stupendous expansion in recent years are many. Increase in the population of the world and in the wants of that population; a greater specialization in industry; better and cheaper methods of production and transportation; the development of new fields for the supply of raw materials, and a more generally diffused prosperity resulting in greater purchasing power, are all factors whose combined result made the first thirteen years of the twentieth century the period of greatest industrial and commercial activity since the dawn of civilization. The Bureau of Foreign and Domestic Commerce of the United States Department of Commerce has assembled the following valuable table of statistics, showing the world's development in population, production, vessel tonnage, and commerce since the year 1800. Countries Leading in International Trade. — Almost one-haK of the international exchange of commodities in 1913 was credited to four nations, the United Kingdom, Germany, the United States, and France, in the order named. The United Kingdom claimed over one-seventh of the total, Germany over one-ninth, the United States one-tenth, and France about one- thirteenth. Years be- tween 1 9 13 and 191 8, when the nations engaged in the World War were devoting their energies to the destruction of industry and commerce, do not provide statistics upon which to base any study of the subject. A development of far-reaching importance in interna- tional trade is the marvellous growth of the industry of manufacturing in the United States, notably since the open- ing of the present century, whereby nearly one-half of our GROWTH OF INTERNATIONAL TRADE < o IS o H w in in W > O '^ ID Q O o )-^ < O o o 00 0^ o O H W o w > Q m h o g aw 60 "O Q. o-o c »- w •n Ti u ^ w c 3 y S c >»g S o es fcOg E.2 u Q^ lO M looo 0^ O O CO HH O CO "^vO t^ — ^ cv< t>. CT^ ^^ rCvO lOvO OOO O fO lO S^" CqOO ooo t^t^CN o^o n rl-OO -^ "<*• J22QHHi-(Cjrtt^»-tOOt^OiOi-. • - O HH t-i CS rl-v£) t^ I^ S- 8 8 p, vOCii-^OOrl-cO'^OOOvOOOO — o i-( H^ 01 •^00 ^ ►^ tJ-vO O 'T t~^ t^ '* ^■^ 1-1 M CO -^00 •-< CO ■* ro i=2 O000»0i-ii0i-i0t>. rOOO Ov (^ C^ ror< >-< roior->.C O '^iiOO O^00 lOvO 00 rO "^ "2 ^'^-^^ ^^ *^^ "^ ''I ^ hT m" cT cT to lOvO" <^ O *^ Cl" ►fti I— 1 I— ( HH U Ha 2 fl JQ o v^ 1 i-iioOnCMOi-hOOiO w M^rOOCNCSfOrO HH C< C4 fO rO ro g s s iOO»-iO00Ot^OMON O 00 "^vO 00 O O vO 00 c>^Tj-0'^a^C^OOO^c^lo O lO'^I^C^rfO O r>.rOO ro wo ro CM On O rOOO 0^ O t-H (S CO lOvO vO vO r>- Oi-iOOrtOOOiO t^vO 00 t^OO 04 •-( v£) vO "I "^00 C^ lO -^ l^ I-' 00 ti cooo r«.ooo ^oo^O^CT^voqN hT CO lood" fO rT ^^vo^ r-^ M C4 01 n n ^•aO -^O 01 O O O OvO ■^rJ-fO'-ivO 3^(N HH 0'-Ht>.ONO OvOt^noO O^OO o a O_oo M^ O ^oo_ cr> ''t '-'^'0_0__ ^^^_^. ^3 ^lot^d^i-rr^cr-^ cf^o~ rf T? CO CO a M CO '^ covo i-i "^o o n i-i 00 r^ CO rtco•-lcoc^t^O•-"^^00O00O•^^^^ 2 01 -itOO'*'^C< - ^ Ov On •-• Cn a>0 <0>-' OMO'^O O O g S2 1^ looo 00 -^ '^^o »o i-i o fO r>. (N vo •^'o t-rHri-rcrTFt^o"Tft>.crc6(^o i^ S"0 hHMMOlcOfOTl-cO a.2 !«OOt>"OiOiOO OnoO cOvO CO n i-i S Tt-00 ■^ »o t^ O i-i cOOO '^t- M "+ lOvO .2vO r^OO On O C< CO rh rt iO\0 vo vO vO S vj -13 '^ .00 0\ O >-i i-i "-I 1-1 000000000000000000 o\.o a rt C 3 tfl Uh 3 3 "^ 't-i O .W) M) en '^ **" Ci E « £ I OJ^ en *- rt « o a 55 -co 0-21^ O 00— O fj O M rt &•-; O aj „ 3 " M C3 C/2 ^ 3 2 -6 • o^g O .3 00 -C -^ 00 o 00 > o ^^^■^ c-^ 2 «« •-' •*-> tn - 3 en 5 ^ CO on O cj O f* ::_ oo/j o.y ^ «- "^^ ^ 3^ td o ^^ "ti t^ u .5 £-5 f o ^ '-s 4J>M U O 8 FOREIGN TRADE OF UNITED STATES exports have come to consist of manufactured articles, that are entering into the keenest competition in the mar- kets of the world with those of the old-established manu- facturing nations. The United States produces more iron, coal, copper, petroleum, and cotton — the basic raw ma- terials used in modern manufacturing — than any other nation; its people possess a natural aptitude for the use of machinery, a genius for invention, great ingenuity in adapt- ing means to ends, and that indefatigable energy that sweeps away all obstacles that stand in the way of achieve- ment. A readiness to adopt large-scale methods of pro- duction, to replace old methods with new ones, and to consolidate great industries, are all factors making for the increased output of manufactures. The effect of such con- centration and consoKdation in increasing production is indisputable; the effect on the distribution of the prod- ucts of industry is another question, which need not be considered here. Foreign Trade and National Prosperity. — To say that a nation is leading the world in the volume and value of its foreign trade is not equivalent to saying that the people of that nation enjoy a larger proportion of the comforts and luxuries of life, or that they possess superior ability or greater advantages than those of other nations. It may mean that they live in an unproductive land and are obliged to depend upon a few commodities, which they ex- change with more favored nations for the necessities of life. Aden, a British coaHng-station in southern Arabia, has the largest per capita foreign trade recorded, because it is a sterile country and its people have to import all articles of food and clothing as well as building material, fuel, and drinking-water. In exchange for these commodi- ties they give their services in coaling vessels passing through the Suez Canal and the Red Sea. Their standard of living is not high, and they are not the most prosperous people of the globe. On the other hand, the United States GROWTH OF INTERNATIONAL TRADE 9 ranks first among the nations in the value of its foreign commerce, and at the same time its people enjoy the high- est standard of li\ing, and no country is more prosperous. From its superabundance it is able to export great quan- tities of products and to obtain in exchange other commodi- ties that add greatly to the comfort and well-being of the people. The exchanges between the citizens of different nations are made possible when each country produces a surplus of one or more kinds of commodities, which it is able to ex- change for other commodities that it lacks. The lack may be due to cHmatic or other conditions which render the production of certain articles impossible, or to natural or social conditions which make their production too expen- sive for common use. It may be due to a preference on the part of the people for certain occupations. For in- stance, in the United States it is difficult to procure farm labor, our workers preferring city employment in factories or other^\ise. Hence, the production of agricultural prod- ucts is discouraged, while manufactures flourish. It is popularly supposed that export trade is more valuable than import trade, and that it is this branch of commerce that must be encouraged. It may easily be shown that the gain to a country is in its imports; unless it receives iox its exports commodities more desirable than those parted with, there is no advantage in the exchange, except that derived by the individuals who may make a profit on the transactions. The United States may ex- port cutlery to England and import similar articles from England, that could be produced here just as well and just as cheaply. In that case, the only gain is that derived by the traders engaged and by the transportation and marine insurance companies. In its broadest aspects, then, for- eign trade is only profitable when it adds to the comfort, the ease, the gratification of the people as a whole. In the words of Adam Smith: ''It carries out that surplus part of lo FOREIGN TRADE OF UNITED STATES the produce of their land and labor for which there is no demand among them, and brings back in return for it some- thing else for which there is a demand. It gives a value to their superfluities, by exchanging them for something else which may satisfy a part of their wants and increase their enjoyments. By means of it the narrowness of the home market does not hinder the division of labor in any particu- lar branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labor may exceed the home consumption, it encourages them to improve and to augment its annual produce to the utmost, and thereby to increase the real revenue and health of society. '^ A Wider Internationalism. — The movement toward a wider internationalism, growing out of the World War, is bound to result in an even freer exchange of products among the nations of the earth. The immediate effect of the war has been to arouse in the nations engaged a de- termination to be self-sustaining to a degree never at- tempted since modern commercial methods have prevailed. It is freely pointed out that the territorial division of labor made possible by foreign trade leads to extreme specializa- tion, whereby one country or group of countries may be- come wholly agricultural and another country or group of countries may depend entirely upon manufacturing, to a sacrifice of self-sufficiency that may lead to serious diffi- culties in times of war or stress. While such a sane and healthful balance in its industries as France has been able to maintain is desirable, extreme self-sufhciency entails such a sacrifice as modern nations will hardly care to make under normal conditions. The economic and industrial waste of a nation's trying to produce all that it consumes is evident. The plan that is bound to prevail is for each nation to devote the major part of its energies to the production of those commodities in which it excels and for which its climate and natural conditions eminently GROWTH OF INTERNATIONAL TRADE ii 1880 1890 1900 1910 1913 1916 I.O — / —J — 1— -/ — 1 — 7 — — — 1 — — \ } \ fl 5 - - D.O 1 t" j _^ -. -ii ' ^ X -\ t R n ' it t ^ — L 1 \ i (y fi i£ -\ J- i 1- i t t -/ t °^ ^iO i ^ t 1 -J 1 i ^ i o ' tjt o -/^ -. t ]r> d. ^ i£ it / f-i^ + '' t\ O -A -J -^ _j ^ i i -^ 40 / / to *•" ^ '^^ -" / X / ' DI j^ / r Z 2 aL i ^ / ^' '^ ^' t z .^ 4- 3 .'''■ i: ^ 7 y*^ -- ■• ' 1 / /* ■^ ' / T /^ it it 2 fj ■-,. . ... i Z / Z.^ J "y y^ y' y^ ^' •^ ^ o A 1 y' ^ 4--+--Hn ..^-J IL ' it Germany United States United JCiugdom- THE FOREIGN TRADE OF THE UNITED STATES, THE UNITED KINGDOM, AND GERMANY EXPRESSED GRAPHICALLY 12 FOREIGN TRADE OF UNITED STATES fit it, and to distribute these products to wide areas, receiv- ing in exchange those commodities that it cannot produce to the best advantage. BIBLIOGRAPHY For Chapter I Clow, Frederick R. Introduction to the Study oj Commerce. New York, 191 1. Day, Clive. History of Commerce. New York, 1907. HoBSON, John A. International Trade. London, 1904. Lindsay, W. S. History oj Merchant Shipping and Ancient Com- merce. London, 1876. Powers, O. M. Commerce and Finance. Chicago, 1903. Webster, W. C. A General History of Commerce. New York, 1903. Whelpley, James D. The Trade of the World. New York, 1913. Yeats, John. The Growth and Vicissitudes of Commerce. Lon- don, 1887. CHAPTER II DEVELOPMENT OF THE FOREIGN COMMERCE OF THE UNITED STATES Colonial Commerce. — In the colonial period agriculture was the chief occupation of the American colonies, with the exception of those comprising New England, where fishing, lumbering, ship-building, and commerce were early developed. In the South were great plantations of tobacco and rice, on which slave labor was largely used. As each year's crop was harvested, it was conveyed to the nearest port and shipped to England. In return for the tobacco and rice, and for the indigo, tar, pitch, resin, and lumber, which were minor products exported, manufactured articles, such as clothing, furniture, glass, crocker>^, hardware, and utensils were purchased in England. Even those articles that could have been manufactured easily and profitably at home were imported. In a country abounding in hard- woods, furniture was not manufactured, and timber for interior finish was not even prepared for use, but was sent to England to be dressed and then brought back. The strict trade and na\agation laws imposed by England, the scarcity of skilled labor, and* the lack of a mercantile class were the principal reasons why manufacturing lagged in the South. In the middle colonies, comprising New York, New Jer- sey, Pennsylvania, and Delaware, farming flourished, with lumbering, the milling of flour, and the trapping of fur- bearing animals as important industries. Philadelphia early became the centre of an active commerce with Eng- land and the West Indies. Grain, flour, lumber, masts for ships, and live stock were the principal exports. 13 14 FOREIGN TRADE OF UNITED STATES The hardy seafaring New Englander, prohibited by the harsh climate and unproductive soil from deriving his liv- ing from farming, turned to the sea for a means of liveli- hood, and the New England fisherman, the New England ship-builder, and the New England navigator and trader became no mean factor in the commerce of the period. The material for ships was to be had in the forests adjoining the rivers; native ingenuity and mechanical skill quickly took advantage of the situation, with the result that the Yankee seafaring traders in their stanch and daring sailing-craft early became known in every comer of the globe. They brought home codfish and whale-oil from the Grand Banks of Newfoundland, and took these, together with salt fish, oysters, and meat, shingles and barrel-staves, spars and masts, grain and flour, horses and oxen, to the West Indies, despite laws forbidding colonial trade with these islands. They received in exchange sugar, molasses, wool, and cotton. They sold to the West Indies more than they bought, and thus secured money and bills of exchange on London for the surplus, which were used in discharging the adverse balance of trade with England. English laws for- bade the importation from the colonies of the staple agri- cultural commodities and fish, which were the exports of the middle and northern colonies. These products, which included grain, flour, dairy products, dried meats, fresh and salt fish, were sold to the West Indies and to southern Europe. A lively export trade with Spain and Portugal early developed; it was usually carried in ships of larger tonnage than those engaged in the West Indian trade, though 300 tons was the capacity of the larger ships. As English laws forbade the colonists to import foreign goods unless they were bought in England, the return cargo must be secured there. A common practice was for a colonial sea-captain to sell his cargo in Spain or Portugal, and then put in at an English port, where he either sold his ship or took on a cargo of hardware, cloth, carpets, brooms, and DEVELOPIMENT OF FOREIGN COMMERCE 15 household utensils, which were the manufactures most in demand in the colonies. But these bold Yankee traders did not confine their activi- ties to a few regions. Every European port of consequence, the West and East Indies, China, Madagascar, the Ha- waiian Islands, the east and west coast of South America, even the trading-posts of the western coast of North America, were well known to them. New York, IMary- land, and Pennsylvania were not slow to participate in this trade, which, while it entailed great risks, held out the chances of rich rewards. FOREIGN TRADE OF THE UNITED STATES Date 1790 1800 1810 1820 1830 1840 1850 i860 1870 1880 1890 1900 I9IO I914 Imports Million dollars 25 91 85 74 63 98 174 354 436 668 790 850 1,557 1,894 Exports Million dollars 20 71 67 69 71 123 144 333 392 835 857 1.394 1.745 2,364 Total Million dollars 45 156 152 143 134 221 318 687 828 1,503 1,647 2,244 3,302 4,258 The data for this and for all similar tables are taken from the Statistical Abstract of the United States, issued annually by the Bureau of Foreign and Domestic Com- merce of the Department of Commerce. Commerce from 1776 to 1876. — During the period of the Revolutionary War and the Confederation commerce lagged, but with the adoption of the Federal Constitution, when commerce was given the support of a strong govern- ment with ample powers to protect and promote it, it re- vived. From 1789 to 181 9 foreign trade waxed strong under the impetus of the Napoleonic wars, reaching the 1 6 FOREIGN TRADE OF UNITED STATES climax in 1807, when the exports totalled $108,000,000 and the imports $138,000,000. The principal exports were wheat, flour, and other foodstuffs. A feature was the re- export of foreign products, notably of those from the West Indies. During part of the period the value of foreign ex- ports exceeded that of our domestic exports. The imports were chiefly tropical products and manufactures. The embargo of 1807 put a quietus on foreign trade for fifteen months, but even with the lifting of this, trade did not thrive until after the close of the war of 181 2-14. For three years following the signing of the Treaty of Ghent foreign commerce was in its heyday, the exports jumping from $6,927,000 in 1814 to $93,281,000 in 1818, and the imports from $12,965,000 to $121,750,000. Reaction with financial depression set in in 1819. The people then turned their attention to the great undeveloped West, and a tremendous migration to the Mississippi Valley resulted, with the consequent development of that region. All of the abounding energy of the nation was thus turned in- ward, and foreign trade was given little attention for over a decade. The development of the West, however, combined with greatly improved transportation facilities, eventually stimu- lated the commerce of the nation, which was annually producing a surplus of raw materials and foodstuffs for which an outlet was needed. Between 1830 and 1850 the value of our foreign trade nearly doubled. The increase of the imports was even greater than that of the exports, because great quantities of manufactured and other ma- terials were needed in the expansion that was taking place. The decade between 1850 and i860 was a halcyon one for foreign trade, especially on the export side. The de- velopment of the Middle West was reflected in the un- precedented quantities of wheat, corn, and flour exported, while the extension of the cotton area nearly tripled the exports of raw cotton. Other important exports were leaf DEVELOPMENT OF FOREIGN COMMERCE 17 tobacco and forest and mineral products, while manu- factures shot up from $23,223,000 in 1850 to $48,453,000 in i860. While foreign commerce naturally fell off during the Civil War, it is notable that the falling off was ahnost en- tirely confined to cotton and cotton manufactures. Even in the height of the conflict agricultural exports increased in response to the greater demand from abroad, caused by partial crop failures there. Just as in the World War, the women willingly took the places of men in the fields and elsewhere, so that there was no dearth of production except in the South. During the war agricultural products continued to con- stitute fully three-fourths of our ex-ports. Manufactures increased, too, and a larger surplus was left for export ow- ing to the cutting off of the trade between the North and South. Higher prices helped to swell the total, but the increase of exports was in quantity as well as in value. The high war tariff, together with the blockade of the South, materially decreased imports during the war, though the value of these in 1864 was only $37,000,000 less than in i860. The change in our foreign trade that followed the Civil War is thus summarized in Johnson and Heubner's History of Domestic and Foreign Commerce of the United States: The decade following the Civil War marks the transition to a new era. Protective tariffs were definitely adopted with the avowed purpose of keeping out foreign and developing domestic manu- factures. Large-scale manufacturing, begun during the war, de- veloped rapidly and the foundations of the great trusts of the twentieth century were laid. The Civil War affected the foreign trade not only through its influence upon the tariff policy, but also by encouraging the con- centration of capital. The expansion of business in the Northern States, which occurred during the war, caused the free competitive system to begin to break down. During the war, consohdation began and the process has continued to the present in almost every 1 8 FOREIGN TRADE OF UNITED STATES branch of business except agriculture. Its effects on commerce, domestic and foreign, have been manifold. Aside from the many effects which are the subject of controversy, it has been clear that the large producers have been able to compete successfully with producers of foreign wares; and that, with certain exceptions, the rapid progress which has been made in the exportation of manu- factures has been brought about largely through the efforts of the great industrial consolidations. Commerce from 1876 to 1900. — This period was marked by the steady advance of the value of manufactures ex- ported, and by the change from an unfavorable to a favor- able balance of trade, regularly maintained. Everywhere American manufacturers laid siege to and won foreign markets. In 1874 the manufactures exported constituted only 18.8 per cent of total exports; by 1900 they had ex- panded to 35.4 per cent of the total and their value had increased over fourfold, or from $107,000,000 to $485,000,- 000. While agricultural exports more than doubled in value in this period, they became of less relative importance, though they still constituted 61 per cent of the total ex- ports in 1900. The same condition was reflected in the imports, where two changes are striking: first, the relative importance of manufactured imports declined, and, second, those crude materials for use in manufacturing won a position of un- precedented importance, climbing from 6.2 to 13.6 per cent of total imports and more than doubling in value. This class of imports, destined to play a more and more important part in our national life, includes crude rubber, wool, hides and skins, and textile fibres. The change in the balance of trade, whereby exports exceeded imports in value, is one marking a new era. In 1874 the value of the nation's exports exceeded that of the imports by $18,876,000. In 1875 the balance swung back in favor of imports, but since that date the trade balance DEVELOPMENT OF FOREIGN COMMERCE 19 has been against the United States only three times, in 1888, 1889, and 1893. The First Fourteen Years of the Twentieth Century. — The period from 1900 through 19 14 was one of astounding industrial and commercial activity. The foreign trade of the United States advanced from $2,244,000,000 in 1900 to $4,258,000,000 in 1 9 14. The imports rose from $850,- 000,000 to $1,894,000,000; the exports from $1,394,000,000 to $2,364,000,000. While the increase was partly due to higher prices, the actual increase in quantity and volume was enormous. In analyzing the foreign trade of this period the one outstanding fact is the unprecedented increase in the ex- ports of manufactures. While m^anufactured wares had forged ahead so as to form a highly important part of our export trade before the close of the nineteenth century, their gain in the first fourteen years of the twentieth cen- tury far surpassed that of any previous period. In 1900 manufactures exported were valued at $485,- 000,000; during the fiscal year ending June 30, 1914, their value was $1,099,000,000. Again, in 1900 manufactures constituted 35.4 per cent of our total exports; in 1914 they constituted 47.2 per cent of the total. This increase reflected the great industrial development of the United States, which doubled the total output of manufactured articles between 1900 and 1914, the value of aU manufactured wares produced in the latter year being estimated at $40,000,000,000. In this period the great corporations, such as the Standard Oil Company and the United States Steel Corporation, with fully developed export organizations, advanced their sales in practically every country on the globe. Other manufacturers followed their example and definitely adopted the poHcy of manufacturing for the export trade, looking upon foreign markets as primary markets instead of merely as dumping-grounds for surplus products. In- 20 FOREIGN TRADE OF UNITED STATES creased familiarity with the needs of foreign markets and the methods necessary to the successful building up of a permanent and valuable trade with other nations was an- other factor in the success of our manufactures abroad. Iron and steel manufactures led all the rest in the long list of manufactured commodities exported; refined pe- troleum came next, with agricultural implements, cars, carriages and automobiles, leather goods, wood manu- factures, and copper products all rolling up enormous totals. Agricultural products continued to pour out of the country in immense volume, their value passing the bil- lion mark for the first time in 1907. Between that year and 1 9 14 the increase was comparatively slight. The lower relative importance of agricultural products in our export trade is seen by noting that they fell from 61.6 per cent of the total exports in 1900 to 47.8 per cent in 19 14. In the latter year manufactures constituted 47.2 of the total exports. The volume of the leading agricultural export, cotton, rose from 3,100,000,000 pounds valued at $241,000,000 in 1900 to 4,760,000,000 pounds valued at $610,475,000 in 1914. The exportation of foodstuffs in this, as in former peri- ods, shows great fluctuations. The increase from $92,- 000,000 in 1870 to $459,000,000 in 1880 reflected the wonderful development of our Western farms. Then this class of exports fell to $356,000,000 in 1890, and again broke all records in 1900, when foodstuffs valued at over half a billion dollars went out of the country. In 1910 we note a decrease, with recovery in 1914. Variations in crops and prices are largely responsible for these extreme fluctuations. When we have a bumper crop our surplus is naturally larger than when the season is a poor one, with partial or total crop failures in many parts of the coun- try. Likewise, when the prices paid for agricultural prod- 18S0 1890 1900 1910 1914 .1916 1918 GROWTH OF THE EXPORT TRADE OF THE UNITED STATES, 1880-1918 21 22 FOREIGN TRADE OF UNITED STATES ucts are high the fanners are encouraged to make every effort to produce and market big crops, while when prices are low and transportation costs high the reverse is the case. Because the exportation of foodstuffs in 1914 was 21 per cent less than in 1900, we are not justified in coming to the conclusion that we are approaching the point at which we can no longer provide a great surplus of food- stuffs for export. The astounding increase in the exporta- tion of foodstuffs since 1914 in response to the higher prices and greater demand caused by the World War shows that the United States may still be looked upon as the granary of the world. The difficulty of procuring farm labor, wasteful and expensive methods of marketing farm produce, combined with other factors, resulted in discouraging increased production of foodstuffs, but the general rise in prices in 191 5 and later put the farmers on their mettle and they poured forth unprecedented quanti- ties of these commodities. The imports of the period between 1900 and 19 14 show changes similar to those found in the exports. The great expansion in manufacturing naturally created a greater demand for raw materials. Those which it was found necessary to import in great quantities were hides and skins, wool, raw silk, the textile fibres (flax, hemp, jute, sisal), india-rubber and gutta-percha, and tin. The im- portation of such materials comprised 33.4 per cent of the total imports in 1914 as against 32 per cent in 1900, and 12.7 per cent in 1870. Finished manufactures occupied the same relative position in 1914 as in 1900, constituting 24 per cent of our imports in both years. Relatively the importation of foodstuffs decreased dur- ing the period, though their value increased from $231,- 000,000 in 1900 to $476,000,000 in 1914. As late as 1890 foodstuffs constituted a third of all imports; by 1914 they had fallen to one-fourth the total. The importation of foodstuffs per capita changed little; even as far back as DEVELOPMENT OF FOREIGN COMMERCE 23 1870 we imported $4 per capita; in 191 4 the per capita importation of foodstuffs was $4.75. The increase per capita was more than offset by the rise in prices. In the period between 1870 and 1900 the population doubled; that is, it increased 100 per cent. In the same period the importation of foodstuffs increased only 54 per cent. It is only since 1900 that the importation of foodstuffs has increased out of proportion to the growth in population. 1880 1890 1900 1910 1914 INCREASE IN UNITED STATES EXPORTS OF MANUFACTURES, 1880-1914 Showing the percentage manufactures fonned of all exports at different periods This is due not to a decrease in the production of foodstuffs for home consumption, but to an increase in the use of such tropical and semitropical products as tea, coffee, cocoa, sugar, fruits, and nuts. For instance, our consumption of raw sugar rose from 40 pounds per capita in 1880 to 50 pounds in 1890, and to 59 pounds in 1900, and 89 pounds in 1914. Summary. — The foreign trade of the United States increased from $152,000 in 1810 to $4,258,000,000 in 1914, or about twenty-eight fold. In the same period the popu- lation increased from 7,200,000 to 98,200,000, or about four teenf old. Our foreign trade, then, has increased at twdce as great a ratio as our population, the per capita in- crease being from $21 in 1810 to $43 in 1914. Between 19 14 and 191 8, under the stimulus of the World War, our trade attained enormous proportions, but since many con- 24 FOREIGN TRADE OF UNITED STATES 1.100 1.000 900 800 o o o 600 z o ^ 500 400 300 200 100 S 3 __ — __ -M — _ INCREASE IN UNITED STATES EXPORTS OF MANUFACTURES, 1880-1914 Showing the increase in value of our exports of manufactures, expressed in milKons of dollars ditions of that trade were abnormal the returns for that period do not afford reliable data for analysis. The change in the character of our foreign trade is quite as important as the increase in volume and value. Great DEVELOPMENT OF FOREIGN COMMERCE 25 changes have taken place, the most striking being the remarkable position manufactured wares have attained in the export trade, especially since 1900. The increasing importance of such raw materials as rubber, wool, hides and skins, and textile fibres in our imports further em- phasizes the position manufactures occupy in our trade relations with other countries. While we are still a great agricultural nation, manu- facturing has so forged ahead that since 1914 about one- half of our exports has been manufactured articles. This change is of the utmost importance, for it has created new problems in regard to the marketing of our surplus products in foreign countries; it has brought us into direct ccnnperi- tion with the other great manufacturmg nations; it has given us a new interest in the extension of our trade with the less-developed countries, such as Chile, Argentma, Brazil, Russia, Australia, South Africa, and Canada, all countries that import great quanriries of manufactures and export foodstuffs and raw materials; it has niade more highly organized and more aggressive methods in foreign trade essenrial to our success; it has made our position in foreign trade one of fundamental importance to every State and to every citizen. While it is true that the exportarion of manufactures has increased wonderfully in every great commercial nation, in no case has the progress been so great as that of the United States. This is shown by the following^ table, which gives the exports of manufactures for different Country 1892 1912 Increase in millions Per cent increase United States United Kingdom. . . . Germany $183.1 827.0 463.8 362.6 171. 9 $1,020.4 1,873-6 1,430.1 756.1 359.8 $ 837-3 1,046.6 966.3 397-5 187.9 457.3 126.5 208.3 108.5 109.9 France Austria-Hungary. . . 26 FOREIGN TRADE OF UNITED STATES countries in 1892 and in 191 2, in millions of dollars, with the per cent of increase for the period. The rate at which our exportation of manufactures in- creased is far ahead of that of any of the other large manu- facturing nations. In actual increase the United King- dom led all nations, with Germany second and the United States third. BIBLIOGRAPHY For Chapters II and V Baker, Ray Stannard. Our New Prosperity. New York, 1900. Bates, Charles A. American Supremacy. New York, 1901. BoGART, E. L, The Economic History of the United States. New York, 191 2. 2d ed. CoMAN, Katherine. The industrial History of the United States. New York, 1900. CoNANT, C. A. The United States in the Orient. Boston, 1900. CooLmcE, A. C. The United States as a World Power. New York, 1908. Depew, Chauncey M. One Hundred Years of American Commerce. New York, 1895. Evans, C. H. Domestic Exports from the United States to All Coun- tries, 1 789-1 883. Washington, 1884. Farrand, Max. The Development of the United States from Col- onies to a World Power. Boston, 1918. FuRNESS, Sir Christopher. The American Invasion. London, 1902. Gannett, H. The Building of a Nation. New York, 1895. HoMANS, I. S. An Historical and Statistical Account of the Foreign Commerce of the United States, 1820-56. New York, 1857, KiTCHELL, J. G. American Supremacy; Being a Compilation of Facts and Statistics Regarding Foreign Commerce. New York, 1901. Knoop, Douglas. American Business Enterprise. Manchester, 1907. Latane, John H. America as World Power. New York, 1907. Laughlin, J. L. Industrial America. New York, 1906. McKenzie, F. a. The American Invaders. London, 1901. Moore, J. R. H. An Industrial History of the American People. New York, 1913. DEVELOPMENT OF FOREIGN COMMERCE 27 Philadelphia Commercial Museum. The World's Commerce and American Industries. Philadelphia, 1903. Sparks, Edwin E. National Development, 1877-85. New York, 1907. Thurston, H. W. Economic and Industrial History. Chicago, 1899. Tompkins, D. A. American Commerce; Its Expansion. Char- lotte, N. C, 1900. U. S. Bureau of Foreign and Domestic Commerce. Commerce Reports. Daily Consular and Trade Reports. U. S. Bureau of Foreign and Domestic Commerce. Commerce. Monthly Summary of Foreign Commerce of the United States. U. S. Bureau of Foreign and Domestic Commerce. Ex- ports of Domestic Merchandise from the United States by Articles and Countries During the Years Ending June 30, 1 910-19. Same for years 191 2-16 and for years 1913-17. U. S. Bureau of Foreign and Domestic Commerce. Foreign Commerce and the TariJ", 1899-1915. U. S. Bureau of Foreign and Domestic Commerce. Position of the United States in World Trade. 191 7. U. S. Bureau of Foreign and Domestic Commerce. Statistical Abstract of the United States. Annual. U. S. Bureau of Foreign and Domestic Commerce. Trade of the United States with the World, 1914-15- (Miscellaneous series no. 38.) U. S. Imports of Merchandise Into the United States by Articles and Countries During Years Ending June 30, 1913-17. 1918. Vanderllp, Frank A. The American Commercial Invasion of Europe. New York, 1902. Wright, Carroll D. The Industrial Evolution of the United States. New York, 1910. CHAPTER III THE WAR TRADE OF THE UNITED STATES New Grand Totals in Both Exports and Imports. — The first effect of the World War was to cause a reduction in both exports and imports, due to dislocation of shipping routes, to the withdrawal of ship tonnage, to unsettled business conditions, and to the general turmoil occasioned by the outbreak of the war. But in a few months came the unending demand of the belligerent nations for war ma- terials and foodstuffs, and of the neutral nations for food- stuffs and other commodities which they had formerly secured from the belligerents. The demand rose higher and higher each month as the war progressed, causing our foreign trade to break all records in volume and value, especially on the export side. The imports, too, expanded greatly after 191 5, though their expansion was far less than that of the ex- ports. The following table gives the value of exports and im- ports for the fiscal years of 1914-18, the value being ex- pressed in even millions, with six places omitted: Year I914 I915 I916 I917 I918 Exports $2,364 2,768 4.333 6,290 5,920 Imports $1,894 1,674 2,198 2,660 2,946 Analysis of Exports. — The gain in value of the exports is seen to be enormous, the totals for 191 7 and for 1918 being between two and a half and three times the total for 28 WAR TRADE OF THE UNITED STATES 29 1914, the last pre-war year. The decrease in exports in 1 91 8 as compared wdth 191 7 was due to conditions arising from our own participation in the war. There were also great quantities of war materials exported by the govern- ment tliat do not appear in statistics. Several factors are to be considered in evaluating this war trade. First, the totals were greatly exaggerated ow- ing to the constantly rising prices. The increase in the prices of the leading articles of export in 1918 over those for 1 9 14 ranged from 40 per cent to 300 per cent. For in- stance, the price of wheat increased over 100 per cent, of steel products fully 70 per cent, of raw cotton over 50 per cent, of packed meats about 50 per cent. The effect of higher prices in our import totals will be considered in some detail later. Second, the trade was abnormal in character as well as in value. While the gain in volume of some articles was tremendous, other articles either gained little or actually fell off. For instance, raw cotton exported fell from 9,165,- 000 bales in 1914 to 8,426,000 bales in 1915, to 5,955,000 bales in 1916, and to 5,576,000 bales in 1917, though the price greatly increased. Agricultural implements exported in 19 14 were valued at $31,965,000. This fell to $10,304,000 in 1915; with partial recovery and increased prices the total in 191 7 reached only $26,553,000. Cash-registers decreased in number from 47,882 in 1914 to 10,271 in 1917. Art works fell from $1,415,000 in value in 1914 to $395,000 in 1917. Hops is another agricultural product that met small de- mand during the war, the export falling from 24,262,896 pounds in 1914 to 4,824,876 pounds in 191 7. These occasional setbacks, however, dwindle into in- significance when the advances in most lines are con- sidered, especially in those articles that may be classed as war material. The part such commodities played in our export trade in manufactures is shown by the following 30 FOREIGN TRADE OF UNITED STATES table, which gives the totals in millions of dollars of exports in specified materials for the four war years, 191 5-18, and for the preceding four-year period. Article Explosives Chemicals Zinc and its manufactures. . . Brass, mostly shells Firearms Metal- working machinery. . . , Wire Tin-plate Automobiles, including trucks Total for period Value 4-year period IQIS-18 >i,7i6 662 158 622 160 229 140 106 420 ^,2I3 Value 4-year period 1911-14 $ 21 4 20 13 32 42 18 97 $352 The table contains only a few of the articles exported largely if not entirely for war purposes. Great quantities of leather manufactures such as boots and shoes and har- ness and saddles, of cotton and woollen cloth and of army uniforms, implements and tools of every variety, and a score or more of other articles were added to the war store. In addition to all these are the foodstuffs, the demand for which was doubled and trebled by the war. The table helps to explain why manufactures exported in the four years of the war aggregated in round numbers $11,000,000,000, being largest in 191 7, when they aggre- gated $4,000,000,000, or nearly as much as the total ex- port of manufactures for the four-year period preceding the war. Foodstuffs exported in the war period amounted to approximately $5,000,000,000. The largest single group in the export trade was iron and steel products, fonning about one-fifth of the total exports. These include such war materials as barbed wire, firearms, steel rails, steel sheets and plates, steel billets, and similar articles. Breadstuffs is the next great item, with such commodi- WAR TRADE OF THE UNITED STATES 31 ties as meat and dairy products, condensed milk, canned and dried fruits and vegetables and fish, and re-exports of sugar, coffee, vegetable oils, and cocoa important items. Wheat exported in the four-year period, including flour reduced to terms of wheat, aggregated over 913,000,000 ])ushels. The Exports by Continents and Countries. — The direc- tion of our export trade shows interesting and important changes. While European countries continued to take the bulk of our exports, the sales to other countries were greatly enhanced. They are of special interest because they con- sisted more largely of the stable commodities of peace. Sales to Europe in 191 7 nearly trebled those of 1914, ris- ing from $1,486,000,000 to $4,324,000,000, but falling con- siderably below this high mark in 1918. Exports to Europe for the four war years totalled some $13,000,000,000 as against $6,616,000,000 for the preceding four-year period. The exports to North American countries show the next largest increase, expanding from $528,644,000 in 1914 to $1,163,750,000 in the banner year of 191 7. Canada was the largest factor in this trade, as the United Kingdom was in the European trade. After recovery from the trade depression felt throughout South America in 191 5, our exports to that continent rose satisfactorily, so that in 191 7 we sold over twice as much to that continent as in 1914- Exports to Asia expanded from $113,425,000 in 1914 to $380,250,000 in 1917, with still larger figures in 1918, Japan taking over one-third of the total. Sales to African countries nearly doubled in the same period, while those to Oceania showed a normal increase. Considering the different nations separately, we find the United Kmgdom continued to be our best customer through- out the war period, purchasing from us merchandise valued at some $6,500,000,000 in the four years as against $2,300,- 000,000 in the preceding four years. Commodities sold 32 FOREIGN TRADE OF UNITED STATES to France in the four years were valued at $2,900,000,000 as against $576,000,000 for the four years preceding the war. Italy took over a billion dollars' worth of merchandise during the war as against $276,000,000 for the preceding four years. Of non-European countries, Canada was by far our best customer, her purchases from us for the four years aggregating $2,300,000,000, or not far from double those of the four years preceding the war. This placed Canada third in our list of customers, with the United King- dom first and France second. Our trade with Russia was enormously increased in 191 6 and 191 7, but practically ceased in 191 8. Japan proved an excellent market dur- ing the war period, taking a total of $523,000,000 worth of merchandise. The growth of commerce between the United States and Latin America expanded steadily dur- ing the war. This will be considered later. Analysis of Imports. — With the greater demand for manufactured products for export came the need of larger quantities of raw materials for use in our industries. These, with tropical food products, are responsible for the expansion of our imports. By articles the leading imports of the war period were sugar, rubber, wool, raw silk, hides and skins, coffee, copra, chemicals, tin, and fibres. While the increase in value of the imports was large, a comparison of quantities shows that the higher prices pre- vailing during the war are largely responsible for the greater totals. For example, 379,129,000 pounds of wool were imported in 1918 as against 247,648,000 pounds in 1914, the quantity increasing 60 per cent, while the average price per pound increased 150 per cent, or from 21 to 52 cents. The imports of raw silk increased from 28,594,000 pounds in 19 14 to 34,846,000 pounds in 19 18, and the price per pound from $3.40 to $5.30. Imports of copper ore jumped from 112,271,000 pounds in 1914 to 166,654,000 pounds in 19 18, the average price rising from 12.1 cents in 1914 to 19.8 cents in 1918. WAR TRADE OF THE UNITED STATES 33 Some imports which rolled up large totals in value in the later years, really decreased in quantity, notably sugar and hides and skins. Of sugar, 5,061,000,000 pounds were imported in 1914 and only 4,898,000,000 pounds in 1918, though the value more than doubled. The value of the hides and skins imported in 1918 exceeded that of 19 14 by over $11,000,000, and yet the quantity fell from 561,080,- 000 poimds to 432,516,000 pounds. A few imports show a falling off in price in the period, as in the case of rubber and coffee, but such exceptions are rare. The statistician of the National City Bank of New York computed the value of 25 of the leading imports for use m manufacturing in the year 191 7 at the prices pre- vailing for the same articles in 1916, 1915, and 1914? and showed that while the 25 articles in question had a total value in the imports of 1917 of $1,201,595,000, an equal quantity of the respective articles imported at the average price in 1916 would have cost but $951,371,000; in 1915, $891,981,000, and in 1914, $903,008,000. This indicates the necessity of making a liberal deduction in trade totals before making comparisons. The Continents and Countries from Which We Bought. — Striking changes in the sources of our imports occurred during the war. A relatively smaller proportion came from European countries and a much larger proportion from both North and South America. European imports fell from $895,602,000 in 1914 to $411,000,000 in 1918, while those from other countries rose from slightly less than $1,000,000,000 in 1914 to $2,535,000,000 in 1918. Expressed as percentages of the total, less than 14 per cent of all imports came from Europe in 191 8 as against over 47 per cent in 1914. During the four-year period the value of European imports totalled $2,253,000,000 as against $3,376,000,000 in the preceding four years. The shutting off of trade with Germany was a large factor in this change, while the concentration of the United King- 34 FOREIGN TRADE OF UNITED STATES dom, France, Italy, and other nations upon war industries accounted for the balance. Imports from North American countries totalled $2,749,- 000,000 for the four-year war period as against $1,428,- 000,000 for the preceding four years; those from South America more than doubled in the period as did those from Asia and Oceania, while the purchases from Africa increased even more, being fourfold as large in 191 8 as in 19 14. Considering not continents but separate countries, it is important to note changes in the relative positions of the nations in our import trade. The appended table shows this for 1 9 14 and 191 8, in millions of dollars. Country Imports from — 1914 Imports from — 1918 Canada $160.6 107.3 I3I-3 45-1 293.6 25-7 92.6 39-3 101.3 141. 4 $434-2 284.9 264.0 195-6 190.0 141. 140.6 140.7 II3-5 75-6 Taoan Cuba Argentina United Kingdom Chile Mexico China Brazil France The gain in the import trade with Canada and w^ith Latin American countries is clearly brought out in the table. From Canada we bought wheat, largely for re- export, copper and copper manufactures, wood-pulp and pulp-wood, flaxseed, cattle, lumber, furs, hides and skins, and wood. Japan more than doubled her sales to the United States, stepping into the position formerly held by Germany in our import trade. Raw silk and silk manufactures, tea, soya-bean and peanut oil, beans and lentils, camphor, hats and hat materials, chinaware, rice, matting, and cotton manufactures were the leading articles, the single item of raw silk being responsible for about one-half the gain. WAR TRADE OF THE UNITED STATES 35 The Latin American Trade. — From Cuba the increase was largely due to the higher price of sugar. Other im- ports were tobacco, molasses, copper ore, hides, iron ore, manganese oxide, and fruits. The trade with the other Latm American countries, which include all the South American republics. Central America, except British Honduras, Mexico, Cuba, Haiti, Domingo, and the French West Indies, more than doubled on the import side and nearly trebled on the export side. Our imports from these countries, which aggregated $469,- 000,000 in 1 914, rose to $1,000,000,000 in round numbers in 191 7, a record maintained in 191 8. At the same time the exports from the United States to Latin America ex- panded from $282,000,000 to $581,900,000 in 1917 and to $725,800,000 in 1918. Expressed in percentages of our total trade, we obtained 36 per cent in 191 7 and 33 per cent in 1 918 of our imports from Latin America as against 24.7 per cent in 1914, and we sold 12.24 per cent of our exports to those countries in 1918, or slightly more than the share in 1914. Our total trade with Latin America, considering unports and exports together, was about one and three-quarters billion dollars in 1918. The trade of these republics with the world was about $3,000,000,000 all told in 1918, which indicates that about 60 per cent of this total was with the United States. Until trade channels were changed by the war, many Larin American products went first to some European country and then were purchased by us, while the tendency was for those countries to buy the manufac- tured products they required from the United Kingdom, Germany, or France. During the war the indirect trade between the United States and Latin America was stopped, and more and more of our products found a market there. While the hold that Germany had upon Latin American trade has been greatly exaggerated, the shutting off of that trade has, nevertheless, had a decided effect in increas- ing our trade. 36 FOREIGN TRADE OF UNITED STATES The larger totals of our trade with our American neigh- bors are not so important as are the closer trade relations that have been established. Many products from the United States have been sold to Argentina, Chile, Brazil, and the other republics which had never found a market there before. This promises better trade in normal times. Clearer understanding of the needs and conditions pre- vailing in South America has been gained by these transac- tions, and this opens the way to closer trade relations and to enlarged sales. From Latin America we procure essen- tial raw materials; in Latin America we find a market for surplus manufactures in which there is keen competitive selling. Hence our interest in trade with that part of the world. Conversely, Latin America finds in the United States the best customer for those raw materials produced in superabundance, and is able to obtain from the United States the manufactured articles not produced there. Since the United States has become the great creditor na- tion of the world, with the means of making further foreign investments where safety and fair returns are assured, it is to us that the undeveloped countries of the world such as the republics in question are naturally looking for assis- tance in developing the rich natural resources they possess. It is for these reasons, among others, that a largely increased trade with Latin America is predicted. The Re-export Trade. — The United States has not made the same effort to develop a trade in the re-export of for- eign commodities as have the other leading commercial nations. Our pre-war exports of foreign merchandise amounted to about $35,000,000 annually. This increased to $62,884,000 in 191 7 and to $81,059,000 in 1918. In contrast to this is the re-export trade of the United King- dom, amounting normally to about $500,000,000 annually; of France, ranging from $350,000,000 to $400,000,000, and of Germany's re-exports, totalling from $100,000,000 to $190,000,000 before the war. WAR TRADE OF THE UNITED STATES 37 Aside from the profit made by those directly concerned in the re-export trade, there is the further advantage re- sultant from the natural reciprocal movement in trade. The countries which find a ready market for their wares in the United States quite naturally look to us for those conamodities which they import. The advance in our re-export trade between 1914 and 1919 was largely in Latin American products, many of which were diverted to the United States because of the lack of direct shipping facilities to British or Continental ports. The statistics for re-export trade do not include goods from Porto Rico, Hawaii, or Alaska, but do include products from the Philippines, which are not a customs district of the United States. Neither do they include the exports of merchandise made from imported raw materials, which rose from §75^000,000 in 1914 to $250,000,000 in 1 91 6. Such goods consisted largely of the manufactures of leather, rubber, silk, and wool. The leading items in our re-export trade in 191 7 with their value in millions of dollars were as follows: India-rubber and gutta-percha Coffee Chemicals, drugs, and dyes Hides and skins, other than furs. . . Fibres, as flax, hemp, jute, and sisal . Fruits and nuts Meat and dairy products $7,791,000 6,880,000 6,497,000 5,244,000 4,999,000 3,478,000 1,611,000 Other large items of foreign merchandise regularly re- exported in large quantities are rice, cocoa, raw and manu- factured cotton, fish and shell-fish, iron and steel and their manufactures, vegetable oils, raw silk, spices, sugar, tobacco, wood and its manufactures, wool, and art works. A recent article in Commercial America* thiis describes our re-export trade: * Commercial America, June, 191 5, p. 25. SS FOREIGN TRADE OF UNITED STATES Practically tlie entire world is drawn upon for the many lines of foreign merchandise that are shipped from the United States. Horses are imported chiefly from Mexico and Canada, and ex- ported not only to those countries, but also to various countries in Europe. About 18,000,000 pounds of foreign rice is exported; it is obtained chiefly from the Netherlands, China, and Hongkong. The United States exports annually about 10,000,000 pounds of coft'ee, obtained in most part from South and Central American countries. Henequen, which is exported from the United States chiefly to Canada, Belgium, and other European countries, is brought mostly from Mexico. The india-rubber which is exported from this country comes chiefly from Brazil and the British West Indies, and is exported largely to Canada. The foreign tobacco which leaves the country, chiefly consigned to the Netherlands and Canada, is produced principally in Cuba, Turkey, and the Dutch East Indies. The one and a half million pounds of block tin which are exported to Canada represents less than iK per cent of the total imports of that article. Trade of 19 19. — Our trade in 191 9 was the largest, as measured by dollars, in our history. The exports for the fiscal year totalled $7,225,000,000, as against $5,920,- 000,000 in 1918. The imports aggregated $3,096,000,000, as against $2,946,000,000 in 1918. The figures for the cal- endar year of 19 19 are still larger, bringing the exports up to $8,000,000,000, in round numbers, and the imports to $4,000,000,000. That excessively high prices are largely responsible for the enormous totals, overtopping those of 1 91 8 or of any previous year, must be kept in mind, but the fact remains that the volume of both exports and im- ports was huge. In this trade Europe was by far the largest factor. On the face of it, this is highly satisfactory, but there are vital factors to be considered and pivotal problems to be solved, if our trade pre-eminence is to be permanent. First, there is the question of prices. During 1919, as throughout the war period, exporters were able to obtain almost any price they chose to place upon their goods, provided they could supply the insistent demand for our WAR TRADE OF THE UNITED STATES 39 commodities. The United States was the one country where the manufactures, the raw materials, the foodstuffs, so sadly needed by the war-torn countries of the world, could be obtained. Hence, these were purchased in ab- nonnal quantities at abnormal prices. With the restora- tion of the industrial life of Europe, world-wide competi- tion is being restored. American products are again com- ing into the position of having to sell on their merits at the same prices as asked elsewhere. If the competing coun- tries are able to keep down the cost of production and un- dersell us, they may be depended upon to do so. The pessimistic view is that this can be done because labor costs have increased so greatly in the United States. It is doubtful, however, if the European countries will have much the advantage of us in this respect. In January, 1920, reports of wage scales in the leading industries of the United Kingdom revealed an increase of wages over those antedating the war of from 100 per cent to 300 per cent, with an upw^ard tendency in every branch of industry. With large-scale production and improved equipment and other capital investments already paid for out of the profits of the war period, the manufacturers of the United States should be in a position to compete in both quality and price with those of any other nation. A question that cannot be solved by the individual manu- facturer is that relating to the huge balance of trade in our favor. In the five-year period from i9i5toi9i9, inclusive, the trade balances in favor of the United States aggregated over $14,000,000,000. In the three fiscal years of 191 7, 1 91 8, and 1919 the exports exceeded the imports by ap- proximately $9,000,000,000. These balances were liqui- dated before our entrance into the war by the return of American securides held abroad, by private loans made in America, and by the exportation to us, from the countries having adverse trade balances, of over $1,200,000,000 in gold. 40 FOREIGN TRADE OF UNITED STATES In the last three years of the period the merchandise balance due the United States was met by means of loans made by the goverimient of the United States to the Allied nations, aggregating $10,000,000,000 in round numbers. In 1 919 alone our loans to foreign countries exceeded $1,750,000,000. After the making of such loans was dis- continued on the part of our government, private loans and credits were extended. In this way the countries of Europe were enabled to buy from us vastly greater quantities of goods than they sold to us. Hence, we piled up an enormous balance, designated as a favorable one. The Outlook for Future Trade. — That the continuation of such a condition is neither possible nor desirable, except for a very limited period, is evident. Europe is already deeply in our debt; the piling up of greater debtor balances can be only a handicap to her future prosperity. It is generally conceded that European purchases from us will diminish as soon as normal industrial conditions have been restored. The unfavorable condition of exchange, which makes goods purchased in the United States still more ex- pensive to European customers, is a factor that tends to bring about a balance in the trade relations between the nations involved. It is plain, then, that our exports cannot continue to be double our imports in value. The nations buying from us must pay in gold, in goods, in services, or in securities. The payment of enormous trade balances in gold is impossi- ble, as shown in the chapters on foreign exchange and on the balance of trade. There is not enough gold in Europe to pay such balances as prevailed in 19 18 and 19 19 for a period of years. This is the reason for the embargo on the exportation of gold that has been laid by many countries. If we are to sell to Europe and elsewhere as heavily as in the past, we must adopt one or more of the following measures : WAR TRADE OF THE UNITED STATES 41 1. Take a larger volume of European exports, so that our imports from Europe will more nearly balance our ex- ports to Europe. 2. Invest freely in foreign securities, either through government loans or privately. 3. Make long-term credit arrangements with European and other customers, so as to tide over the reconstruction period. 4. Roll up tourist expenditures in Europe, as well as other bills for services, such as bankers' commissions, shipping in foreign bottoms, etc. Such items before the war offset a goodly percentage of our exports. In general, then, neither the United States nor any other nation can hope to have an unduly large share of the gold in the world, an unwieldy excess of sales over purchases, an excessive amount of securities and other evidences of debt either from other governments or from individuals of other nations, and a preponderance in shipping and financial transactions. International trade means exchange between nations. If we wish to sell more than we buy abroad, we must de- cide what we are willing to take for our surplus exports. While foreign securities seem to be the best answer during the period of reconstruction following the war, there is a limit even to this method of offsetting our trade balance. It has been predicted in not a few quarters that before many years the United States will fall into the position so long occupied by the United Kingdom, in which its exports fall short of its imports, the excess of imports being offset by interest received on securities held abroad and by other credits arising from international transactions. This would make its credits in some items offset its debits in other items, a condition that must prevail in all but abnormal periods. CHAPTER IV EXPORTS OF THE UNITED STATES— ARTICLES AND DESTINATION— TRADE OPPORTUNITIES Nature of Our Exports. — In its wealth of natural resources the United States is the most richly endowed country in the world. With great productivity and comparatively low density of population, it has a large surplus of food- stuffs and raw materials for export. Since it has become the leading manufacturing country in the world, the ex- ports of manufactures, as previously shown, have become of tremendous importance. While we find a wide variety of exports, especially among manufactures, a study of the statistics compiled by the Bureau of Foreign and Domestic Commerce reveals the fact that a comparatively few com- modities make up the greater part of our immense export trade. These articles are, in the order of importance as expressed in value, cotton, iron and steel manufactures, meat and meat products, wheat and corn (including flour), refined and crude petroleum, copper manufactures, wood manufactures, and leather manufactures. We find these eight classes of commodities repeated time and again as our leading exports to widely scattered countries, differing only in the proportion which they bear to the total. The following table gives the average value of our eight leading exports for the five-year period embraced between igio and 1914: Cotton Iron and steel manufactures. Meat and meat products Wheat, wheat-flour, and corn. Refined and crude petroleum . Copper manufactures Wood manufactures Leather manufactures Exports in millions of dollars I55O 247 144 120 118 95 57 42 EXPORTS OF THE UNITED STATES 43 Cotton. — The place occupied by cotton in both our domestic and foreign commerce is of paramount importance. Next to food, clothing is the greatest need of mankind, and it is cotton that, broadly speaking, clothes the world. In comparison with cotton, wool, silk, and all other textiles occupy a minor position. More than twice as much cotton is used as w^ool and all other textiles. The use of this commodity has increased fortyfold in the past century, while wool has increased only fivefold and flax tw^ofold. As the processes of manufacturing have been improved, cotton fabrics and knit goods have become cheaper and more attractive, and thus their use has been greatly en- larged. Cotton manufacturing has become one of the lead- ing industries of the United States; it has long been of the first importance in the United Kingdom, which annually looks to this country for miUions of pounds of cotton to supply her mills and factories. Germany and France and other manufacturing nations have likewise depended upon us for great quantities of raw cotton, the manufacture of which affords employment to thousands of workers. A complete failure of our cotton-crop for even one year would cause industrial paralysis and great distress both at home and abroad. The importance of cotton as a world commodity is indicated by the following table, which gives the production, in milHons of bales of 500 pounds each, of the leading countries for stated years. Countries United States India Egypt Brazil and all others 1914-15 14.76 3-33 1 .20 •24 1913-14 14.49 4-59 1-43 •38 1912-13 13-94 346 1. 41 •37 1911-12 15-68 3.10 1-39 •34 1910-11 11.80 3-23 1. 41 .40 For the five-year period just considered, the United States supphed three-fourths of the cotton production of the w^orld. It is interesting to note that while our exportation of cotton 44 FOREIGN TRADE OF UNITED STATES steadily increased from the Civil War up to the first year of the World War, or until 191 5, approximately two- thirds of the crop was regularly exported each year. The increased exportation nearly kept up, until 1915, with the increased production, leaving one- third of the crop for use at home. Our home consumption now exceeds 6,000,000 bales annually, which equals the entire consumption of the continent of Europe, and is one-fourth greater than that of the United Kingdom, which for years led the world in the consumption of raw cotton. In 1867, 1,401,000 bales were exported; twenty years later the number had increased to 4,301,000 bales; while in 1897 the total reached 6,124,000 bales. The following table gives recent statistics: Year 1910 I9II 1912 I913 I914 I915 I916 I917 1918 Production 500-Ib. bales 10,001,000 10,608,000 15,693,000 13,703,000 14,156,000 16,135,000 11,192,000 11,450,000 11,302,000 Export 500-lb. bales 6,492,000 8,026,000 11,081,000 9,199,000 9,256,000 8,931,000 6,406,000 5,964,000 4,587,000 Per cent exported 64.9 69.1 70.6 67.1 65.5 55-3 57-2 52.1 40.6 Since 1914 we have retained a larger percentage of the crop for manufacturing in our own mills. Hence, our exports of manufactured cotton increased from $51,467,- 000 in 1914 to $136,300,000 in 191 7, the increase being in quantity as well as in value, though the higher prices helped to make the difference. Our consumption of raw cotton in 1918 was 7,555,000 bales. In the years 1 910-14 the value of our raw cotton ex- ports averaged $550,000,000. It has been shown that our pre-war favorable balance of trade was due to the quantity of cotton sold each year to the merchants and manufacturers EXPORTS OF THE UNITED STATES 45 of foreign countries. Our cotton exports regularly 3delded sufficient returns to more than offset our purchases of sugar, coffee, tea, cocoa, spices, and tropical fruits. Stated in another way, our cotton exports may be said to have offset before the war the total charges against us for interest on American securities held abroad, for our tourists' expenses, our freight charges due foreigners, and the money sent abroad by immigrants living in this country. It is cotton that keeps our agricultural exports in the lead and that insures the United States continued supremacy as a source of raw materials. That a steady demand for raw cotton from the United States win continue for years is practically an assured fact. Not only the United Kingdom, Germany, France, and other European countries, but also Japan and even China must continue to look to America for the major supply of raw cotton for their mills. However, with the rapid expan- sion of our own cotton-manufacturing industry, we may expect to see a smaller percentage of our cotton-crop shipped abroad, and our importation of finished cotton decrease. In other words, we will discontinue in a measure the cus- tom of shipping our raw cotton to Europe and buying back the finished product made from that cotton. Iron and Steel Manufactures. — Iron and steel manu- factures have long held the foremost place in our manu- factured exports. This was won by superiority of the prod- uct, promptness in the execution of orders, adaptation to the demands of the market, and a thorough and consistent sales campaign, carried on, for the most part, by corpora- tions having an unlimited supply of capital. The articles classed as iron and steel manufactures include iron and steel rails, structural iron and steel for bridges and buildings, locomotives and other railroad equipment, steam and gas engines, boilers, gas, mill, mining, and oil-well equipment, steel wire for fencing and other purposes, steel cables and chains, ship-plates and anchors, tools and tool steel, office 46 FOREIGN TRADE OF UNITED STATES safes and other steel office equipment, and machinery of every description. The exports of this class of manufactures averaged $247,000,000 in the five-year period ending June 30, 19 14. The demand for war materials, coupled with higher prices, caused the value of such exports to shoot up to $1,133,746,- 000 in 191 7, with only a slight falling off in 19 18. The after-war demand for structural material and other iron and steel manufactures kept the value of this class of ex- ports well over the billion-dollar mark in 19 19. The expansion of our manufacturing facilities during the war placed us in a position to meet any future market demands for this as for other class of manufactures. More- over, the fact that we supplied these and other manufac- tures to markets that had formerly been supplied by Europe has created new and valuable trade relations which presage future expansion. Meat and Meat Products. — Meat and meat products are still a much more important export than is generally realized. The fact that few cattle are now exported on the hoof, that method having been almost entirely displaced by the extensive use of refrigeration in the meat-packing industry, has led to a rather wide-spread belief that our exports of meats have practically ceased. As a matter of fact, despite our increase in population, these exports averaged in the five-year period between 1910 and 19 14 nearly the same as those of the period 1895-99, though they were not as heavy as those of the intervening years. The value of the exports of meat and meat products for five- year periods is shown below: Period Exports in milHoos of dollars i8q^— QO $142 181 183 144 ^^70 77 1900—04 1905-09.... , I910— 14 EXPORTS OF THE UNITED STATES 47 Statistics and estimates given out by the Department of Agriculture show that the number of cattle increased from 43,902,414 in 1900 to 58,329,000 in 1915, which is a gain of nearly 33 per cent, or practically the same gain as in our population. The highest number of cattle recorded was 72,533,996 in 1907. Swine increased from 37,079,000 in 1900 to 68,047,000 in 1916, or 85 per cent. The increase in the number of sheep in the United States has not kept pace with the growth in population. The number of sheep in 1900 is given as 41,883,000; in 191 5 they numbered 49,- 956,000, but this is far below the number for the year 1903, which was estimated at 63,964,000. There is a fluctuation in the number of farm animals from year to year, occasioned by an abundance or by a lack of feed, by variations in prices, and by many other conditions. The fact remains that our meat exports promise to be of importance for many years to come. The war trade in meat and its products showed an im- mense gain, reflecting higher prices and greater demand. The value of such exports during the period of the war is shown in the following table: Fiscal year Exports in millions of dollars IQI^ $206 267 354 594 IQI6 IQI7 •^7^/ IQI8 Average $355 Still larger exports were recorded in 1919. The higher standard of li\ing throughout the world has had its effect in maintaining the demand for meat and meat products. Thus a market for any surplus we may produce seems assured. Wheat. — While we unfailingly have a great quantity of v.heat for export, the amount marketed abroad each year 48 FOREIGN TRADE OF UNITED STATES shows great fluctuations, due to changing crop conditions, difference in prices, and in the international demand. The following table shows the production of wheat, the exports, and the percentage of the crop exported each year for the period between 1906 and 19 18, inclusive. The figures are for millions of bushels and include flour. Year 1906 1907 1908 1909 1910 1911 I912 I913 I914 I915 1916 1917 1918 Production 735 634 664 737 635 621 730 763 891 1,025 636 636 917 ExportatioQ 146 163 114 87 69 79 142 145 332 243 203 133 287 Percentage exported 19.9 23.8 17. 1 II. 8 10.9 12.8 19.5 19,0 37-3 237 319 21.05 31.3 There is a gratifying increase during the thirteen years, especially on the side of production. The average for the first half of the period is about 671,000,000 bushels; for the last or seven-year period the average is 800,000,000 bushels. The 1 919 wheat-crop was slightly larger than that of 191 8. It is to be noted that in the table of production and exportation the exports of wheat for each year are placed with the crop of that year, although such exports actually took place after the close of the fiscal year. For instance, the 132,000,000 bushels of wheat exported from the 191 7 crop were not sent out of the country until the following fiscal year. While the table shows that the United States is increas- ing the production of wheat to meet the demand, it must EXPORTS OF THE UNITED STATES 49 Expozrtatioix-— -—_ > • ANNUAL PRODUCTION AND EXPORTATION OF WHEAT FOR THE UNITED STATES, 1899-1916 be recognized that the continuance of this satisfactory condition must depend upon an adequate supply of farm labor at fair wages being available, and upon the price of wheat remaining high enough to encourage production. 50 FOREIGN TRADE OF UNITED STATES 1891.1895 1896-1900 1901-1906 1907-1911 1912-1916 WHEAT CONSUMPTION PER CAPITA IN THE UNITED STATES Five-year averages, 1891-1916 Petroleum, Copper, Wood, and Leather Manufactures. — Of the other exports enumerated, refined and crude pe- troleum, controlled and exported by a few corporations, have increased in value because of the wider use for these products occasioned by the improvements in the internal combustion-engine and by the most thoroughgoing selling organization in existence. Copper, wood, and leather manufactures exported reflect our skill in large-scale pro- duction, whereby the best modern machinery is made use of and the best product possible is turned out at a cost enabling us to meet the competition of any country in the world. Destination of Our Exports. — It is important to note carefully the continents and nations that afford us the best markets. It is to be noted, however, that we do not sell all of our exports directly to the country consuming them, as that we do not buy all of our imports from the country producing them. There is a group of nations that have long made it a practice to act as middlemen in the trade of the world, buying from one country and selling to an- other. The United Kingdom, Germany, Belgium, and the Netherlands had, before the war, an immense re-export trade. These nations through their long-established trade and steamship connections carried on an enormous trade with Africa, Asia, Australia, South and Central America, EXPORTS OF THE UNITED STATES 51 and with the islands of the sea, in which they acted prin- cipally as middlemen. England is often referred to as a nation of merchant traders, because of the enormous business she transacts between other nations. Before the war we bought quantities of Brazilian rubber, AustraHan wool. South African diamonds, Central American and Mexican mahogany, and many other articles from England, Germany, or the Netherlands, and sold to those trading countries our products, a considerable part of which eventually reached the countries ^ith which we had very little direct trade. The destination of our exports to the different grand dixdsions in 1900 and in 1914, with the percentage each took of our total exports, is shown in the following table: Continent Our exports Per cent of total igoo 1900 §1,040,000,000 74.6 187,000,000 13-5 39,000,000 2.8 65,000,000 4.6 43,000,000 31 19,000,000 1.4 Our exports 1914 Pet cent of total 1314 Europe North America South America Asia Oceania Africa $1,486,000,000 528,000,000 124,000,000 113,000,000 83,000,000 28,000,000 62 22 5 4 3 I Europe. — While Europe bought nearly two-thirds of our e:q)orts in 19 14, the percentage of finished manufactures sold to that continent constituted not quite 34 per cent of our total export of manufactured products. On the other hand, Europe afforded a market for nearly 84 per cent of our crude materials for use in manufacturing and for nearly 70 per cent of our foodstuffs exported. The total exports to Europe increased from a little over a billion dollars in value in 1900 to nearly a billion and a half dollars in 1914, but this increase was not proportionally as great as that to North American countries, particularly to Canada, or to South America. This is because we extended the sale of our manufactures to newer and less-developed countries. 52 FOREIGN TRADE OF UNITED STATES Since the European nations, especially the United King- dom, Germany, France, and Belgimn, are the centres of the manufacturing industry of the world, they furnish ex- cellent markets for our surplus production of raw materials and foodstuffs, but cannot be looked upon as affording opportunities for the extension of finished manufactures in the same proportion as do such rapidly developing countries as Canada, Argentina, Chile, Brazil, and Australia. This does not mean that Europe is not an important market for our manufactures, for it is, of course, by far the best one, but it indicates that the percentage of increase in the sale of finished manufactures will most naturally be greatest in the countries in which manufacturing is little developed and in which the natural resources are being most rapidly developed. This consideration is important, for it ex- plains why such countries as those embraced in Latin America, in Oceania, and in other undeveloped regions are being given so much attention by those most interested in the extension of our foreign trade. Russia is in the same category as the other countries mentioned. This marvel- lous country possesses boundless resources; there has been during the past decade a remarkable awakening there, and with the establishment of a settled government and the return to normal political and industrial conditions, a revival of trade may be expected. Russia thus affords great potential possibilities for the building up of mu- tually beneficial trade relations with the United States, as well as with other great manufacturing countries. North American Countries. — Our trade with the neigh- boring countries in North America is increasing rapidly. Canada is our third best customer among the nations, taking each year more and more of our surplus products, especially those manufactures for which we are seeking a market. Mexico's trade is mostly mth the United States, from which it purchases iron and steel manufactures, notably machinery and equipment for its mining and other EXPORTS OF THE UNITED STATES 53 industries, and other manufactures. While the trade of Central America is not large, we are selling there in increas- ing quantity such manufactures as tools, hardware, ma- chinery, and textiles. Cuba is being developed largely by American capital, which means that the development material is obtained in the United States. Every North American country is experiencing an era of expansion, which makes their trade promise well for the future. South America. — The ten Latin American republics of South America are rich in natural resources that have only recently received the attention that is their due. The United Kingdom and Germany early developed trade relations wdth these countries, and they have supplied them with a large part of their imports. In recent years the United States has expanded its trade to the south. With the establishment of closer trade relations, more direct transportation facilities, and a better understanding of the mutually beneficial relations possible between the tw^o Americas, the trade is developing at a most encouraging rate. Our present trade with South America is much larger than that existing before the World War, and it is generally conceded that our exporters will be able to hold most of it. The Panama Canal wiU eventually be an important factor in binding the two Americas together. As railroad building and other development projects in- crease, the demand for structural iron and steel, machinery of all kinds, and staple manufactures will be felt through- out the world, and the United States will be called upon to supply its share. The branch banks now being es- tabhshed by American bankers and the readiness we are showing 10 invest in South American enterprises are two factors that are stimulating the trade between the two continents. Our trade with the leading countries of South America is discussed in some detail in another chapter. Asia. — Our direct export trade with Asia is developing very slowly. The United Kingdom controls a large part 54 FOREIGN TRADE OF UNITED STATES of the trade with India and other British possessions. Japan is rapidly developing manufacturing, and supplying not only its own needs but also a considerable portion of those of China and other neighboring countries, especially for coarse cotton goods. Our trade with Japan and China is of importance; that with the rest of Asia is still small. Our exports to Asia include those typical American manu- factures that find a market in every country in the world, such as machinery, railroad equipment, office supplies and equipment, and hardware. Cotton goods are also sold there in considerable quantity. Flour, meat products, cotton, and petroleum are the other products finding the readiest market. Oceania. — Australia and New Zealand are two countries that are rapidly increasing their production and their pur- chasing power. Our exports to these countries nearly doubled between 1907 and 1914. In 1916 there was an unprecedented expansion of our trade with Australia, which purchased goods valued at nearly $60,000,000 from us that year as against $45,000,000 worth in 19 14. In the three-year period from 191 7 to 1920, still larger totals were rolled up, largely due to higher prices. Our own island possessions are likewise proving a better market for our merchandise each year. Manufactured goods in wide variety constitute the bulk of our exports to these countries. Africa. — In general the European countries having col- onies or dependencies in Africa control the bulk of the direct trade of that continent. In 191 5 our exports to Africa amounted to only $28,410,000. This was nearly doubled in the year 1918. They consisted mostly of machinery, railroad and mining equipment, hardware, cotton goods, and clothing. Our exports and imports to Africa normally just about balance each other. The African products that we purchase through the United Kingdom, France, Belgium, and other nations undoubtedly EXPORTS OF THE UNITED STATES 55 greatly exceed in value those we obtain direct, and our prod- ucts that eventually find their way to Africa amount to many times the value of those that we sell direct. The estabhshment of direct trade relations with African coun- tries, especially -^^ith South Africa, would result in a decided change in our statistics of trade. Our Twenty Best Customers. — In general, those nations that have afforded us the best markets in the past can be depended upon to continue to absorb a large volume of our products. Therefore, a close scrutiny of trade statistics in the normal period between 1905 and 19 14 is highly im- portant, as they indicate the probable trend of our com- merce in future. The following table shows our twenty best customers in the last pre-war year, 19 14, with the sales to those countries in 1905: Country Value of exports from United States 1914 190s United Kingdom Germany Canada France Netherlands Italy Cuba Belgium Australasia Japan.. Argentina Mexico Spain Russia Brazil Philippines China Austria-Hungary Panama Chile Denmark $594,272,000 344,794,000 344,717,000 159,819,000 112,216,000 74,235,000 68,884,000 61,220,000 54,725,000 51,206,000 45,179,000 38,749,000 30,388,000 31,303,000 29,964,000 28,571,000 24,699,000 22,718,000 22,678,000 17,432,000 14,882,000 ^523,398,000 194,220,000 140,530,000 76,337.000 73,298,000 38,740,000 38,381,000 38,479,000 26,353,000 51,720,000 23,564,000 45,756,000 17,038,000 17,020,000 10,985,000 5,761,000 53,453,000 11,624,000 4,746,000 5,391,000 15,670,000 The table shows, in the decade preceding the outbreak of the war, a marked increase in our exports to each of these 56 FOREIGN TRADE OF UNITED STATES countries, with the exception of China, Japan, Mexico, and Denmark. Japan's influence in China has become so great that she has been able to deflect a large part of the trade to herself. Unsettled conditions preventing CORN COTTON PETROLEUM COPPER IRON COA^ LEAD WH^AT GOLD SILVER SHARE OF THE UNITED STATES IN THE WORLD'S PRODUCTION OF LEADING COMMODITIES development decreased Mexico's imports. Inadequate steamship service has militated against our trade with Australia and New Zealand. Changes that have taken place in our trade since 19 14 are discussed in Chapter III. BIBLIOGRAPHY Americans Interests After the European War. American Academy of Political and Social Science. Annals, vol. 61, September, 1915- Austin, 0. P. International Trade After the War. New York, 191 7. EXPORTS OF THE UNITED STATES 57 Barrett, J. Latin America as a Field for United States Capital and Enterprise. Bankers^ Magazine, vol. 74, pp. 920-6, June, 1907. Claxtsen, John. America's Opportunity for International Trade. Washington Bankers' Association. Proceedings, 191 7, pp. 43-50. Clalsen, John. Neiv Era of American International Trade and Finance. Economic World, n. s., vol. 14, pp. 544~9> October 20, 1917. Duval, George L. Our Commerce with South America — the Prep- aration Required to Meet Intrenched Competition. National Foreign Trade Convention. Official Report of the Fifth Con- vention, 1 91 8, pp. 537-551- Grace, J. P. Commercial Opportunity of the United States in South America. Columbia University Quarterly, vol. 18, pp. 72-76, December, 191 5. Hill, Samtjel. The Future of American Trade with China, Japan, and Siberia. National Foreign Trade Convention. Official Report of the Fifth Convention^ 1918, pp. 493-9. HoGGSON, N. F. What Are Our Chances for After-the-War Orders ? System, vol. 31, pp. 13-20, January, 191 7. Howe, 0. H. Our Opportunities in South America. Education, vol. 37, pp. 504-513, April, 1917. Hutchinson, Lincoln. New Opportunities in the Pacific. Yale Review, n. s., vol. 3, pp. 708-725, July, 1914. Murphey, E. R. Where to Look for New Markets. System, vol. 32, pp. 531-4, 718-721, 902-6; vol. ss, pp. 39-42, 191-3, 361-4, October, 1917-March, 1918. Narodny, Ivan. Russian Markets Offier a Great Opportunity for American Foreign Trade. American Bankers' Association. Journal, vol. 9, pp. 710-713, March, 1917. National Foreign Trade Council. World Trade Conditions After the War. National Foreign Trade Council. New York, 1918. Opportunities for American Commercial Endeavor in Russia. Ameri- can Manufacturers Export Association. Yearbook, 1916-17. Requard, G. G. Americans Opportunity. Moody's Magazine, vol. 19, pp. 233-6, May, 1916. Taussig, F. W. How to Promote Foreign Trade. Quarterly Jour- nal of Economics, vol. $2, pp. 417-445, May, 1918. CHAPTER V IMPORTS OF THE UNITED STATES— ARTICLES AND SOURCES Nature of Our Imports. — Within the confines of conti- nental United States are produced all of the absolutely essential articles required as food, clothing, and shelter for the population. We are, therefore, in a large measure, a self-sufficient people. But without foreign commerce we would be deprived of many of the luxuries and comforts and some of the necessities of modern Hfe. Our industrial development, too, would be greatly hampered by the lack of many articles used in manufacturing that are supplied by other countries. Therefore, though we produce a surplus of staple food- stuffs, of raw materials, and of manufactures, there are many commodities which we find it convenient or necessary to import. Our imports may be classified as follows: I. Those tropical and subtropical products that we are unable to produce at all, or in sufficient quantity to satisfy our wants. In this class are included coffee, tea, cocoa, spices, cane-sugar, rubber and rubber substitutes, and raw silk. Our tropical imports for the single year 1916 were valued at $1,000,000,000, thus comprising nearly one-half of our total imports. Our consumption of such commodities is increasing rapidly, the value having doubled in the past decade. This increase is only partly due to higher prices. Some of these articles we produce in small quantity, notably cane-sugar, tea, and raw silk, but we find it more profitable to import most of them. We note that this class of imports supply us with many valuable 58 IMPORTS OF THE UNITED STATES 59 articles of food and also with raw materials for use in our industries. 2. Staple commodities produced here, but in insufficient quantity to meet the demand, as wool, hides and skins, furs, paper stock, vegetable fibres (other than cotton), tin, and fertilizers. Without these our industries would be sadly crippled and the range of our activities greatly circumscribed. 3. Articles of special types, grades, or qualities, produced in certain restricted districts, and needed to supplement our own production. An excellent example is Egyptian long staple cotton, so essential in some branches of the cotton-manufacturing industry. Thus we find that cotton is not only our leading export but that it also figures some- what prominently in our list of imports, totalHng $36,- 000,000 in 1 91 8. Another example is our importation of Sumatra, Havana, and other tobaccos, which have certain qualities demanded by the trade. 4. Manufactured articles that are not produced here or that differ in greater or less degree from those produced here. In this class of imports we find many articles that can be and are produced as well and as cheaply at home; in some cases the variation from the domestic product is slight, while in others it is wide. Among these imports are many articles that might be made here, but can be imported more cheaply. This is either because we lack the skilled labor with the special training and experience in those particular Hues, or because the conditions incident to the making of such articles are unsuited to our tempera- ment or standards. For instance, we are only slowly acquiring tlie special skill requisite in the manufacture of fine cotton embroideries and laces. Before the war we imported these to the value of about $40,000,000 annually, Swiss embroideries alone costing us $10,000,000 each year. So with hand-made articles, such as toys and knick- knacks. We have not the patient, plodding disposition 6o FOREIGN TRADE OF UNITED STATES characteristic of the Asiatic or even of the European workers who spend their lives making these things for our amusement. Neither are our workers able or willing to live on the low wages too often paid for such labor. Here- in lies one of the advantages of international trade: it enables each country to devote itself to the production of those articles for which it is especially well adapted and in w^hich it derives the most satisfaction. Articles Both Imported and Exported. — The division of labor among nations whereby each specializes to a certain extent not only upon the production of distinct classes of commodities, but also upon particular types, or styles or grades, results in a very free interchange of products. As illustrative of the cosmopoHtan character of the Ameri- can market, which absorbs a wide variety of commodities, often demanding imported articles because of their novelty, their distinction, or their superiority, supposed or real, over the domestic product, the appended table containing a list of articles that we both import and export in large quantities is given. The values are expressed in millions of dollars, and are for the year 191 5. Cars, carriages, and other vehicles Chemicals, drugs, and dyes Clocks, watches, and parts Cotton manufactures Earthen, stone, and china ware Manufactures of fibres and textile grasses (other than cotton) Fruits and nuts Furs and manufactures Glass and glassware Hides and skins Iron and steel and manufactures Leathers and manufactures of Paper and manufactures of Spirits Vegetables Wood and manufactures of Wool manufactures Imports Exports 1.4 851 83.8 46.3 3-7 2-5 46.2 71.9 8.6 2.7 61.5 12.2 43-9 34-9 10.5 3-7 4-5 5-5 104. 1 4.6 22.7 225.8 20.1 120.7 25.8 19.8 5-5 19 9-3 10.8 60.7 49-9 29.7 27 -3 EVIPORTS OF THE UNITED STATES 6i Source of Imports. — The proportion in which our im- port trade was distributed among the different grand divisions in 1900 and 19 14 is shown in the following table, which gives the values expressed in millions of dollars, and the percentage of our total unports suppKed by each. Continent Europe . North America South America . Asia Oceania Africa Our imports 1900 440.5 130.0 93-6 139.8 34-6 II .2 Per cent of total I goo 5i-« 153 II .0 16.5 4.0 1-3 Our imports 1914 895 -6 427 -3 222.6 286.9 42. 1 19. 1 Per cent of total 1914 47-3 22.6 II. 8 15 -2 2.2 1 .0 We regularly draw upon Europe for about one-haK of our imports. Manufactures come first in the list, with chemicals and such raw products as hides and skins and fibres holding important positions. Not all of our Euro- pean imports are European products. The United King- dom, Germany, France, Belgium, and the Netherlands all have a lucrative re-export trade. They assemble at their trade centres the products of many countries and sell these to importers the world over. North American countries are our next best source of supply, Canada leading, with Cuba next in importance, and Mexico third. Canada supplies us with timber, wood- pulp (used in paper manufactures), minerals, and grains. Cuba is a splendid source of supply for sugar, molasses, and tobacco. Mexico furnishes us with mercury, gold, silver, cabinet-woods, hemp, and coft'ee. Central America sup- pHes tropical products. From South America we obtain a large part of those tropical products that we need. Coffee and rubber are of the greatest importance. Minerals, live stock, and agricultural products are produced in abundance in most 62 FOREIGN TRADE OF UNITED STATES South American countries, and are exchanged for manu- factures. Hence, these as well as the other Latin American countries (the Central American republics, Mexico, Cuba, Haiti, and the Dominican Republic) afford splendid trade opportunities for those nations producing a surplus of manufactures and importing tropical and other raw prod- ucts. Asia supplies us with jute, tea, rubber, tin, goatskins, and Persian rugs. These commodities are obtained from India and other British possessions and from Persia. China and Japan are our best source of supply for tea, silk, camphor, and those distinctly Oriental products that find a steady sale in American markets. Oceania, which includes Australia and New Zealand and other islands of the Pacific, is a part of the globe in which we have not extended our trade as rapidly as have other nations. AustraHa's wool and hides are two products that we need and that we are importing directly in in- creasing quantities. Other imports from those countries have come to us largely through the United Kingdom and other European countries. Since these countries are as yet undeveloped as far as manufacturing is concerned and since they have rich natural resources that only await capital and labor to make them wonderfully productive, they are certain to hold a more and more important place in the world's trade. The great need to expand our trade with them is direct steamship routes, so that they may be able to send their surplus raw material across the Pacific and to obtain here the manufactured products and struc- tural material they require. Our direct trade with the great continent of Africa has been very small, constituting until after the World War less than 2 per cent of our imports and a trifle over i per cent of our exports. Yet that continent produces many commodities that we require, such as tropical products, hides and skins, ivory, and sponges. With the increase IMPORTS OF THE UNITED STATES 63 of the American merchant marine and the extension of American banking facilities to this as to other continents, a greatly increased direct trade may be predicted. Latin America as a Source of Imports. — The fact that a large part of our imports comes from South America is of great importance commercially. Theoretically, at least, a country from which we buy should offer a ready market for such of our exports as that country needs. Practically, this has not always proven true. For instance, we are Brazil's best customer, our total purchases of coffee, crude rubber, and other products from that country aggregating in a single typical year (1914) $101,329,000. In that same year our merchants exported to Brazil goods valued at only $29,963,000, leaving a credit balance in Brazil's favor of $71,366,000, and yet Brazil's imports consist of just those commodities that we most desire to sell in increasing quantities abroad. While we furnish a market for nearly one-half of Brazil's exports, that country buys only a little over one-third of her imports from us. The condition in regard to our trade with every one of the important South American republics is the same, our exports falling far below our imports in value, although this was not the case with respect to Argen- tina until after the outbreak of the World War. The result is that while we regularly obtain from one- fourth to one-third of our imports from Latin American countries, these countries afford a market for only one- tenth to one-eighth of our surplus commodities, and, con- sequently, our purchases from these countries fall not far short of double our sales. In the years 19 18 and 19 19 our exports more nearly approached the value of our im- ports from Latin America. But in normal times European products have been preferred there. The reasons for this are various, among which may be mentioned the early hold other countries, such as England and Germany, obtained in Latin American markets, the J4 FOREIGN TRADE OF UNITED STATES tao Imports- -- Exports. IMPORTS AND EXPORTS OF THE UNITED STATES, 1860-1916 IMPORTS OF THE UNITED STATES 65 ^ 4. fm 1 EXPORTS TO m fc • OUR IMPORTS AND EXPORTS BY LEADING COUNTRIES, 1914 Grouping the twenty Latin American republics together 66 FOREIGN TRADE OF UNITED STATES oft-reiterated unwillingness or inability of American mer- chants to conform to South American trade customs, and the lack until recently of adequate American-controlled banking facilities in Latin America. Exporters and bankers agree in recommending the fol- lowing, among other measures, in order to extend our Latin American trade, at least to the point where the imports we take from our sister American republics shall be fully offset in value by the exports we send them. First. — By obtaining from every source possible definite and detailed information as to the commodities imported by the different republics, so that the grades, qualities, design, and styles demanded may be manufactured and offered to the Latin American trade. Second. — By developing our export sales organization so as to eliminate misunderstanding and delay, and make available to Latin America, with the least possible expendi- ture of time and money, those commodities which they desire and which we can supply. Third. — By concerted effort on the part of our banking institutions to facilitate the financing of exports to Latin America and to co-operate in every way possible with American exporters so that they may have banking facili- ties which are the equal or superior to those enjoyed by the commercial houses of other exporting nations. The development in this respect in the past five years is most noteworthy, but more is yet to be done. Fourth. — By encouraging the growth of the American merchant marine, so that adequate shipping facilities, under the American flag, may be available for the ship- ment of American goods to these countries in which our markets are being extended. With a merchant marine flying a foreign flag, the odds are against the American from the start, as is shown by the pre-war conditions in which ships bringing Latin American products to the United States were routed so as to sail from here to a British port IMPORTS OF THE UNITED STATES 67 and thence to the Latin American port whence she started. Thus we were deprived of the direct shipping facilities to Latin America necessary to an active export trade. Such a triangular system had the further disadvantage of making it easy for the Latin American countries to buy their needed manufactured products direct from British firms, which obtained the raw materials from us. Since it is manufactured articles that are most difficult to market, the disadvantage of such a system is evident. While the establishment of direct trade relations with the less- developed countries during the war has had its effect in diminishing our three-cornered trade, the tendency is still to follow the old custom. BIBLIOGRAPHY See End of Chapter II CHAPTER VI EXPORT SALES ORGANIZATION— MANUFACTURES Direct and Indirect Exporting. — There are two methods of marketing manufactured products in foreign countries. The first is through export commission houses and other middlemen. The second is by the direct sale of the product from the manufacturer to the foreign customers. These customers may be wholesale importing and distributing houses handling one or more lines of merchandise, whole- sale or retail mercantile establishments, or the ultimate consumer. The nature of the product, the established system of handling it, and other special conditions largely determine the details. The point is that in selling direct the manufacturer sells to the same customers as do the export commission houses. Instead of using the sales organization of the export house, the direct exporter de- vises and controls his own methods of reaching the buyers of his product. Sales Organization of Large Corporations. — The selling organization developed by those firms and corporations that have built up a large and successful export trade naturally vary according to the product and the countries to which sales are made. In general, however, the foreign sales organization consists of an export department in the central home office, in charge of an export manager; branch offices at the ports from which the bulk of the ship- ments are made; branch ofiices located in the foreign mar- kets being exploited, each in charge of a sales manager; travelling salesmen in the various foreign fields, who co- operate with the branch offices, and local agencies in those places where other representation is not maintained. 68 EXPORT SALES ORGANIZATION 69 The sales organization just outlined has usually developed by degrees, attaining perfected form only after some ex- port trade has been established. In every case it has been preceded by thorough investigation of the trade conditions and of the possibilities of extending the sale of the product in the foreign field. Preliminary Investigation. — The investigation conducted by large firms preparatory to entering the direct export field has two distinct sides: that carried on at home and that in the foreign country. Investigation at home makes use of statistics, consular reports and other documents issued by the United States Government and by those of the foreign countries under consideration, reports of mer- cantile and export associations, trade journals, books and articles dealing with the economic and commercial condi- tions of the countries, and of many other similar sources of information. It includes a consideration of transportation rates and transportation facihties, tariff laws affecting the sale of the product, banking facilities afforded for carrying on the proposed trade, and every other phase of the subject directly bearing on the extension of business abroad. The investigation conducted in the foreign field is often preceded by a trip of some duration made by a responsible ofiicer of the firm, who appraises the situation at close range, studies the possibihties for the sale of the product, the competition already in the field, the prevailing business methods, and the local customs and conditions having a bearing on the subject. If the field promises good returns, this preliminary investigation is followed by that made by experts, w^ho devote wrecks or even months to collecting data and preparing a complete report. The finished re- port is thus described by an authority on the subject: These trade reports show the general demand for the particular article under investigation; the quantities imported in prosperous and bad years, v/ith the latest figures of exports; the present source of supply and from what foreign countries the demand has been 70 FOREIGN TRADE OF UNITED STATES filled, and the stock on hand, with wholesale and retail prices. A comparison is made of the invoice prices, together with the freight charges. . . . This, added to the customs duties upon the article, gives the comparative cost of placing the American goods in the foreign country as against a competing line from Europe, and may be used as a basis for determining whether or not there is a profit in entering the market. These reports also show the terms of pay- ment which are customary and the manner of packing. They give a description of how business is conducted in the particular trade in question. They indicate through what hands it passes from the manufacturer to the ultimate consumer, and furnish a list of reliable merchants dealing in the article. Steps in Developing a Sales Organization. — The largest corporations have developed their foreign sales organiza- tion somewhat as foUows: 1. By making a thorough study and investigation of the field, similar in general to that just described, for the purpose of ascertaining its trade possibilities. 2. By organizing an export department. 3. By introducing a thorough system of instruction for the benefit of every member of the export depart- ment, including those to be sent abroad. 4. By establishing branch offices or houses in the trade centres of the various countries. 5. By the selection of resident agents, usually by the managers of the branch offices, to handle the product, usually on a commission basis. The resident agents selected are, in most cases, men engaged in business in the community. 6. By sending out travelling men, who work in con- junction with the branch offices and with the resident . agents. The salesmen push the sale of the product, which the customer purchases through the resident agent, or, in some instances, through the branch house. 7. The preparation and distribution of catalogues, booklets, price-lists, and other advertising matter, all in the language of the country. EXPORT SALES ORGANIZATION 71 Methods Employed by the Standard Oil Company. — An understanding of the complicated and thoroughgoing organization built up by the largest corporations will be greatly facihtated by considering in some detail that of the most successful of these, the Standard Oil Company. When that corporation first considered the advisabihty of entering the direct export field, instead of selHng to foreign countries through commission houses who distributed the product through agents in the various countries, it first made an exhaustive study of the situation. A period ex- tending over five years was occupied in preparing for the export business of that corporation, which has been the most successful of any in the world. Experienced men were sent abroad, studying markets, duties, restrictions on the conduct of business by foreign firms, customs and tradi- tions affecting the demand for their product, and other basic conditions. In some countries it proved difficult to secure permission to enter the field. Diplomacy, powerful influence, tactful suggestions as to desirable changes in the laws and governmental poHcy, and other well-directed propaganda were all resorted to as needed, in order to se- cure the right to carry on business under reasonably favor- able conditions. In some countries, where the policy of a fair field and no favor prevailed, little preliminary work of this nature was required; in others much missionary work was necessary. It was not until 1880 that the Standard actively entered the export field. In order to fully develop the possi- biHties of every district, it was found advisable to build up a selling and distributing system very similar to that used in the United States. It established branch offices in every important point, with central distributing stations where the oil could be suppHed to dealers and consumers, placed small stations wherever the need arose, put out re- tail wagons just as are used in the United States, and sup- plemented this direct selling organization with agencies in 72 FOREIGN TRADE OF UNITED STATES out-of-the-way places, where the consumption did not jus- tify placing a station. It did not merely '^ supply the trade"; it used every method and device possible to create a demand for its product. These included propaganda in the form of advertising, booklets, and other publicity, the solicitation of business, demonstrations of the uses of the product, and other methods of trade-building. In China and elsewhere, where modern lamps were unknown, the company supplied their customers with lamps giving excellent light with a small consumption of oil at a price lower than the cost of manufacture. Not only did this corporation, which has never believed in half measures, develop a sales organization of the highest efficiency, but it also improved its distributing system so as to reduce the cost of transportation. It installed a system similar to that used in the United States, where the oil is pumped from the well to storage- tanks, thence to the refinery, where the crude product is manufactured into refined oil, thence pumped into tank- cars, conveyed to the port, pumped into tank- steamers, and thus taken to the foreign port. Here it is pumped into tank-cars again, carried to great tanks at the distributing centres, and is pumped from these tanks into oil-wagons, to be taken to the substations and peddled from place to place. The use of barrels for shipment, which were costly and required much handling, has thus been eliminated to a large extent. The oil is sold to foreign consumers in cans just as it is in the United States. It is of interest to note that the value of selecting a trade-mark that appeals to the customer is recognized by this corporation, which in India supplies the public with the ''Elephant Brand" of oil put up in cans adorned with the picture of that sacred animal. Prac- tically all of the product sold abroad is said to be produced in the United States. Where the refined product is dis- criminated against by tariff schedules or otherwise, re- EXPORT SALES ORGANIZATION 73 fineries are built and the crude product is shipped from the United States. It sells its product in every country of the world; it is stated that there were more Standard Oil wagons in Europe in 19 14 than in the United States. The United States Steel Corporation. — The decision of the United States District Court for the district of New Jersey, rendered in 191 5, denying the petition of the De- partment of Justice for a decree for the dissolution of the United States Steel Corporation, contains a clear statement of the part that such corporations have played in extending the foreign trade of the nation. The following summary of that part of the decision is from a bulletin issued by the National City Bank of New York: The court finds that by means of its extensive organization, its large capital, the diversity of its products, and the great volume of its business, the Steel Corporation has been able to greatly increase the exportation of iron and steel products. When it was organized, the total exports of such products from this country were about $31,000,000 per annum, but these sales were made in a desultory way, largely for dumping purposes, and without any attempt to develop the foreign trade in a systematic and permanent manner. The Steel Corporation created a subsidiary company, known as the Steel Products Company, to handle this business. It owns some 40 warehouses in important foreign trade centres in which ample stocks of all goods likely to be called for in the trade are carried. There are 15 of these warehouses in South America. There are many other places where the goods are kept on sale through representatives, over 300 in all, in 60 countries. These depots afford the facilities for the prompt despatch of orders to all parts of the world. For example, a warehouse is maintained in Antwerp, although there are practically no sales in Belgium, be- cause Antwerp is an important shipping centre with frequent sail- ings to many points, and for the same reason there is a warehouse at Trieste to accommodate trade in the Adriatic and eastern Medi- terranean. The result of efforts to create trade in British Columbia is described. A warehouse was established at Vancouver, but the freight rate on steel from Pittsburg to Vancouver was prohibitory as against the water rate from Liverpool and a customs discrimina- tion of ^^}4 per cent in favor of British steel. The Steel Products Company established a line of steamers of its own through the Straits 74 FOREIGN TRADE OF UNITED STATES of Magellan. These steamers touch at several ports on the west coast of South America and Mexico, some of which have no regular steamers from the United States, and they have been carrying con- siderable goods for other manufacturers in this country who have no other facilities for reaching these ports. In order to obtain re- turn freight, these steamers load with lumber or coal for the Gulf of CaHfornia; there they reload with copper matte for Dunkirk, France, and in France take on chalk for New York. The Steel Products Company now owns twelve steamers and has several times that number chartered. In order to justify such extensive arrangements for marketing and transportation as these, the court finds that a great variety and large volume of products is necessary. It finds that the Steel Corporation has gone beyond the capacity and equipment of its own works, and has aided the manufacturers of other steel products to enter the export trade by furnishing basic materials to them at special prices for this purpose and marketing their goods through their agencies. A list of 158 such manufacturers was furnished. Furthermore, in order to create an outlet for its goods, the Steel Products Company will take contracts for construction work where this is necessary, and to this end maintains a permanent engineer- ing force in Buenos Aires. It put up the first steel building in that city, and has put up most of the steel buildings in South America. These are the alert, effective, and aggressive methods by which the steel exports of the United States were increased from $31,000,000 in 1901 to $91,000,000 in 1911. The court is of the opinion that such efforts are possible only to such an organization. While few corporations have found it necessary to adopt such thoroughgoing methods as those just outlined, the firms that have won marked success in the foreign field have, nevertheless, spent large sums of money in develop- ing this branch of the business, and have seldom reaped returns for the first few years. Such expenditures are con- sidered as part of the investment, which will produce satis- factory results in due time. The establishment of foreign connections, the gaining of thorough familiarity with con- ditions in the foreign field, the learning what to do and what not to do, and the training of a corps of expert workers all require time and patience, but once accomplished the re- sults have almost invariably proven eminently worth while. EXPORT SALES ORGANIZATION 75 Sales Methods Used in Direct Exporting. — The sales methods used in direct exporting may be considered under fLve heads, as follows: 1. Branch Offices established in the various trade centres, each under the management of an executive clothed with final authority in all but the most important matters affecting the pohcy of the corporation. 2. Salesmen. — These are of two classes: those working out of branch houses in the foreign countries, and those sent out by houses that maintain no foreign branches. 3. Foreign Agencies. — These are usually well-estab- lished firms of the nationality of the country, who are given the exclusive agency for the product for a city, district, or for the entire country. 4. Advertising in export journals, trade journals, and local pubhcations. 5. Distribution of Catalogues and circulars and direct correspondence with prospective customers. These methods overlap in many cases, even to the ex- tent of one firm making use of all. Each will now be con- sidered in some detail. Branch Offices. — These are located in the trade centres of the various countries. They operate either through salesmen or agencies or both. In most cases each branch maintains a corps of salesmen, each having a district al- lotted to him in which he makes every effort to push the sales of the product. Branch houses are sometimes execu- tive offices under the management of a general sales manager, who directs the work of the salesmen, appoints agencies, and co-operates with such agencies, attends to the forw^arding of orders, the receiving of shipments, to the collection of accounts, to the assembling of credit and trade information, and to other details of the business. Branch houses often carry a full fine of samples; sales are made from these samples and orders transmitted by cable. Those 76 FOREIGN TRADE OF UNITED STATES maintained by the largest corporations usually carry a large stock of goods. They thus become mercantile establishments, which supply their customers with their wares without waiting for an order to be shipped from the United States. The advantages of such a system are ob- vious, but the increased capital and the large organization entailed make it practicable only in the case of a limited number of corporations doing a business of immense pro- portions. Salesmen. — Those manufacturers that consider the ex- tension of their foreign sales as an important factor in the business, and who have won or hope to win permanent success in the export field, have, in the great majority of cases, organized an efficient sales force, which they maintain in the foreign market being exploited. Providing the volume of export business that may be secured warrants the expense, a well-qualified salesman is considered the best means of getting that business. Where there is no branch office maintained, the duties of the salesman are not confined to pushing the sale of the goods. He may find it his duty to check up Hsts of prospects, to add to such a list, to distribute catalogues and advertising matter, to report on trade conditions and on the credit standing of prospective customers, to appoint local agents, and even to attend to the collection of accounts and the adjustment of any misunderstandings that may arise between his firm and their customers. It is readily seen that a salesman quali- fied to perform the various tasks suggested must be one of wide experience, proven probity, and unusual ability. Consequently, his remuneration is usually high; it consists of a salary and a commission on sales. The fact that the expenses of a salesman in the foreign field are generally much heavier than at home makes a fairly respectable income a necessity. Foreign Agencies. — These are of two classes: foreign business firms and manufacturers' resident agents. The EXPORT SALES ORGANIZATION 77 largest part of the direct export business of the average manufacturer is secured and handled through foreign firms to which an exclusive agency for a district is granted. Merchants and small dealers are their customers. They have excellent opportunities to push the sales of a given product, because they are usually well-known and long- estabHshed firms of the same nationality as their customers. They understand and share the tastes and prejudices of the buying public, have the confidence of their fellow citizens, have a social position in the city in which they carry on business, and bear an intimate relation to the life of the community difficult for an outsider to acquire. They are thus able to adapt their methods to the demands of the trade and to secure business where an American would often utterly fail. German exporters have made the widest use of such agencies with most gratifying results. The method of selecting firms to act as agents is im- portant. While this is sometimes done by correspondence \Aith good results, it is considered better policy to make the appointment only after a personal visit to the field by a representative of the firm. When this is not practicable, correspondence is opened with persons or firms recom- mended by United States consuls, banks, and others. A general agency is confined to a territory of workable extent, seldom including a whole country. As a rule a firm is sought that does not handle competing lines, though, if there is considerable variation in price and quality, the same agency may successfully handle the products of com- peting firms. Here again the nature of the wares and local conditions govern. Local agencies are made use of in much the same way as are general agencies, their customers being the consumer and not other dealers. Such agencies are appointed either by the manager of branch offices, by salesmen, or by gen- eral agencies. Their operation is confined to a city, town, or small district. They often prove of great value in ex- 78 FOREIGN TRADE OF UNITED STATES tending the sale of a given product, though this is not al- ways the case. Another class of agents, not readily distinguished from salesmen, is that known as manufacturers' or resident agents. Such an agent lives in a trade centre, usually maintains an ofhce with sample-rooms, and represents either one manufacturer or a group of manufacturers. It is his business to promote the sale of the wares he repre- sents. He works on a commission basis. He deals not with the consumer, but with retail or wholesale firms. Manufacturers having small capital or small chance of developing a large volume of business in foreign markets often find it to their advantage to make use of a group rep- resentative, who handles several fines and often succeeds in building up a large volume of business for each of his principals. Such a representative is usually of the same nationaHty as his customers, though American salesmen sometimes develop such a business with marked success in markets with which they are famifiar. Advertising. — Advertising in foreign trade is used either to promote the sale of goods through salesmen and local agencies or to work up a mail-order business. The me- diums selected are export journals, trade papers, and local pubHcations. The Bureau of Foreign and Domestic Com- merce issues a document which contains a very complete list of all foreign publications, with data as to frequency of publication, extent of circulation, advertising and sub- scription rates, and the general character of the publication. Manufacturers are thus enabled to select their medium. Copy is prepared by the regular advertising department and translated by a skilled translator, who is thoroughly famifiar with the niceties of the language and with local customs and traditions. Many manufacturers carrying on an extensive advertising campaign in the foreign field employ an advertising agency, whose business it is to have a somewhat definite knowledge of the character of adver- EXPORT SALES ORGANIZATION 79 tising that has the greatest pulling power in the market in question. The appeal made by the advertising copy scoring the greatest success in the United States often proves ineffec- tive in other countries. The finding of the point of con- tact, the emphasis made in the appeal, the whole form and structure and character of the advertisement require an ex- pert who knows the tastes, the character, the traditions, the prejudices of those prospective customers who may read the copy. It is only by looking at an article through the eyes of the foreign customer, and so framing the advertising copy as to play up the goods from this angle, that results can be won in foreign lands. The appeal may be in the price or in the quality, in the durabihty or the fragility, in the size or shape, in the form or color. It may be because it is a novelty, something new and strange, or because it is a staple, well known and familiar. Where the color counts not at all in the domestic sales, it is not infrequently found to play an exceedingly important part in foreign sales. Unless the appeal is correctly determined, foreign adver- tising necessarily fails to create the desire for the article which is the purpose of all advertising. The firm exploit- ing the foreign field finds the point of contact, and frames its advertising accordingly. Closely allied to this is the importance, the character, size, shape, and color of the con- tainers often hold in the sale of the article in the foreign market. When these are cleverly adapted to the trade, the placement of the goods is often greatly facilitated; trade-marks and trade names are likewise of importance, often proving the winning factor in the sale of the goods. Catalogues, Circulars, Direct Correspondence. — The distribution of catalogues, circulars, and price-lists through the mails, followed by systematic correspondence, is a method of reaching the foreign buyer that has been used with gratifying results by many American manufacturers. Special editions of the firm's catalogue are issued in the 8o FOREIGN TRADE OF UNITED STATES required language, and are distributed to selected lists of prospects. The export catalogue includes only those lines or articles adapted to the needs of the community in which it is circulated. It contains a definite description of the articles, with exact weight and dimensions as packed for export, with approximate cost of delivery by mail, express, or freight, as the case may be. The price is stated in United States money and in the money of the country in question. The duty is specified where this is practicable. Thus the prospective customer is able to determine just what the article will cost him delivered. While every kind of commodity, from locomotives and gas-engines to pins and carpet-tacks, may be and have been sold from catalogues, this method is especially well adapted for selling articles of comparatively small size and weight, which can be delivered by parcel-post. International Parcel-Post. — The place occupied by the parcel-post in international commerce is far more im- portant than is usually realized. In 191 3 parcels valued at $45,000,000 were sent out of England by parcel-post; those sent from Germany and from Austria-Hungary ex- ceeded this figure; France led all the nations in the extent of overseas con^nerce thus transported, the value of such exports being over $113,000,000. Other nations Hkewise carried on a large parcel-post business, which is not taken cognizance of in the ofiicial statistics of foreign commerce, but which aggregate many milHons of dollars annually. The volume and value of the commerce thus carried on in 191 5 and 1916 greatly exceeded that of the period ante- dating the World War, England alone doubling the value of the merchandise sent out of the country through this medium. The development of the parcel-post in the United States has added a new and effective method for the extension of our trade relations with other nations. It is especially helpful in the first stages of exporting, where a manufacturer begins to explore tentatively the opportuni- EXPORT SALES ORGANIZATION 8i ties afforded for the sales of his wares to foreign consumers. While no record is kept of the value of wares thus sent to foreign countries, it is estimated at $50,000,000 for 1916. Extensive mail-order and catalogue trade has thus been obtained by manufacturers of articles suitable for this method of transmission, notably shoes, books, gloves, con- fectionery, and household utensils. Consular invoices are not required on parcel-post, except in the case of a few countries, which means a considerable saving; the charge for a minimum bill of lading required by ocean carriers on small shipments is likewise avoided. A customs declaration is required. The form is obtainable at United States post- offices. The contents of each parcel must be accurately described and the value stated on this declaration, which is attached to the parcel in the form of a tag. Parcels must be so wrapped as to permit their contents to be ex- amined by postmasters and customs officials. In general, liquids, poisonous, explosive, and inflammable substances are excluded. Articles dutiable in the country of destina- tion are admitted. Arrangements made by the United States with most foreign countries limit the weight of such parcels to eleven pounds and the size to six feet by three and one-half feet. The rate is twelve cents a pound or fraction thereof. The Webb-Pomerene Act. — In closing the discussion of export sales organization, the effect of the Webb-Pomerene Act, passed in 19 18, calls for consideration. That act authorized the formation of export associations by manu- facturers of competing products. This opened the way for the pooling of interests by the firms engaged in export business. Under the law the export sales organization of one firm or corporation may be, by mutual consent, taken advantage of by another, foreign territory may be divided among competing firms, and other arrangements made to further the export trade of the firms concerned. 82 FOREIGN TRADE OF UNITED STATES The Guaranty Trust Company of New York in its cir- cular of January 29, 1920, has this to say of the law: The Webb-Pomerene law has released this country from pre- vious legal restrictions, and made possible forms of combination quite as effective as those hitherto adopted in Germany, England, and elsewhere. More than one hundred organizations of American exporters have filed papers with the Federal Trade Commission since the passage of the Webb law, indicating their intention of combining in this way. They will achieve a double result. First, they will be able to compete with European selling organizations in Latin America, the Far East, and other outside markets. Second, they will be able to oppose a united front to all attempts of European buying combinations to depress American export prices through playing one American concern against another. The Guaranty Trust Company of New York has issued a booklet on Combining for Foreign Trade, explaining in considerable detail the possible forms of export combination under the Webb law, and illustrating by charts some of the more famous European combinations. BIBLIOGRAPHY Arnold, J. H. Advancement of American Trade Interests in China. Overland Monthly, n. s., vol. 57, pp. 457-470. May, 1911. AuGHiNBAUGH, W. E. Selling Latin America. Boston, 191 5. DuDENEY, F. M. Exporters^ Handbook and Glossary. New York, 1916. FiLSiNGER, E. B. Exporting to Latin America. New York, 191 6. FoRTESCUE, G. South American Trade Hints. Bulletin Pan- American Union, vol. 32, pp. 261-9. February, 191 1. Hough, B. 0. Practical Exporting. New York, 191 5. Landau, H. L. Starting Trade with Latin America. System, vol. 26, pp. 478-482. November, 1914. McCoRMiCK, C. H. What Seventy-One Years in Business Have Taught Us. System, vol. 31, pp. 148-154. February, 191 7. Rose, S. H. Common-Sense Majiagement of an Export Department. Chicago, 191 7. U. S. Bureau of Foreign and Domestic Coiimerce. Exporting to Australia. Practices and Regulations to Be Observed by an American Shipper. (Miscellaneous series no. 45.) Washing- ton, 1916. Wyman, W. F. Organizing for Export Trade. Systemy vol. 28, pp. 13 1-7. August, 1915. EXPORT SALES ORGANIZATION 83 Wyman, W. F. How Advertising Gets Foreign Trade. System, vol. 27, pp. 613H519. June, 1915. Wyman, W. F. How to Go After Foreign Trade. System, vol. 28, pp. 23-29. July, 1915. Wyman, W. F. Planning a Sales Campaign in South America. System, vol. 26, pp. 371-6. October, 1914. CHAPTER VII EXPORT AND IMPORT COMMISSION HOUSES Importance in Development of International Trade. — The part played by export commission houses in inter- national trade has been an important one since their rise in the sixteenth century. Their service in facilitating the exchange of products is well described by Professor Clive Day in his History of Commerce. In describing the ex- tensive trade of a wholesale merchant of Frankfort about 1600, who bought silk and drugs in Venice, spices in Am- sterdam, and sent them for sale to Hamburg; iron and wax in Hamburg and sent them to Spain; indigo and wool in Spain and sent them to Amsterdam and Antwerp; rye in Amsterdam and sent it to Genoa, Professor Day says: Such a business would have been impossible in the Middle Ages, when a merchant accompanied his wares or shared his responsi- bilities with a few associates. It was made possible now by the development of the commission trade. Commission merchants, or factors, made it their profession "to buy and sell for other business men for a certain profit which is given them for their trouble by the principals." Sometimes they were in business on their own ac- count also; sometimes they were specialists in various lines. A writer of the seventeenth century distinguished five classes: those who lived in a manufacturing or commercial centre and bought goods for others; those who sold goods for others; the correspon- dents of business men and bankers who make collections and re- mittances of money for them; forwarders, who received and for- warded goods at places of transshipment, and, finally, the agents for carriers, who distributed and collected the load of a freight- wagon in a city. The duties of a mercantile factor, in general, were to advise his principal frequently concerning the market for wares, the course of exchange, etc., to acknowledge letters punctually, and to follow orders exactly. The commission varied from 5 84 EXPORT AND IMPORT HOUSES 85 per cent of the value of the goods in the West Indies to 2 per cent or even less in some of the European countries. From that time to the present the commission house has promoted the free exchange of the commodities of one nation for those of others by keeping up a world-wide or- ganization, which the merchants and manufacturers of every nation have found it to their advantage to use to a greater or less extent. The great export trade of both England and Germany was largely developed through these agencies, which are to-day, despite the tendency to eliminate the middleman, no inconsiderable factor in inter- national trade. Services of Export Commission Houses. — A large part of the foreign trade of the United States has been developed through export commission houses located at New York and other ports. These houses may be purchasing agents for foreign buyers or selHng agents for American products. The largest houses have business connections in all parts of the world, while others confine their operations to one or two fields. The commission house, handling a larger volume of busi- ness than the individual merchant or manufacturer, and using one selling organization to market the output of many manufacturers, is able to keep the selling expense at the minimum. Manufacturers having a comparatively small output and those specializing in one or two articles frequently find it to their advantage to sell through com- mission houses. Others enter the foreign field through commission houses, and later develop their own export sales organization. The following, from Westerfield's Middlemen in Eng- lish Business, gives a clear idea of the function of com- mission houses: A commission house buys and sells in foreign trade, in its own name, for a number of principals a variety of goods, on commission. 86 FOREIGN TRADE OF UNITED STATES It receives the goods by consignment from a merchant or manu- facturer. It is intrusted with the possessions, control, manage- ment, and disposal of the goods sold. It does business in its own name, but on the account and at the risk of the principal. These houses are houses of reputation, capital, and credit. They allow the consignor to draw on them for a large per cent of the value of the goods consigned, immediately upon receipt. Such advances require large capital on the part of the consignee. They store the goods, sell them in their own name, and guarantee payments of the accounts to the consignor. They carry out the shipping details, caring for lading, shipping, insurance, commercial papers, etc. They also buy goods upon order from foreign houses, and finance and ship the order, collecting the outlay from the consignee. Their profits arise from the commission paid, interest on their outlay, insurance, profits, etc. The advantages that are realized by a foreign firm in buying through a commission house are: first, that all orders may be for- warded and all payments made to one person instead of dealing with various firms; and that likewise all shipments are received on one bill of lading; and, secondly, that larger credit is likely to be got from a commission house, it being acquainted with the general condition of trade and having wider banking connections. . . . It is equally advantageous for the producer to dispose of his goods through the commission house, for the house carries out the de- tails of shipping and procures lower freight rates on the large bulk shipments than can be had on the small quantities the manufacturer would have to ship; and, further, the commission house is a home firm whose financial strength is easily investigated, against which suits for the recovery of debts are made according to home laws, whereas if the dealing was done directly by the producer, collections would be made abroad. The obvious disadvantages engendered in the dealing through the commission house are that the house handles a variety of goods and is not specialist in any, and that the house usually wants an exclusive agency for the principal, and the granting of this monopoly mav result in limiting the market for the principal's goods. Different Types of Export Houses. — Some export com- mission houses limit their sales to a few lines of goods in a few markets; others accept or solicit orders for practically every commodity that caters to the wants of man and carry on business in every part of the world. Some are old- EXPORT AND IMPORT HOUSES 87 established houses of the highest standing, which possess abnost unlimited capital, own their own ocean-carriers, own or control banking institutions, and handle millions of dollars' worth of business annually. Others are firms possessing little capital and experience, struggling side by side with the individual manufacturer to secure a foothold in the markets of the world. It is only by careful investi- gation that the standing of such houses can be determined. Banks and mercantile agencies are the best sources of in- formation as to the responsibihty of such firms. Export commission houses are so varied in type that it is difficult to classify them, but the following classification gives a fair idea of their activities. 1. Indent houses — These are strictly commission houses, buying goods only after orders have been received for the same. They deal in practically every coromodity in any quantity. They purchase from any manufacturer offering the goods at the best prices. Their customers may be importing houses located in foreign markets, wholesale or retail firms, or individuals. Orders are re- ceived either through foreign branch houses, foreign sales- men, or by direct relations with the foreign buyers established by means of correspondence, catalogues, advertising, or otherwise. 2. Commission houses or trading companies which handle all products they can place in the foreign field, charging the American manufacturer a commission for their services. Such houses sell to the foreign buyer at the manufacturer's price, receiving their commission from the seller and not from the buyer. This commission covers the cost of documentation, of the expenses inci- dental to shipping the goods, of financing the shipment, and of other similar expenses. The coromission is com- monly 5 per cent, though it may be as low as 2^ per cent, or as high as 10 per cent. These firms do not 88 FOREIGN TRADE OF UNITED STATES limit their services to any group of manufacturers, but reach out for all the business they can handle. 3. Merchant houses which buy from manufacturers on their own account and sell to their customers through branch houses or established agencies. These mer- chants do not operate on a commission basis. They are mercantile establishments buying in the United States and selling in foreign countries. Advantages of Selling Through an Export House.— The large volume of business transacted by the oldest estab- lished export houses gives them an advantage in marine freight rates which is a factor in their success. In many instances they are able to assemble a large number of orders from one place and make one shipment of these, with re- sultant advantages not only in freight and transfer charges, but also in the saving of the cost of documentation and other incidental items. The buyer of various kinds of goods finds it to his advantage in many cases to place his order v/ith an export commission house, which assembles the goods, packs them properly, and ships them on one bill of lading and under one consular invoice. This saves much detail work, expedites the clearance of the merchan- dise at the custom-house, and involves the minimum ex- pense for packing, freight, insurance, consular fees, etc. The larger and more successful export commission houses have well-estabHshed trade relations with most of the im- portant buyers in the markets in which they transact busi- ness; they are thus in close touch with financial and trade conditions, and are in a position to determine with consider- able accuracy how and to whom credit may be extended with safety and how large a quantity of a given commodity a market can absorb. Their extensive trade connections, their long experience in the foreign field, their minute knowledge of the difi erent conditions and requirements of the various markets, and their mastery of the details in- EXPORT AND IMPORT HOUSES 89 volved in making export shipments all enable them to carry on trade with the minimum of friction and Iocs. Many of these houses were pioneers in the export trade of the United States. It is estimated that more than half of our exports to countries other than Europe have been sold through export commission houses. The extent of the business thus transacted is thus seen to be enormous. Their methods of securing business in foreign markets and of handling that business do not differ materially from those used by other large firms engaged in direct exporting. The larger houses have a complete sales or- ganization in the markets in which they seek business and all have representatives in the ports to which they ship goods. A study of the methods used by large manu- facturing firms carr^dng on an extensive direct export trade gives the student an understanding of the methods that are likewise used by the large export houses. Promoting Trade Through Export Houses. — While oc- casional orders may be obtained through export commis- sion houses with Httle effort on the part of the manufacturer, large and permanent trade is not so easily secured through these agencies. Ordinarily, it is necessary for the manu- facturer to co-operate closely and continuously with the export commission house, if he desires to extend the sale of his product in the foreign market through such an agency. This co-operation takes the form of advertising in foreign and trade papers, of a judicious distribution of catalogues, of the supplying of samples where practicable, and even, in some cases, of sending salesmen to the foreign market to assist in introducing and pushing the sale of his goods. A demand is thus created among the customers of the ex- port cormnission house for his product, ^vith resultant sales. Export houses not infrequently demand the exclusive agency of a manufacturer's product in one or more foreign markets before they will agree to handle his business. In return for the granting of such an exclusive agency, they 90 FOREIGN TRADE OF UNITED STATES agree to push the sales of his product to the exclusion of similar lines of other manufacturers. The granting of such an agency binds the manufacturer to sell only through the house in question for a tenn of years. Such a contract may add greatly to the sales of a manufacturer; on the other hand, it may prove a handicap to the extension of the export business of the firm. It is repeatedly charged that unscrupulous houses have induced manufacturers to grant exclusive agencies in order to keep their goods out of cer- tain markets. By living up to the letter of the contract, they are able to bind the manufacturers without attempt- ing to produce a satisfactory volume of sales for their products. Reputable houses of long standing can be depended upon to carry out a contract in all fairness, but otliers have taken advantage of manufacturers and have thus reflected on all engaged in the business. The Handling of Staple Products. — It must not be sup- posed that the business of the export commission houses is confined to the handling of manufactured articles. On the contrary, the bulk of their trade has been in such staple products as cotton, wheat, flour, cottonseed, petroleum, copper, and such other raw materials as have largely entered into our foreign trade. They still hold an important posi- tion in the exportation of such commodities, as explained in the chapter devoted to the exportation of raw materials and foodstuffs, though the tendency in recent years has been to place the handling of such products with firms specializing in each, or to export them directly, as in the case of petroleum and its products. Much flour is likewise now exported by the big niilling concerns and a considerable portion of the cottonseed exported is now sold by the gin- ners direct to foreign buyers. The tendency is to eliminate the commission house wherever the volume of business war- rants the building up of a selling organization of world- wide proportions. The Export Commission House in Latin American Trade. — It is stated that over two-thirds of the exports EXPORT AND IMPORT HOUSES 91 from the United States to Latin America are even now handled by export commission houses, located for the most part at New York, New Orleans, and San Francisco. In this trade the export house often has a very important func- tion, as it not infrequently acts as an import as well as an export agent. In various Latin American trade centres native firms of long standing act as agents for the owners of plantations, mines, and other producing properties, importing from the United States and other countries the supplies needed for an entire season, and receiving in ex- change their produce to be marketed abroad. Such a firm, which is as much an importing as exporting house, has connections in the various markets with export houses, and consigns to these the commodities in which it deals. The New York or New Orleans export commission house transacting business "^ith such a concern must perforce be an importing house also. It receives the goods thus consigned to it and sells them on a commission basis. Usu- ally it sends back manufactured or other products to the full value of the consignment. These are purchased out- right from manufacturers or elsewhere, and are packed and shipped to the Latin American importer, who pays the usual 2j^ or 5 per cent commission for the service. The rubber industry of Brazil affords an excellent example of business so conducted, the entire supplies for a concession- aire and his employees being imported by a ]Manaos firm, who later receives the season's crop of rubber and exports it, usually through a commission house in New York. The part taken by export commission houses in Latin American trade is thus described by a recent writer on the subject : Hitherto it has cost the general manufacturer nothing to market his goods in Latin America beyond the trifling expense of publish- ing a few special catalogues. He has received his orders from the export commission houses and has been paid prompt cash for his goods as soon as they have been placed on board the steamer in New York or other ports of shipment. He has also been relieved 92 FOREIGN TRADE OF UNITED STATES to a great extent from the claims from foreign buyers when the goods shipped are of inferior quality or not according to the order, or not shipped on contract time. Since the buyer looks first to the commission merchant, and holds him responsible for any deviation from his contract of purchase, the export commission house has shouldered the burden. It is the commission merchant, further- more, who has stood all the expense of maintaining agents and sales- men in the principal commercial centres of Latin America, of send- ing special travellers from time to time, of employing experts ac- quainted with foreign languages to attend to the details of shipping, correspond^ce, making up of commercial and consular invoices in which the slightest mistake or deviation from the prescribed form will involve heavy fines in the foreign custom-houses, who ad- vances the money to prepay freight and ocean charges, and who risks his capital in granting the long credits required. While the field of the export commission house is nar- rowing from year to year, it nevertheless still has an im- portant function to perform in the United States as well as in the United Kingdom and Germany, where it is even more strongly intrenched than it is here. BIBLIOGRAPHY FiLSiNGER, E. B. Exporting to Latin America. New York, 1916. Hough, B. O. Practical Exporting. New York, 191 5. Shaw, A. W. Some Problems in Market Distribution. 1915. Westerfield, R. B. The Factor and the Commission Houses. (In his Middlemen in English Business.) 1915, pp. 354-361. Commission House in Latin American Trade. Quarterly Journal of Economics, vol. 26, pp. 118-139. November, 1911. The Compradore : His Position in the Foreign Trade of China. Economic Journal, vol. 21, pp. 636-641. December, 191 1. Doing Business Through Commission Houses. (In U. S. Bureau of Foreign and Domestic Commerce. Export Trade Suggestions. Miscellaneous series no. 35.) 1916. Export Merchants. (In U. S. Bureau of Foreign and Domestic Commerce. German Foreign Trade Organization. Miscel- laneous series no. 57.) 191 7, PP- 14-16. Marketing Agencies Between Manufacturer and Jobber. Quarterly Journal of Economics, vol. 31, pp. 571-599. August, 1917. CHAPTER VIII THE EXPORTATION OF RAW MATERIALS AND FOODSTUFFS Methods in General.— The methods used in the exporta- tion of raw materials and foodstuffs, collected from the farms, forests, and mines of the nation, differ radically from those employed in the sale of manufactured products. Such commodities do not meet in foreign markets the keen competition found in the case of manufactures; as a rule they are eagerly sought by the populous manufacturing and commercial nations that depend upon other countries for the food and raw materials needed to nourish their population and supply their factories with the materials essential to industry. No extensive sales organization for the marketing of such products need be maintained in foreign countries. Cotton, grain, and other commodities are sold to foreign purchasers largely through operations conducted by dealers having connections in foreign markets. Prices are quoted and contracts for delivery are made by cable. Brokers not infrequently maintain offices in the great world markets, and, where practicable, sell from sample as directed by their principals. On the other hand, large foreign buyers often send their agents here to contract for their supplies. In any case, there is little or no direct exporting by the producer, unless the product is one controlled by a few great corporations, as in the case of petroleum. The product leaves the hands of the producer long before it reaches the foreign buyer, who ahnost invariably purchases it from brokers or agents of large dealers who have secured 93 94 FOREIGN TRADE OF UNITED STATES it more or less directly from its original owner. It is a well-recognized fact that our foodstuffs and raw materials pass through too many hands before they reach the con- sumer, and that the organization of middlemen that has been built up has become a burden alike to producer and consumer. The middleman undoubtedly has a place in production and distribution, but only when he serves a useful and necessary purpose. The methods by which the various raw products are collected and distributed are best understood by considering the most important in some de- tail. As a rule the producer does not know whether his product is to be consumed at home or exported. He sells it to practically the same agencies in either case, and it is not sold to foreign buyers until it has been concentrated in great quantities in the hands of a few big dealers. As our most important agricultural export is cotton, it will be considered first. Cotton. — Little American cotton passes directly from the grower to English or other spinners. The greater part of the 6,000,000 bales annually exported passes through from two to six agencies between the grower and the spinner. These are successively the local storekeeper, the local cot- ton merchant, the buyer of one of the great cotton mer- chants of the central markets, the exporter, the English importer, the English broker, the spinner's agent, and finally the spinner. Numerous variations may occur in the process, with the elimination of one or several of the agencies enumerated. For instance, the farmer may sell not to the local store- keeper but to the local cotton merchant or to agents of the great cotton merchants of the primary markets. Large growers may even consign their cotton to commission houses located at the principal ports. Again, the local storekeeper may eliminate the local merchant and also the buyers of larger houses, and may sell direct to English buyers or other importers. RAW MATERIALS AND FOODSTUFFS 95 The method used by the grower depends largely upon his financial condition. Those methods most commonly used fall under three heads, as follows : 1. Method used by the small farmer who needs credit. 2. Method employed by the farmer able to finance himself. 3. Method in vogue on large plantations. 1. The cotton farmer is usually in debt, and he finds it necessary to contract to sell his crop to the local store- keeper, from w^hom he obtains his groceries and necessary supplies on credit. As a rule such credit is extended to 40 or 50 per cent of the estimated value of the crop. In- terest is charged on the account and high prices are the rule. As the raw cotton is picked, the farmer brings it to the storekeeper, before it is ginned. When he has delivered his entire crop, the merchant makes up his account, credit- ing or paying the farmer for the balance due him. There is no system of grading; the farmer is seldom an expert judge of his owti product; consequently, he is never paid the highest price, but usually receives the price of medium or low grade cotton. The storekeeper himself is not the best judge of cotton; he has to grade down in order to protect himself. He sells to local cotton merchants or to cotton buyers representing la^ge cotton dealers; very rarely he sells to spinners' agents. 2. Not all cotton-growers find it necessary to obtain credit from the local store to tide them over until their crop is marketed. In such cases, the grower takes his cotton to the gin, where the seed is removed and the cotton is baled. Then he disposes of it just as the local storekeeper disposes of the cotton he secures; that is, he sells it to the local cotton merchant or to a buyer represent- ing the big dealers or spinners. If the price is low, the in- dependent farmer may store his cotton in the local ware- 96 FOREIGN TRADE OF UNITED STATES house owned by the local cotton merchant, to be sold later by the latter on a commission basis. While the farmer who is able to finance himself reaps a greater reward for his labor, his cotton, nevertheless, passes through many hands before it reaches the domestic or foreign spinner. 3. The large plantations are mostly owned by corpora- tions or syndicates, which rent their land in small parcels to poor cotton-growers, either for a fixed rental or on a percentage or ''share" basis. The corporation almost invariably owns a general store, which extends credit to the tenant for his season's supplies. It likewise owns a gin. When the cotton is picked, the grower delivers it to the store or gin, as the case may be, and receives whatever price may be determined upon by the company buyer. That the price is not the highest, goes without saying. After his account is settled, the grower too often finds that he has not enough money left to buy food and clothing for the winter, but, as he has no other resource, he continues year after year in the same unprofitable grind. It is generally conceded that the farmers of the Southern cotton-producing States, who raise the bulk of the world's supply, seldom or never receive their just returns for their crop. The following statement, taken from the United States Department of Agriculture Yearbook for 191 2, de- scribes the situation: Present methods of distribution of many agricultural products are indirect, wasteful, expensive, and even destructive. In this respect cotton suffers fully as much as any other crop. A complex commercial mechanism has been developed, many elements of which are distinctly not in the interest of the producer, the manu- facturer, or the ultimate consumer. It is not too much to say that our present method is susceptible of a great deal of improvement at every step from field to factory. It has been estimated by close students of the question that the present slipshod and wasteful system entails an annual loss to the growers of from $25,000,000 to $70,000,000. It is impossible to do more than approximate the total loss, but it is certainly exceedingly large. RAW MATERIALS AND FOODSTUFFS 97 There are two well-defined tendencies in tlie cotton- producing sections that promise better marketing conditions for the future. The first is for the cotton manufacturer, both domestic and foreign, to buy direct from the cotton- grower, or at least from the local merchant who buys either from the grower or from the storekeeper. Thus brokers, factors, and dealers are eliminated. The other movement is for co-operative selling by the producers. The Yearbook of the Department of Agriculture for 191 2 cites several examples of successful co-operative cotton- growers' associations. The growers of Montgomery, Ala., have constructed a gin and started a general store, where members receive credit. Warehouse facilities are also provided, w^here the cotton may be stored when the mar- ket conditions are bad. This association sells both to domestic and foreign buyers, though the greater part of the output is sold directly to Liverpool agents of English spinners. At Greenwood, Miss., a group of farmers organized a cotton buying and selling company; they han- dle their own output and that of other farmers who care to sell to them. The cotton-growers of Lnperial Valley, Cal., some years ago organized along the lines of the Citrus Growers' Association of California, w^hich so effi- ciently markets that product. An exchange and a bank were organized and warehouse facilities provided. WTien the cotton is ready for market, it is ginned and placed in the association warehouse, where it is graded by an expert. Then warehouse certificates are issued to the owners, upon which a loan may be obtained at the bank. While in the warehouse the cotton is insured. When the price is favor- able, the cotton is sold through a broker to manufacturers or to cotton merchants, preferably to the former. The exchange and bank are not now directly controlled by the growers. W^ith the general adoption of some such system, direct exporting of cotton by producers through their as- sociation would replace the methods now in vogue, whereby 98 FOREIGN TRADE OF UNITED STATES some half-dozen middlemen take their toll from each sea- son's crop. Export cotton is shipped from the various local markets either to central markets of the interior or to the ports of shipment direct. At large shipping-points the cotton is compressed so as to reduce its bulk one-half. From the compress points export cotton may be shipped on a through bill of lading to the foreign point of destination. English spinners purchase their American cotton in three ways: 1. Through buyers sent to the United States for that purpose. 2. From the Manchester or Liverpool branch of an American cotton merchant. 3. From English importers or brokers representing import houses. Havre is the great French cotton-market. American cotton is sold there by American exporters either to im- port houses or to cotton merchants, through brokers. American cotton sold to Germany between 190c and 19 14 was shipped to great import houses at Bremen or Hamburg, which sold to German and other spinners. There was some direct importing of raw cotton by spinners. In 1 91 4 over 37 per cent of the raw cotton exported went to the United Kingdom, 30 per cent to Germany, and 12 per cent to France. From 80 to 85 per cent of cotton ex- ports are shipped from the Southern and Gulf ports, Galves- ton leading with over two-thirds of the total, with New Orleans and Savannah next in importance. The price of cotton, as well as of grain and other farm products, is influenced or determined by operations con- ducted on the great exchanges. These are corporations, organized to promote the buying and selling of certain commodities by their members. The trading is not done by the exchange but by the individual members. The RAW MATERIALS AND FOODSTUFFS 99 two great speculative cotton exchanges of the United States are those at New York and New Orleans. A com- paratively small amount of actual or spot cotton is bought or sold on the New York exchange, though New Orleans is a spot as well as a speculative market. Liverpool is the great cotton exchange of England. Many States of the cotton belt have enacted laws prohibiting the sale of cot- ton futures. It is worth emphasizing that cotton ex- changes were in their origin primarily associations of mer- chants and were intended to facilitate the business of such merchants. Although spinners (the consumers) and planters and growers (the producers) are sometimes mem- bers of exchanges, the basis of such organization is the cotton merchant. The merchant is a dealer in actual cotton. He may buy either directly from the grower or from so-called interior merchants, who are practically storekeepers and who collect cotton directly from the grower. Such a merchant, it may be noted, is generally spoken of in the trade as a "buyer," the term having a technical sense. Other cotton merchants who receive cotton on consignment to be sold on a commission basis are known as "factors." They sell their cotton to cotton "buyers" and seldom directly to spinners. There are thus two sets of middlemen. The number of factors, it may be noted, has decreased heavily in recent years. A cotton exchange also includes a great many brokers who may not handle actual cotton at all, but who simply act as agents for other interests, particularly for spinners, merchants, or speculators, either in the purchase or sale of spot cotton or of future contracts. Many brokers, it may be noted, deal exclusively in contracts and have nothing to do with spot cotton, while so-called spot brokers frequently have nothing to do with future contracts. Many speculators, particularly those conducting extensive operations, are members of cotton exchanges, as this entitles them to lower rates of brokerage and to other advantages not avail- loo FOREIGN TRADE OF UNITED STATES able to outsiders. Of course any one of the interests named may exercise the functions of another. Thus, a merchant may act as a broker or he may be a heavy specu- lator. A speculator in turn may be interested in the ownership of mills as a spinner. The proper and professed functions of a cotton exchange may be briefly enumerated £ls follows; 1. The maintenance of suitable facilities for the con- duct of business by its members. 2. The adoption of rules and regulations for the conduct of such business. 3. The collection and dissemination of useful informa- tion. 4. The maintenance of just and equitable principles in the trade. The system of future trading in cotton and, for that matter, in other staple products similarly dealt in, is based on contracts on the part of the seller to deliver, and, con- sequently, on the part of the buyer to receive, at a time subsequent to the making of the contract, a certain quan- tity of the product at a stipulated price. So far as the operation of the contract is concerned, it is immaterial whether or not the seller, at the time the contract is en- tered into, has the product in his possession, and, in fact, the term "futures" is very generally associated with transactions made at a time when the seller does not actu- ally have the product on hand. In this case he is, in the language of the trade, ''selling short," relying on his ability, before the maturity of his contract, to obtain the product which he has thus contracted to deliver or to purchase another contract to offset the one thus sold. A future con- tract is, however, quite as properly such in cases where the seller has the goods on hand at the time of entering into the contract, provided the delivery is set for some future RAW MATERIALS AND FOODSTtJFFS :ipr\u}\\ date. A ^'future" differs from a ''spot" transaction in that the latter invariably represents goods actually on hand or instantly available at the time the contract is made, and, moreover, contemplates an immediate or an approximately immediate delivery.* Cotton and other exchanges afford legitimate merchants the opportunity of msuring themselves against loss through fluctuations in prices by hedging, which is the offsetting of real transactions by speculative ones. Thus cotton merchants, manufacturers, or exporters buying large quan- tities of cotton for which there is no immediate market protect themselves against a fall in prices by selling con- tracts for future deHvery. Then if the price of cotton falls, the merchant, though losing on the actual cotton he has purchased, gains an equal amount on the transaction in futures. Similarly, the speculative market may be used by cotton merchants or brokers who make contracts with spinners for the actual delivery of a specified number of bales of cotton at a fixed price at a future date. Such contracts are frequently made before the cotton is available. If the price goes up before the merchant or broker obtains the cotton he has agreed to deliver, he will lose unless he hedges. He does this by buying on the exchange cotton futures for deHvery at the specified dates. Then if the price advances, he loses on the actual cotton he must purchase and deliver to the spinner, but he gains correspondingly on the cotton futures he purchased. The speculative market thus be- comes an insurance against loss in legitimate business transactions. Wheat. — The exportation of wheat is mostly in the hands of the great grain dealers that control lines of eleva- tors found in every big producing section. Following the harvest, the farmers haul their grain to the local markets * United States Bureau of Corporations: Report on Cotton Exchanges ^ part I, 1908. 102 FOREIGN TRADE OF UNITED STATES in two, four, or six horse wagons, or in motor- trucks, some of them especially constructed for this purpose and known as grain-tanks. In these local markets the farmer either stores the wheat in a storage elevator or sells it to one of the elevator companies. The elevators are owned either by local grain dealers or by the corporations owning ex- tensive elevator lines and having headquarters in such primary markets as Chicago or Minneapolis. In some cases a number of farmers form a co-operative association, build their own elevator, and hold their grain until market conditions seem most favorable. Such an association usually maintains an agent at one of the primary markets, who eventually makes the sale to one of the big grain dealers located there. There is some competition between the local grain dealer, who buys from the farmers only to sell again to the big dealers or to the milling companies, and the line elevator companies, which not infrequently enables the producer to receive more for his crop than would otherwise be the case. The dealers controlling the line elevators often send buyers out to the farms during or after the threshing season to negotiate with the farmers for the sale of their wheat; their success depends upon the price offered and upon the farmers' need of immediate re- turns for their crop. If the farmers believe that the price is going up, they may store their wheat in elevators at a fixed price per month, and borrow from 80 to 90 per cent of its market value from the local bankers, putting up their elevator receipts as collateral. Whatever the immediate method employed by the farmer in the disposal of his crop, that for export eventually comes into the possession either of the big milling companies or the big grain dealers located in the primary markets. It is then exported, either as wheat or as flour, as the case may be. MinneapoHs is the greatest flour-milling city of the continent. It is situated in the heart of the wheat- producing country, and has unlimited power supplied by RAW MATERIALS AND FOODSTUFFS 103 the Falls of St. Anthony. Flour exported from Minneapolis goes mostly by rail to the Atlantic ports. The greatest wheat-market is Chicago, where millions of bushels of wheat are assembled and distributed each year. Duluth, Kansas City, St. Louis, and Milwaukee are other grain centres. Export wheat flows from the pro- ducing regions of the Northwest in three general directions, east, west, or south. The eastern channel is by way of the great lakes, or the railroads paralleling the lakes, to Montreal or New York or other Atlantic ports. The southern route, taken by the wheat of Kansas, southern Illinois, Oklahoma, and Texas, finds its outlet at New Orleans or Galveston. The wheat of the Northwest — Washington, Oregon, Idaho, and western Montana — ^is shipped to Portland or to the Puget Sound ports. Cali- fornia wheat intended for export is assembled at San Fran- cisco. Most of the wheat shipped from the Pacific coast ports goes to England, though a part of it is sent to the Orient. Pacific coast wheat is handled in sacks instead of in bulk, as it is shipped in cargo lots, and there is danger of a xuU cargo of grain shifting. Grain warehouses instead of elevators prevail in this region. Most of the ware- houses are provided with conveyers, operated by steam or electricity, for handling the sacks and loading them on shipboard. While some Pacific coast wheat is handled by various co-operative growers' associations, which have agents at the ports who sell to exporters, most of the wheat for ex- port is purchased directly from the growers by agents of the big wheat companies, w^hich export only a part of what they buy. These firms have close trade connections with buyers at European markets, maintaining representatives there. The wheat is usually sold before it is shipped, fre- quently before it is purchased from the farmers. The journey from San Francisco to Liverpool in the ordinary saiKng vessel consumes four or five months, and if the wheat I04 FOREIGN TRADE OF UNITED STATES were not sold before shipment, price fluctuations might be so great as to cause heavy losses.* The exporter pays the marine insurance and, after the consignment is de- livered at its destination, the ocean freight. However, prices quoted in England for cargoes of Pacific coast wheat "to arrive," regularly include ocean freight and marine insurance, so the exporter, in drawing upon the European buyer, must deduct in his draft the amount to be paid for ocean freight. After the buyer examines the wheat on its arrival in England, if he is not satisfied with the grade, he may appoint an arbitrator and call upon the seller to appoint another, the two having power to choose a third. The board thus chosen decides the matter in controversy. Shipments to Europe are frequently made to a port of call. Sailing vessels are often chartered to go to Falmouth, Queens town, or Plymouth, in the British Isles, where or- ders are given as to final destination. For steamships the port of call is usually St. Vincent, in the Cape Verde Islands, or Gibraltar. Cattle. — Cattle, which were formerly exported on the hoof in great cattle-boats, now reach the foreign mc^rket in the form of dressed beef, or of dried or canned meat. Cattle for export are sold in the same way as those for domestic consumption. The cattle are shipped from the great ranches of the West to the cattle-markets of Chicago, Kansas City, Omaha, and Minneapolis, which are also the great meat-packing centres. Here they are placed in the stock-yards, where brokers or representatives of the leading meat-packing concerns purchase them at the market price. There are also cattle buyers in nearly every State, whose business it is to purchase from the farmers having only a few head of stock for sale each year. These are assembled and shipped in car-load lots to the central markets and handled in the same way as the range cattle. * United States Department of Agriculture. Bureau of Statistics, Bulletin no. 89. RAW MATERIALS AND FOODSTUFFS 105 Cattle are thus sold by the producer either directly to the meat-packing concerns which control this industry or to a middleman or broker who sells to these concerns. The refiigerator-car, which came into general use in the late seventies, has made it possible to centraKze the slaugh- tering and meat-packing industries at a few points, where cattle are shipped alive from the range or from the farm. Ocean steamers have refrigerator-rooms in which the chilled or frozen meat is conveyed to the European markets. Swine and sheep exported are handled in the same way as cattle. The surplus of food animals for export is de- creasing as the area of the rangeland decreases, though, with a fair price insured and favorable marketing conditions, fanners could and would greatly increase the production of cattle and other farm animals. As the number of cattle on the ranges decrease, the number produced on farms and fed on alfalfa and other field crops can be made to correspondingly increase. There is no doubt that the dis- couraging conditions in regard to transportation and prices that the cattlemen have experienced in the past has had much to do with the comparative decline in this industry. Tobacco. — Over one-third of the tobacco of the world is grown in the United States, and about one-third of this is produced in the single State of Kentucky. Louisville, Ky., is the greatest tobacco-market in the world. As tobacco is a crop requiring much labor, it is usually grown by fanners in comparatively small quantities in conjunc- tion with other crops, and not on great plantations as under the old system of slave labor. About one- third of the crop, or 350,000,000 pounds, is exported, either by dealers, exporting houses, or the agents of foreign buyers. The United Kingdom has been the biggest buyer, wdth Germany next. Tobacco is exported in casks or hogsheads, weighing on the average 1,000 pounds, or in bales weighing about 120 pounds. A large part of Southern tobacco is sold at auctions held io6 FOREIGN TRADE OF UNITED STATES in the local markets. The growers haul the tobacco to the nearest market and place it in public warehouses, where each lot is weighed and tagged, and auctioned off to the highest bidder, the grower reserving the right to reject all bids. The auctions are operated under state and local regulations. Some tobacco is delivered b}' the grower packed in hogsheads. This is called ''prized" tobacco, and is sold by sample. Not all tobacco is sold at auctions. Part of the Southern crop and practically all of that grown in the North is sold at private sale, either at the farms or after being hauled to the local market. The buyers of tobacco for export may be representatives of large tobacco exporters, or may be dealers who later sell to exporters. Foreign manufac- turers sometimes send buyers to the United States who buy either from the growers or from dealers. Some of the big tobacco manufacturers export raw as well as manufactured tobacco. The consolidation of the tobacco-manufacturing industry has decreased the number of buyers in Louisville and elsewhere. Even free-trade England levies a tariff on tobacco im- ported, the object being to produce revenue. The broker or manufacturer importing the tobacco has it placed in a bonded warehouse, thus avoiding the pa3mient of the duty until he is ready to use the tobacco. It usually remains two years in this warehouse, as a reserve supply in case of crop failure is thus assured, and the tobacco is improved by seasoning. BIBLIOGRAPHY BuRZETT, C. W. Cotton— Its Cultivation, Marketing^ and Manu- facture. New York, 1916. CoPELAND, Melvil T. The Cotton Manufacturing Industry of the United States. Chapter 7. Cambridge, 191 2. Critchell, James T., and Raymond, Joseph. A History of the Frozen-Meat Trade. Chicago, 191 2. DoNDLiNGER, P. T. The Book of Wheat, New York, 1916. RAW MATERIALS AND FOODSTUFFS 107 Edgar, W. C. The Story of a Grain of Wheat. New York, 1903. Heylin, N. B. Buyers and Sellers in the Cattle Trade. Phila- delphia, 1 913. Jacobstein, Meyer. The Tobacco Industry. (Columbia Univer- sity studies in history, economics, and public law, vol, 26, no, 3.) KiLLEBREW, J, B,, AND Myrick, H. Tobacco Leaf. New York, 1906, Marsh, A. R. Cotto7i Exchanges and Their Economic Functions. In Annals of the American Academy of Political and Social Sciences, vol. 38, pp. 571-598, September, 1911. Powell, George H, Co-operative Agriculture. New York, 191 3. Price, T. H, King Cotton in Field, Mill, and Mart. Outlook, vol, 106, pp. 714-722. March 28, 1914. Smith, Rollin E. Wheat Fields and Markets of the World. St. Louis, 1908. U. S, Bureau of Corporations. Report on Cotton Exchanges. U. S. Department of Agricutlture. Yearbook. Improved Meth- ods of Handling and Marketing Cotton. Yearbook, 191 2, pp. 443-462. U. S. Department of Agriculture. Bureau of Plant Industry. The Classification and Grading of Cotton. Farmers' bulletin 591- U. S. Department of Agriculture. Bureau of Plant Industry. The Relation of Cotton Buying to Cotton Growing. Bulletin no. 60. U. S. Department of Agriculture. Bureau of Statistics. Methods aftd Routes for Exporting Farm Products. Bulletin no. 29, U. S. Department of Agriculture. Bureau of Statistics. Wheat a^nd Flour Prices from Farmer to Consumer. Bulletin no. 130. U. S. Department of Agriculture. A Study of Cotton Market Conditions with a View to Their Improvement. 1917. Young, Thomas M. The American Cotton Industry. New York, 1902. CHAPTER IX EXPORT DOCUMENTATION AND FREIGHT FORWARDING The Documents and Details of an Export Shipment. — The care and exactness required in making out the docu- ments incidental to every export shipment have discour- aged many a small manufacturer from attempting direct exporting. The number and character of the documents differ somewhat in accordance with the country of destina- tion, and this adds to the difficulties of the subject. How- ever, exact information as to the rules governing shipments to each country may be obtained from the Bureau of For- eign and Domestic Commerce and also from the consuls of the respective countries. In general, the documents required are the commercial invoice, the railroad and steamship bills of lading, the export declaration, the in- surance policy or certificate, the consular invoice, and the draft. There are other documents involved in the details of making shipments, and the use of these will be best understood by following an export shipment from the time the order is received until it leaves the United States port. After an order has been received by a manufacturer, and is assembled ready for shipment, it is packed strictly ac- cording to instructions or to the known requirements for goods destined to the point in question. A packing or shipping list is made out for the convenience of the shipping department, and the export invoice is filled out with the greatest care and exactness. When the goods have been properly packed and each case or package plainly marked with initials or other letters or characters, they are delivered, in the case of inland manufacturers, to the railroad, and a bill of lading secured. There are usually three copies io8 EXPORT DOCUMENTATION 109 of the bill of lading. These, together with three copies of the export invoice, are immediately mailed to the agency, branch, or employee at the port, that is to take charge of the forwarding of the shipment from that point. When the goods arrive at the port, the agent must se- cure a shipping permit from the steamship company, claim the goods from the railroad by presenting the bill of lading, make arrangements for the hauling of the ship- ment to the steamship pier, prepare and have certified the required number of copies of the consular invoice, make out and attest an export declaration on forms provided by the United States Custom-House, have this properly certi- fied by a customs official, prepare the steamship bills of lading on forms provided by the steamship company, prepay the freight, and secure the signature of the steam- ship agent to the bills of lading, and deKver the export declaration to this official, to be used in the clearance of the ship. Unless the insurance policy has been taken out before shipment, this must also be attended to. In case of a blanket policy, under which different shipments may be made upon the issuance of an insurance certificate, the latter is procured by the manufacturer and forwarded to the shipping-agent at the port along with the railroad bill of lading and the invoice. With this general review of the details incident to making an export shipment, each of the important docimients will now be considered at some .\ength. Export Invoices. — The heading of the export invoice gives the name of the shipper and of the consignee, with the address of each; the name of the steamship on which the goods are carried; the distinguishing marks, initials, or nmnbers by which the various packages or cases constitut- ing the shipment may be identified; the number of pack- age.; or cases included in the shipment; and, in most cases, a code word that may be used in applying to the whole invoice in cable communications. no FOREIGN TRADE OF UNITED STATES In the body of the invoice are stated the number of packages or cases with the outside measurements and cubic contents of each, the number of articles contained in each package, an exact and specific description of each article included, the price of each article, tie total price of all articles contained in each package, and a footing showing the value of the entire shipment. The exact nature of each package, as box, barrel, bale, crate, or cask is designated; each article is specifically described as to the material of which it is made, its use, and the parts belonging to it, where these are packed separately. For instance, a desk is described as made of oak, with brass knobs; chairs, of oak frames, with leather seats and hair stufi&ng. The words furniture, hardware, groceries, cloth are not used, but sofas, hammers, caimed corn, and cotton unbleached cloth are substituted, as being more specific. Every article in the shipment is included in the invoice, though it may not have any commercial value; this applies to catalogues, calendars, and other advertising matter. The prices are usually expressed in United States money; it was foirnerly the custom to change this into English money after the footing was made, but since dollar exchange has become so firmly established, this is no longer the rule. The letters ''E. & O. E.'' are found on many export in- voices. They indicate ''Errors and Omissions Excepted. ' As a rule abbreviations are avoided, as their use may re- sult in confusion and misunderstanding. As export iri- voices eventually pass into the hands of foreign custon^cs ofiicials, every effort is made to expedite the clearance oi the goods by making the invoice specific, detailed, comple te, exact, and clear in every respect. Where even a slight discrepancy is found between the description of goodfs in the invoice and the actual contents of the packages, heavy fines may be imposed by the foreign customs officials, and costly delays result. It is not customary for the full name and address oil the EXPORT DOCUMENTATION iii consignee to appear on the packing-cases; hence, it is im- portant that the numbers or letters or characters used be indicated clearly on the invoice, with absolutely no devia- tion from the mark as it actually appears on the packages. A knowledge of the customs regulations of the coun- tries to which goods are shipped is all-important for the export shipping-clerk. Without such knowledge, it is impossible for him to avoid costly errors, serious misunder- standings, and the piling up of many claims. With study, care, and exact attention to details, the making out of export invoices becomes a simple task. The Shipping Permit. — Even when arrangements have been made in advance for steamship space on a specified date, it is necessary to secure a shipping permit from the steamship agent before goods are delivered at the pier. This permit specifies the goods to be shipped, the number of packages, the steamer, and the day or days on which they may be laid down at the pier. When the freight is delivered, a dock receipt is issued, which contains a memo- randum of the number of cases or packages, the marks thereon, and the weight and cubic contents of the same. Consular Invoices. — Consular invoices are required by all of the Latin American republics except Uruguay. They are not required for shipments made to European or other countries. Those covering export shipments to Argentina, Brazil, Chile, Cuba, and Mexico may be writ- ten in English; for all other Latin American countries it is required that consular invoices be written in Spanish. The consular invoice contains all of the information found in the commercial invoice, with such additional facts as may be required by the laws of the country to which the sliipment is made. They are made out in triplicate on special forms obtainable from the consul of the country in question. They are prepared by the shipping-agent, and are then translated by a professional translator, who is thoroughly conversant with the specific requirements of 112 FOREIGN TRADE OF UNITED STATES the republic to which the goods are consigned. The em- ployment of an inexperienced translator often leads to difficulties which may prove expensive in the long run. When completed the consular invoice is presented to the consul for certification, the bill of lading being attached thereto. The certification of the bill of lading is required by some republics. The number of copies of the consular invoice required varies, some countries providing for as many as four, though three is the usual number. Specific information as to the requirements is obtainable by appli- cation to the consul of the foreign country; they are con- stantly being modified. The fee for consular certification varies according to the country in question and to the character and value of the shipment. In some cases it is merely nominal; in others, a percentage of the value of the goods is charged, which may make the cost of this docimient an important item. Shipper's Export Declaration. — The United States cus- toms regulations require that the shipper or his agent prepare and file an export declaration for every shipment to foreign countries. This declaration is made out in duplicate on forms provided. The original is left with the collector of customs and the duplicate delivered by the ship- per or his agent to the steamship officials. Clearance, or permission to leave port, is not granted a vessel until such a declaration has been filed for each part of the cargo with the collector of the customs. The declaration as filled out by the shipper contains an accurate description of the articles contained in the shipment, a specific description of the number and kinds of packages, and of the quantity in tons, pounds, gallons, yards, etc. The value of the articles is stated on the original declaration, but need not be given on the duplicate copy. The duplicate, which does not dis- close the value of the goods, is handed over to the shipper's agent at the port or to the carrier as proof of compliance with the customs requirements. The duplicate export dec- EXPORT DOCUMENTATION 113 laration must be certified by the collector of customs or his deputy before it is delivered to the carrier. The ex- port declaration must be sworn to by the shipper or his agent, either before the collector of customs or before any officer authorized to administer oaths. No oath is required for exports sent by land nor for shipments valued at less than $100. Since the oath may be taken before a notary public, the inland shipper is thus enabled to make out and attest this document at the time the goods are shipped to the port, and to forward it to his agent at the port, along with the railroad bill of lading and the commercial invoice. Railroad Bill of Lading. — A bill of lading is the written instrument issued by a common carrier w^hen it takes pos- session of the goods to be transported. A bill of lading has three distinct uses : first, it is the receipt given by the trans- portation company to the shipper for the goods delivered by him to the company or carrier; second, it is an agree- ment or contract for the transportation of the goods; third, it is a docimient showing the title to the goods shipped. It is signed by the shipper or his agent and also by the agent of the railroad company. It is usually necessary to present the bill of lading to the railroad freight-agent at the point of destination in order to secure possession of the goods, although this rule is not always enforced in the case of large and well-known shippers. The bill of lading contains a description of the merchan- dise shipped, with the number of packages, the distinguish- ing marks on each, the weight, the freight rate, and the route aU clearly specified. Railroad freight may or may not be paid in advance. Through bills of lading are some- times issued, on which goods are carried not only to the port, but also by ocean-carrier to the foreign point to which they are consigned. Such bills of lading are the rule for ship- ments in car-load lots. Special railroad rates are granted on certain classes of exports, as well as of imports. These 114 FOREIGN TRADE OF UNITED STATES apply only to car-load lots, ard goods so shipped are on a through bill of lading to the foreign port. They are con- signed in care of the railroad company's foreign freight-agent at the port of shipment, who attends to the details of trans- shipment. The commodities upon which such special rates are granted include grain, flour, pig iron, steel rails, and agricultural implements. Steamship Bill of Lading. — Steamship bills of lading are made out on forms specially provided, which contain an exhaustive list of printed conditions under which the con- tract to carry the goods is made. The name of the shipper, and of the consignee, unless, as is most often the case, the goods are consigned to the order of the shipper, are given, as is also the name of the steamship and of the line to which it belongs. The merchandise is described in detail, with the number of packages, identifying marks, weight, and measurements of each. Steamship bills of lading specifically state that lighterage charges, the cost of landing, wharfage, and all other ex- penses ''beyond ship's tackle" shall be charged to the con- signee or shipper. In other words, freight rates apply from and to ship's tackle, the tackle being the apparatus for raising and lowering heavy weights. Another provision found in bills of lading is to the effect that the goods shall be received by the consignee at vessel's tackle ''immediately upon her arrival at place of delivery, without regard to weather, and if the consignee be not on hand to receive the goods when discharged, the carrier may deHver them to any lighterman, wharfinger, or other party believed to be responsible, or they may be landed on wharf or beach or bank or stored in hulks or put in Hghters for the owner and at owner's risk and expense." The necessity of notifying the consignee when he may expect a shipment to arrive is apparent. Bills of lading are customarily made out to the order of the shipper and by him indorsed in blank, so that the title EXPORT DOCUMENTATION 115 to the merchandise remains -^ath the holder of the bill of lading. Bills of lading drawn to the consignee or his order are not accepted by banks as part of a documentary bill of exchange presented for discount, because the holders of such bills of lading have no lien on the goods. In case the customer has paid cash, or cash against documents in the port of shipment, the bill of lading may be made out to his order. Bills of lading are made out in triplicate, and the num- ber of copies issued is always stated on the face of the docu- ment. This is because a bill of lading is a negotiable in- strument, and the possession of any one copy entitles the holder to the possession of the goods, provided it has been indorsed in blank by the shipper. Additional copies that are unsigned may be made out for the use of the steamship company or for other purposes; these are valueless as far as the ownership of the goods is concerned. It is the cus- tom to prepay the freight on export shipments, and many steamship companies require this. When the freight is paid, the agent of the steamship company signs the number of copies indicated on the face of the bill of lading and delivers them to the shipper or his agent. The bin of lading is sent to the consignee, either through a bank with draft attached, or direct by mail. Railroads and other carriers of domestic shipments make delivery quite generally without presentation of the bill of lading. This is not done in the case of ocean freight. The bill of lading is evidence of title to the goods and must be presented to the ocean-carrier in order to gain posses- sion of them. The consular or commercial invoice must also be in the hands of the consignee before he can have the goods passed through the custom-house. It is of \dtal im- portance that these documents reach the consignee or his agent as soon as the goods arrive, or at an earlier date if possible. For the documents to miss the ship on which the goods are carried invariably leads to serious difficulties, ii6 FOREIGN TRADE OF UNITED STATES unless mail service is much more frequent than is the case to most ports. The customs requirements of most coun- tries provide that goods be taken from the custom-house promptly. In Latin American countries and in some others fines are assessed the consignee when he fails to claim and remove the goods within a specified number of hours. Failure of the shipping documents to arrive thus proves costly, as well as inconvenient, and sometimes results in the rejection of the shipment by the consignee. The Shipper's Agent at the Port. — The necessity for the inland manufacturer to have an agent or employee at the port of shipment is apparent. This representative, as previously explained, claims the merchandise, has it trans- ferred to the dock, and attends to the documentation and shipment. In order to avoid delay, the representative is usually given the shipper's power of attorney; he is thus enabled to make oath to the correctness of the consular in- voice, and to the shipper's export declaration, where this has not been made out and attested by the shipper in ad- vance. If a credited representative with power of attorney to act for the shipper is not maintained at the port, it is necessary for the documents to be mailed back to the ship- per for proper indorsement and oath, thus entailing delay that may result in their missing the boat. Some inland shippers avoid this difficulty by employing a forwarding agent who is authorized to make the shipment in his own name. Since specific knowledge, absolute exactness, and un- varying promptness are all required in attending to the documents and details involved in making an export ship- ment, it follows that there are numerous agencies that make it their business to attend to this work for inland and other shippers. These agencies include freight-forwarding companies, manufacturers' export agencies, transfer com- panies, and foreign freight-agents of railroad and steam- ship companies. The manufacturer who has only a small EXPORT DOCUMENTATION 117 volume of export business usually finds it to his advantage to make use of one of these agencies, while a firm having a large export trade maintains a branch office at the port. The services rendered by each of the agencies may be briefly considered here. Freight-Forwarding Agencies.— There are in New York, Philadelphia, Boston, New Orleans, San Francisco, and other ports large companies organized for the specific pur- pose of forwarding export shipments for manufacturers or others. The forwarding charges are usually based on a percentage of the value of the goods, and are charged, by agreement, to the consignee. In case of c. i. f. quota- tions, they are included in the price quoted. Reliable for- warding agents make a reasonable charge for their services, and handle all shipments intrusted to them promptly and expertly. As soon as the forwarding agent receives the railroad bill of lading and the invoice, he claims the goods, which have been consigned to him, takes out the shipping permit, has the goods transferred to the pier, attends to completing the documentation, pays the ocean freight, the consular fees, and all other charges, and arranges, in many cases, for the negotiation of the draft at a bank or through a broker. He then adds the total shipping expenses, including his own charges, to the footing of the export invoice and fills in the full amount on the draft, which has been drawn by the ship- per in blank. He then takes the documents to the bank as promptly as possible, so as to allow ample time for their examination. If found correct and satisfactory to the minutest detail, the bank does one of three things, according to previous agreement. 1. It discounts the bill of exchange and credits the pro- ceeds to the shipper or his agent. 2. It accepts the draft, thus enabling the shipper to discount it, either at that or at some other bank. In this case, the draft has been drawn, by previous agreement, not ii8 FOREIGN TRADE OF UNITED STATES on the consignee but on the bank. This does not prevent another draft, drawn on the customer being made and for- warded for collection. 3. It forwards the documents to its branch or corre- spondent bank located at or near the place of destination, where the draft is to be either accepted or paid, as explained in the chapter on financing export shipments. Manufacturers* Export Agents. — Those manufacturers who are not prepared to maintain a branch ofiice at the port of shipment often have recourse to export agents, who represent a group of manufacturers. The compensa- tion is usually on a commission basis. Such agents handle the export shipments intrusted to them in precisely the same way as do other freight forwarders. Hence, their services in this direction need not be elaborated. But a manufacturers' agent often undertakes to perform other services, such as the distribution of catalogues and samples and the obtaining of orders, whether domestic or foreign. The foreign business obtained comes mostly through ex- port commission houses, which find it convenient to place a foreign order with the agent in the field rather than with a manufacturer at a distance. Other Forwarding Agents. — The other agencies that may be employed by the manufacturer to attend to the forward- ing of export shipments at the port are tran_sfer companies and the agents of railroad and steamship companies. The work of these is exactly similar to that of the freight-for- warding agencies ahready described. Nearly all of the large raihroads mamtain export agents at the various ports, whose duty it is to attend to the details of shipping export freight that has been carried from the interior to the port over their company's lines. Many steamship companies likewise have agents who may be employed to attend to the foreign shipments. Large transfer companies maintain an export department in charge of an employee competent to attend to the details of making export shipments. The charges do not differ from those made by other forwarding companies. EXPORT DOCUMENTATION 119 BIBLIOGRAPHY Duncan, C. S. The Uniform BUI of Lading. Journal of Political Economy, vol. 25, pp. 679-703, July, 191 7. Exporters^ EncydopcBdia. New York, 191 7. Galloway, Lee. Organization a?id Management. Part 1, chapter 6. New York, 1913. Hooper, Frederick. The Import a}id Export Trade ; or, Modern Commercial Practice of the United Kingdom with Documents. London and New York, 1905. Hough, B. O. Ocean Traffi-c and Trade. Chicago, 1914. Hough, B. 0. Practical Exporting. New York, 1915. International Bureau of the American Republics. Consular Fees and Invoices of Latin American Countries. Washington, 1909. JohinTSON, Emory R. Ocean atid Inland Water Transportation. Chapter 5. New York, 1906. Johnson, Emory R. Principles of Ocean Transportation. New York, 191 8. Kent, F. I. Financing Our Foreign Trade. Annals of the Ameri- can Academy of Political and Social Science, vol. 36, pp. 492- 501. Margraff, Anthony W. International Exchange. Chicago, 1908. National City Bank, New York. An Export Order. New York, 1917. CHAPTER X IMPORT MACHINERY AND METHODS Import Regulations. — In order to enforce the customs laws and regulations of the United States, definite rules governing the importation of merchandise are in force. These provide for the taking out of consular invoices at the place of purchase or shipment, for the following of a fixed procedure in the clearance of imports through the United States Custom-House located at the port of entry, describe the exact methods to be followed in the examina- tion and appraisement of the goods by customs officers, and clearly set forth the conditions under which imported mer- chandise may be placed in a government bonded warehouse and kept there until the importer is ready to pay the duty and remove the goods. Goods that are on the free list, as well as those upon which an import duty is assessed, must be cleared strictly in accordance with the rules pro- vided by law. The purpose of these laws and regulations is twofold: first, in order to facilitate the collection of the duties on imports, which make up a large part of the revenue of the federal government; second, to enable the government to collect accurate statistics of articles imported, including their price, quantity, source, and destination. It often happens that goods imported are later exported; in that case, where an import duty has been paid, it is refunded in the form of a ''drawback" providing proof is produced that either the specific articles or the raw materials from which they were manufactured were imported and duty paid 120 IMPORT MACHINERY AND METHODS 121 thereon. A great convenience for importers is the use of government bonded warehouses, where goods subject to duty may be placed, the collection of the duty being deferred until such time as the importer may wish to gain possession of a part or all of the goods. The interest saved by thus postponing the payment of duties amounts in the aggre- gate to a huge sum. Importers thus find it desirable to purchase staple articles from abroad in large quantities, thereby securing price concessions, a policy that would be impracticable if the full amount of the duty was exacted upon the entry of the merchandise. Import Documentation. — The documents required in the importation of goods are the consular invoices, the bill of lading, and the import declaration. For all goods imported into the United States to the value of $100 or more, there must be taken out a consular invoice, certified to by the United States consul at the point of sale, manufacture, or shipment. Three copies of such invoice are made out. One copy is kept by the consul, one is forwarded by the consul to the collector of customs at the port to which the goods are shipped, and the third copy is given to the ex- porter. This third copy is stamped with the official seal of the consul and the revenue stamp of $2.50 is affixed to it. The consular fee is thus uniformly $2.50. If the shipper desires, a fourth copy may be made out for his files. Two forms of consular invoices are in use. One is on blue paper and is used when the merchandise has been purchased outright; the other is on white paper and is issued when the goods are shipped on consignment to the United States, their ownership remaining with the shipper. Each shipment must be entered at the United States Custom-House within forty-eight hours of the official entry of the vessel. The entry of a vessel is made by the de- positing of the ship's papers at the custom-house. In the same way, the entry of a shipment is made by depositing at the custom-house the consular invoice, the bill of lad- 122 FOREIGN TRADE OF UNITED STATES ing, and an import declaration. The import declaration must be made out on forms provided by the Treasury Department or approved by that department. In this declaration the importer or his agent must declare that the invoice contains an accurate account of the goods con- tained in the shipment, and that it correctly and fully specifies the exact cost of the goods, as well as the value of all cases, boxes, and crates in which the goods are shipped, and of the cost of packing the goods for shipment. He must further declare that no discount or bounty has been received and that no other invoice or bill of lading exists, and that no effort whatsoever has been made to defraud the United States Government of lawful duties. The importer is also required to promise that if any error in the invoice is later discovered, he will immediately report such error to the collector of customs of the district. The import declaration contains a complete description of the goods, the number of packages included, the contents of each package, the cost of each article in the money in which the invoices are made out, and other details. If there is any defect in either the invoice or the import declaration, goods are placed in the custody of the collector in a ware- house, where they are kept until their value is determined. Different entries may be made. Goods not subject to duty and those needed immediately are covered by an import or consumption entry, and are released as soon as they can be examined by the customs officials, and the duty, where there is one, is assessed and paid. Goods destined for an interior point may be shipped in bond in sealed cars, and the goods cleared there. Goods which it is desired to place in government bonded warehouse are subject to special conditions. The importer is required to furnish a bond guaranteeing that the goods will be withdrawn within three years of the date of entry and that the duty wiU be paid upon withdrawal. Bonded warehouses, under strict government control, IMPORT MACHINERY AND METHODS 123 are provided for the convenience of importers who do not wish to gain immediate possession of imports. The goods in this case are placed in bonded warehouses and held un- til the duty is paid. As this duty is often a very large amount, the saving in interest to the importer is an item of importance. Bonded warehouses are usually owned by the govern- ment, but they may be the property of private individuals or firms, located near the factory or other place of business of the individuals or firms owning them. In either case they are built in strict conformity to government specifica- tions and are fireproof. Warehouses of this kind are often built in the interior of the coimtry, far from the port of entry. Each bonded warehouse is in charge of a government official whose title is that of storekeeper, who keeps exact account of all merchandise brought into or removed from the warehouse. No goods can be withdrawn from a bonded warehouse without a written order or permit from the collector of the port through which the shipment entered the country. Goods may be withdrawn from a bonded warehouse in quantities desired by the importer, the duty being paid on the portion desired before their removal. American manufacturers whose trade is largely with foreign countries find it convenient to bond their factories to the government, which converts them into bonded warehouses under government regulations. They can then have the raw materials imported brought to the factories under bond, and, without paying duty, manufacture these materials into finished goods and export them. Where practically all of the raw materials used in a plant are imported, such a procedure has advantages over paying duty when the materials are received and then securing a drawback of the duty paid when the finished products, manufactured from the imported materials, are exported. 124 FOREIGN TRADE OF UNITED STATES The Appraisement of Imports. — A preliminary appraise- ment is made by customs officials and duties assessed ac- cording to the value and character of the goods as set forth in the documents. Only a part of a shipment is ordinarily subjected to examination; unless it is found that there is some discrepancy between the description and the goods, or unless there is some other reason for suspecting the hon- esty of the importer, the entire shipment is delivered to the importer as soon as this partial inspection is completed. If the importer is anxious to obtain immediate possession of the goods, all but the part to be examined may be de- livered to him upon the filing of a bond guaranteeing the return of the goods delivered if such return should be re- quired. A delivery permit is issued by the customs officials for each shipment or part of shipment to be withdrawn by the importer. Import Methods — Manufactures. — Having briefly re- viewed the methods by which imported merchandise is passed through the United States Custom-House, we will proceed to a consideration of the commercial channels through which the products of foreign countries pass from the producer to the American importer. About 40 per cent of our imports consist of wholly or partly manufactured articles, the major portion of which are cotton, woollen, silk, and linen textiles and their manufactures. Leather, paper, wood, and their manufactures, art works, china- ware, jewelry and precious stones, millinery, clocks, watches, and furs are other manufactured articles imported each year to the value of millions of dollars. For the most part, such articles are imported by wholesale mercantile estab- lishments and by large retail stores carrying on business in the leading cities. Both of these maintain special repre- sentatives or buyers abroad, who devote their entire time to keeping in closest touch with the markets, the changes in styles, and the leading sources of supply. In addition to these resident buyers, others are sent abroad from time IMPORT MACHINERY AND METHODS 125 to time to secure special classes of goods, more particularly those greatly affected by the prevailing modes. Smaller wholesale and retail mercantile establishments make their purchases through buying agents located in Paris, Lon- don, Berlin, Dresden, and dozens of other trade centres. These agents may represent the goods of one or more manu- facturers, or may buy in the open market; they may make purchases for two or three American importers or for scores of them, according to the nature of the merchandise han- dled by them and to other conditions. The methods em- ployed are so varied that it is impossible to give in brief space a complete classification. However, the buyers rep- resenting American importers, whether they be employed by one firm or by a score, all look to practically the same source for the goods desired. That source is largely de- pendent upon the particular goods to be purchased. Pari- sian millinery and wearing apparel are purchased from the manufacturer, who is often a famous modiste employing hundreds of work-people. Laces, embroideries, and trim- mings may be purchased direct from the manufacturer or from a manufacturer's agent. In the case of hand-made goods, the buyer seldom comes into direct contact with the workers or their employers, but buys from a collector who purchases the goods outright and sells them to foreign buyers. Many staple manufactured articles are purchased by American importers through export commission houses located in the different trade centres, thus obviating the necessity of maintaining special buyers abroad. A very large percentage of both German and English manufactured goods are sold through these agencies, though their ascen- dancy is greatest in exports sent to Latin America. Orien- tal wares are purchased through great mercantile houses situated at the ports, through export commission houses, through brokers, or by special buyers, just as in European markets. 126 FOREIGN TRADE OF UNITED STATES A custom handed down from the Middle Ages is the marketing of goods through merchandise fairs, held at stated intervals at certain trade centres. Such fairs still persist in some parts of Europe. Those still drawing buy- ers from other nations, including the United States, are the famous ones held in Leipzig, Frankfort, Lyons, and Nizhni Novgorod. By far the most important of these has been the Leipzig fairs held at New Year's, Easter, and Michaelmas. Buyers from all parts of the world have attended these, to view the advance display of manu- factures for the next season and to give orders. The value of the annual sales made at these fairs is estimated at $50,000,000. The merchandise displayed has consisted principally of furs, for which Leipzig is the great world market, glass, cloth, leather and leather manufactures, wooUen goods, carpets, and musical instruments. In 191 5 and 191 7 both the United Kingdom and France made an effort to revive their olden-time fairs. The fair held at Lyons, France, in March, 1916, was a notable success, being attended by many buyers from America and other lands. Orders were taken for over $10,000,000 worth of goods, and nearly as many more had to be refused because of the inability of the manufacturers to promise delivery in the near future. This fair is held annually. Silks, laces, and other distinctive French manufactures are displayed, as well as many other products. Another fair was held in the Victoria and Albert Museum, London, in February and March, 1917, at which exhibits of toys, earthenware and chinaware, glass, notions, stationery, and other manufactures were made, and orders were taken from buyers. At the same time a fair was held at Glas- gow, Scotland, at which textiles, clothing, canned and preserved food products, boots and shoes, and other articles were exhibited by manufacturers. The success of these attempts points to a wider use of these world markets in the future. IMPORT MACHINERY AND METHODS 127 BIBLIOGRAPHY U. S. Treasury Department. Customs Regulations of the United States Prepared for the Instruction and Guidance of Customs Officials. 191 5. U. S. Treasury Department. Drawbacks Under the Present Tarif Acts. 64th Congress, ist session. Senate document no. 532. 1916. CHAPTER XI THE IMPORTATION OF RAW MATERIALS AND FOODSTUFFS Methods in General. — While the same legal regulations apply to the importation of raw materials and foodstuffs as to manufactured articles, each of the great staple com- modities is handled by a method developed from long years of custom, and each has distinguishing features of impor- tance. Just as in the exportation of raw materials and food- stuffs from the United States there is found a complicated system of middlemen and specialists, with prices and grad- ing of products influenced or determined by the specula- tive exchanges, so we find more or less complicated machin- ery in our import trade in the staple articles. The great staple raw materials and food products which we import in large quantities are wool, hides and skins, india-rubber and gutta-percha, coffee, sugar, tea, and silk. The trade channels through which each of these passes from foreign producer to the American manufacturer or distributer will be considered separately. Wool. — The United States is second only to Australia in the production of wool, the annual clip averaging about 300,000,000 pounds, which is between one-ninth and one- tenth of the world's total wool production. But our con- sumption of this commodity is so great that we find it necessary to import each year about two-fifths of the amount consumed here. The domestic wool is of two classes, both of fine quality, suitable for the manufacture of cloths, dress-goods, and other fabrics. We do not pro- duce a sufficient quantity of these classes of wool to supply our needs, but import about one-fourth of such wool used. 128 RAW MATERIALS AND FOODSTUFFS 129 Other wool imported is the coarse variety produced mostly in Persia and Asiatic Turkey used in carpet manufactur- ing. There are also other classes of wool imported, nota- bly that of the alpaca, the Angora goat, and the Cashmere goat. The following table, gi\'ing our production and our im- portation of wool, in millions of pounds, for different years, Year 1891 1900 1907 I91O I9II I912 1913 I914 I915 1916 I917 I918 Production Imports 285 129 288 156 298 125 321 264 318 137 304 193 296 195 290 247 285 308 288 584 281 372 299 379 shows how our consumption of this product has increased. The exports of raw wool average less than 5,000,000 pounds annually. For many years London was the foremost wool-market of the world. In the great wool exchange there was as- sembled each season practically the entire wool-cHp of the world. Thither came wool manufacturers or their repre- sentatives from every country in which wool was manu- factured, to purchase their year's supply at the great auc- tions held at the wool exchange. The advantage of thus assembling the wool of the world in one market was prin- cipally due to the fact that there are many different grades of wool, each having its special use, and the manufacturers were thus enabled to select the different kinds required all at one time. The producing countries have for some years been making great and successful efforts to have these I30 FOREIGN TRADE OF UNITED STATES annual auctions held within their own borders, and the entire clip of Australia, the greatest wool-producing coun- try, is now sold at auctions held at Melbourne and Sydney. These sales are attended by wool manufacturers from every land, who, however, must look elsewhere for the grades of wool not grown in Australia. The great wool -consuming countries have likewise challenged London's wool suprem- acy, with the result that Boston, New York, Philadelphia, Bremen, Hamburg, Antwerp, Amsterdam, and other cities annually hold great wool-auctions attended mostly by domestic buyers. London is still the greatest international wool-market, though Boston actually handles a larger volume of that commodity. The wool handled in Boston is largely of American production, while that sold in Lon- don comes from many lands. Only recently has South American wool been handled in London; it is of a coarse variety which English manufacturers have refused to use. French and German manufacturers have used it to ad- vantage, and by a long process of patient experimenting have succeeded in devising methods of working it up into cloth having an even finer and softer finish than that made of finer wool. Most of the wool imported into the United States is purchased at the London auctions or at the auctions held in Australia, New Zealand, or South Africa. It is either purchased through brokers or from wool merchants, and is usually selected by the manufacturer or his representa- tive in person. Henry B. Smith, in The Sheep and Wool Industry of Australasia, thus describes wool-selling in AustraHa: The wool is offered in large, well-lighted stores, and is on view from six o'clock in the morning, at which hour buyers can be seen making a start, the Ught being quite good. Two brokers' catalogues are offered daily, with a few exceptions, the combined offerings being limited to 12,000 bales per day. Buyers therefore need to start early if they wish to view all the wool RAW MATERIALS AND FOODSTUFFS 131 offered, as the sale starts punctually at three o^cIock of the same day the wool is shown. The auctioneer at a wool sale very seldom has to ask for a bid. Usually as soon as he mentions the catalogue number of the lot being offered, the buyers fairly shriek and yell at him the price they are willing to pay, every one in the not unmusical choir try- ing to yell his bid louder than the other. The lots are knocked down and sold quicker than the average person can write down the price bid. The sale being over, the wool-brokers have the invoices for £100,000 to £120,000 worth of wool in the hands of the different buyers the same evening or the first thing the following morning. The speed with which everything connected with wool-selling in Australia is effected is truly wonderful; it speaks well for the system and manner in which the sales are conducted by the selling brokers. . . . Farmers are supplied by the selling brokers with printed weight- books and other necessary printed forms. . . . Most of the stores have a railway-siding running alongside, the bales being unloaded from the railway-trucks right on to the store platforms, thus avoid- ing all town cartage expenses. Most of the brokers have an up- to-date shearing-shed on the premises. A sum of sixpence per sheep is charged for shearing; this includes cost of classing, baling, and branding the wool. The way in which the wool merchants and brokers come into possession of the bulk of the wool-clip of the world is of interest. In nearly every country there are expert wool-buyers, representing wool merchants or, occasionally, wool manufacturers, who make it their business to go from place to place for the purpose of buying the wool produced in each section. These buyers purchase the wool either from the grower direct, from local wool-dealers, or from local storekeepers, the latter ha\dng taken the wool in trade from their customers. The large wool-growers prefer to sell to these buyers, thus eliminating the local middlemen, but they are not always able to do so, as they are often obhged to go in debt for their supplies before the wool is ready for market. In this case, they must deliver their clip to the local merchant who has extended the credit. 132 FOREIGN TRADE OF UNITED STATES This merchant may be the general storekeeper, a dealer in wool with strong banking connections, or a commission merchant. In Australia, as soon as the wool is placed in the warehouse and before it is auctioned off to foreign buyers, further advances are made on it by the local dealers. The fact that the wool is so often mortgaged in this way works to the disadvantage of the grower, who has to pay high interest rates and seldom receives the highest market price. In England local fairs have long been held at which wool is sold by the growers to buyers representing wool merchants or wool manufacturers. Competitive bidding among buy- ers for the clip of large growers or for the stock held by a local merchant is also common in England and Scotland. The methods used in marketing wool in the United States may be briefly outlined here. The wool grown in small quantity on the farms of the East and Middle West is sold by the farmer either to the general store or to local wool merchants. All kinds of fleeces are indiscriminately stuffed into bags and sold without any attempt at grad- ing. The local buyer either consigns the wool to a commis- sion house in a primary market or sells it outright to a buyer representing a Boston, Philadelphia, or other wool merchant. In either case, the price paid is determined by the poorest wool in the lot — which shows the loss sustained by the grower in neglecting to sort and grade his fleeces. The wool produced on the great sheep-ranches of the West is sold to better advantage. Wool-buyers representing either wool merchants or manufacturers keep in close touch with the producers, and often endeavor to make contracts for the purchase of the clip before the shearing season. Not infrequently, competitive bids are made by different wool-buyers either before or after the product is ready for market. These bids are usually in v/riting, and the grower is free to accept one or decline all. In Montana, Wyoming, and other great wool-producing States warehouses are RAW MATERIALS AND FOODSTUFFS 133 provided where the clip from each ranch may be stored. Buyers sample and bid on the wool thus stored. When the demand is brisk, the price obtained may be even higher than the market. The function of the wool-buyer in international trade is one of importance, for through his hands passes all the wool of commerce. "The v/ool-buyer," says a recent writer, "must have at his fingers' ends not only the probable pro- duction each year of every part of the United States, but also of every wool-producing country on the globe. He must know as accurately what is going on in the London market as what the demand is likely to be in Lawrence, Mass. He must watch with equal care Boston, Buenos Aires, and Australasia. The successful wool-buyer must combine all his world-wide data and interpret them. Upon the soundness of his deductions depends a profit or loss which may reach miUions in the aggregate." Both the wool-buyer and his principal, the wool merchant of the primary market, seem to be necessary as interme- diaries in the wool trade, since the grades of wool needed by the manufacturer are numerous. It is thus to the ad- vantage of the latter to purchase from the carefully cleaned and graded stock of the wool merchant just the quantity and variety of wool he desires rather than to attempt to secure his supply from the growers. Hides and Skins. — In looking over the list of imports of the United States for 1915, we find that "hides and skins, other than fur," were imported that year to the value of $104,177,106, while leather and manufactures of leather exported were valued at $120,727,156. This indicates the importance of our leather industry, which not only supplies our enormous domestic demand, but also has provided a surplus for export averaging over $57,000,000 in normal years. The uses for leather are many, but boots and shoes, gloves, purses, hand-bags, suitcases, belts, harness, saddles, machine-belting, furniture and automobile upholstery are 134 FOREIGN TRADE OF UNITED STATES the leading articles requiring this material. The domestic supply of hides and skins for the manufacture of leather falls far short of the demand, necessitating our drawing upon other countries for about one-third of our supply. The hides and skins most used are those of the cow, steer, calf, goat, sheep, chamois, pig, horse, colt, deer, alligator, kangaroo, bison, seal, and porpoise. The centre of the leather-manufacturing industry of the United States has long been Philadelphia, which early de- veloped this industry, largely because of the plentiful supply of the essential oak and hemlock, the bark of which is used in tanning. It is estimated that about two- thirds of the goatskins that enter international trade are assem- bled at Philadelphia, and that one-half of the sole leather and nine-tenths of the glazed kid and colt skin manufac- tured in the United States are made in that city. New York is the centre of the belting industry, and here are turned out each year thousands of belts of great strength and durability for use in various manufacturing industries. Boston is also a great leather-market. The leather made in the centres mentioned is purchased by boot and shoe and other manufacturers, who seldom purchase the raw hides and skins. The leather industry is controlled largely by a few great corporations, who draw upon every part of the world for the hides and skins required. Cattle hides are supplied by the United States, Canada, Mexico, and South America. These are mostly assembled by the large meat-packing concerns, which own tanneries and dispose of the hides after they are tanned. Calfskins are largely obtained from the dairy farms of the United States, where the calves are sold for veal, and their skins later converted into high- grade leather. In passing, it may be noted that this whole- sale slaughter of calves is responsible for our dwindling supply of cattle and dairy products. The hides that we obtain aknost entirely by importa- RAW MATERIALS AND FOODSTUFFS 135 tion are those of the goat and the chamois. These come from the hill countries of India, from Switzerland, Russia, Spain, northern Africa, China, South America, Turkey, Arabia, and the Balkan States. Goats are used for food in most of these countries and their skins carefully pre- served, to be sold at stated periods to buyers who make regular visits to the local markets, where the skins are brought by the breeders. These buyers represent dealers of the primary markets, who export the hides in ship-load lots. London merchants secure great quantities of these, and re-export them to the United States. Marseilles is another important market for hides and skins, especially for those of northern Africa. The product of China and South America is largely imported direct by American leather companies, who buy either through brokers or their own representatives maintained there for that purpose. Many of these are natives, whose familiarity with the cus- toms and traditions of the people enable them to procure the hides at the best prices. Rubber and Gutta-Percha. — India-rubber, or caoutchouc, is obtained from the juice, called latex, of certain tropical trees, which are tapped in much the same way as the sugar-maple is for its sap. These trees are grown in the wild state in tropical jungles, or on cultivated plantations in tropical countries. Until recently the supply of wild rubber greatly exceeded that produced on plantations, but the increased use of rubber for automobile tires and other purposes has so broadened the demand that it has been found profitable to plant and cultivate great areas. About two-thirds of the rubber of commerce is now produced on plantations. Most of the wild rubber is produced in the tropical forests of the Amazon and its tributaries in Brazil, and two- thirds of this is regularly exported to the United States. The city of Manaos on the Negro River, one thousand miles from the Atlantic, is the centre of the industry. The rub- 136 FOREIGN TRADE OF UNITED STATES ber-trees are on public land and concessions are granted by the government to individuals or companies. The ex- penses incident to the gathering of the crop are heavy; the concessionaire advances the rubber-gatherers he em- ploys all the necessary supplies for the season, including groceries, clothing, utensils, firearms, and ammunition. He receives those supplies from a commission house at Manaos, to which he later delivers the crop. If the sea- son is a good one, the concessionaire may make a fortune, but if conditions are unfavorable, the returns for the sea- son may be insufficient to pay for the supplies. The rubber is delivered to the commission house in the form of biscuits weighing several pounds each. The com- mission house consigns the product in cargo lots to New York brokers or sells it outright to American importers. About two-thirds of Brazil's rubber yield is thus exported to the United States, most of the balance going to British importers. American rubber manufacturers thus obtain their supply either through brokers or importing houses, or through direct relations with the Brazilian commission houses. It is estimated that fully nine-tenths of the supply of plantation rubber is produced on plantations owned by British capitalists. These are located mostly in British India and in the Dutch East Indies. These plantations are controlled by a single great investment corporation, which brings each season's output to England, where it is either manufactured or sold to buyers for manufacturers of other countries. The United States manufactures about two-thirds of the rubber used in the world. Our supremacy in this industry is largely due to the discovery and use of highly efficient methods in manufacture. Gutta-percha is similar to rubber in being obtained from the juice or milk of trees. It is produced mostly in the Philippines, Borneo, and Sumatra. It is used as an in- sulating material in the construction of ocean cables, and RAW MATERIALS AND FOODSTUFFS 137 also in the manufacture of golf-balls and similar articles. It is imported either directly by the manufacturers or by brokers acting for commission houses located at the cen- tres of production. Sugar. — The consumption of cane and beet sugar in the United States totals nearly 9,000,000,000 pounds annually, ivhich means that our per capita consumption falls only a little short of 90 pounds. About 22 per cent of this is produced in the United States; nearly 25 per cent is ob- tained from Hawaii, Porto Rico, and the Philippines; the balance, or about 53 per cent, is imported chiefly from Cuba. About one-third of the domestic production is cane-sugar. Our ability to produce a much larger pro- portion of the sugar consumed is unquestioned. The sugar trade in the United States is absolutely controlled by a few corporations or trusts, which own or control most of the plantations in our island possessions and Cuba. Consequently, the importation of sugar is made directly by the producers, who own refineries in the United States. Most of the sugar is thus imported in its raw state. Tea. — Formerly most of the tea used in the United States came from China and Japan, but Ceylon and India teas have largely replaced these in recent years. The teas of India and Ceylon are grown on great plantations, owned mostly by British firms of immense capital and influence, which have the product packed and shipped to London each season. In London it is placed in bonded warehouses, as there is a high duty on its importation, and is kept in these warehouses for a period of some months. It is sold at great public auctions held at Mincing Lane, London, which are attended by wholesale tea merchants from many countries. An elaborate system of sampling and tasting has been developed, and the grades are most exactly de- fined and separated. Some of the largest owners of tea- plantations in Ceylon and India sell most of their product, put up in cans holding as little as a quarter of a pound 01 138 FOREIGN TRADE OF UNITED STATES in chests containing large quantities, direct to wholesale merchants or jobbers without the formality of an auction. Much Chinese tea is imported into England, but the greater part of this is re-exported by tea merchants, some of it being purchased by American tea-importers. Ceylon, India, and Japan tea is handled largely by the use of machinery, while that of China is still picked, cured, and packed by hand. Chinese and Japanese teas are grown on small farms or even in the back yards of the peasants, who cultivate it with the greatest care, pick it, and cure it sufficiently to retain the flavor. It is sold to tea merchants or commission men, through buyers who make regular trips through the tea-producing territory. It is then taken to great ^' hongs," or warehouses, where it is dried, cured, and prepared for market. From the '^ hongs" it is sent to the ports and shipped, or sold to export merchants, who repack it and consign it to importers located at the ports of the country to which it is shipped. American tea-importing merchants either buy their teas outright from the Chinese and Japanese exporters, or handle it on a commission basis; the former method is the one commonly followed. The importer distributes it to wholesalers or jobbers, who, in turn, sell it to retail dealers. It has been demonstrated that tea can be grown success- fully in many of our Southern States, but the labor required in its production is so great that it does not pay in this country. We annually import about $17,000 000 worth of this beverage. Raw Silk. — Another semitropical product that there is every reason to believe might be produced successfully in the United States is raw silk. The Department of Agri- culture has for some time been carr^dng on experiments with silkworms, and the results have been satisfactory. Much labor and patient handling is required for success in this industry, which accounts for the slow progress made by RAW MATERIALS AND FOODSTUFFS 139 those unaccustomed to the industry. Our raw-silk im- ports in 19 1 5 exceeded $83,000,000 in value, most of it coming from Japan, China, Italy, France, Spain, and India. We regularly import twice as much silk from Japan as from the whole of Europe. About three-fourths of the raw silk imported is brought from Japan and China by American importers located at San Francisco. It is shipped from that port in special trains to New York, which is the greatest raw-silk market, next to Shanghai, in the world. The silk is handled in New York either by commission merchants, brokers, or by importers main- taining branches in San Francisco. There it is graded, sampled, and sold to buyers for silk manufacturers. The United States imports about one-half of the raw silk that enters commerce; it is, therefore, the greatest silk-manu- facturing country in the world. Paterson, N. J., is the centre of silk manufactures in this country. Coffee.— The United States is the leading coffee- consum- ing country in the world, nearly 1,000,000,000 pounds be- ing used here annually. The per capita consumption of this beverage is, therefore, about 10 pounds a year. With the exception of about 9,000,000 pounds obtained from Hawaii and Porto Rico, the immense quantity consumed is obtained from foreign countries, chiefly Brazil, Colombia, Venezuela, Central America, and Mexico. By far the largest amount comes from Brazil, which supplies us T\^th about 775,000,000 pounds annually. This coffee is grown on great plantations in the states of Sao Paulo, Rio de Janeiro, Minas Geraes, and Espirito Santo. A coffee- plantation with its carefully pruned trees, with their dark- green shiny leaves, white blossoms, and red berries, is a beautiful sight. The harvesting of the berry begins in April or May and lasts until August. Each tree yields from two to three pounds of berries, which are gathered by hand. i\s soon as it is harvested the coft'ee is taken by the planter to a central station, where it is cleaned, dried, I40 FOREIGN TRADE OF UNITED STATES and put through a machine that hulls and polishes it. It is then packed in jute bags and shipped to a broker either at Santos or Rio de Janeiro, who handles it at a 3 per cent commission. The broker grades and repacks the coffee and then dis- poses of it in one of three ways : 1. He sells it direct to the buyers of American or other importing houses. 2. He sells it to American or other importers on cable quotation. 3. He sells it to local exporting houses. Some Brazilian coffee is consigned in cargo lots to New York or New Orleans coffee-brokers, who, upon cabled instructions from the consignee, display samples and sell on a fixed commission oi }4 or yi per cent. The coffee is shipped mostly by tramp steamers. New York and New Orleans are the leading coffee-markets of the United States. The coffee-broker in New York or New Orleans sells through brokers to wholesalers or jobbers, who are usually the roasters. The movement of coffee after it reaches the United States is thus described: Green coffee is another product that is sold principally through brokers — from the importer through the broker to the roaster (usually the wholesale grocer). Here, again, the principal economy is due to the fact that the broker sells for a number of different houses. One or two of the largest coffee-importing houses have their own sales organizations with salaried representatives in all large cities, who sell direct to roasters. One large New York house has its own representatives in five of the largest trade centres in the country and uses brokers in other cities. . . . Usually a coffee-broker has exclusive sale for his princi- pal in the market in which he is located. . . . The cus- tomary brokerage fee is 15 cents a bag of 132 pounds, RAW MATERIALS AND FOODSTUFFS 141 which amounts to about one-eighth of a cent a pound, or about I per cent of its value. Sometimes the coffee-broker also represents a foreign exporting house direct, rather than a domestic importer.* BIBLIOGRAPHY Akers, C. E. The Rubber Industry in Brazil and the Orient. Lon- don, 1914. Beadle, Clayton. Rubber ; the Production and Utilization of the Raw Product, London and New York, 191 1. Bean, C. E. W. On the Wool Track. London, 1910. Brannt, W. T. India-Rubber, Gutta-Percha, and Balata. Phila- delphia, 1900. Brazil, the Land of Rubber. New York, 191 2. Bro'vv'N, Harold. Rubber ; Its Sources, Cidtivation, and Prepara- tion. London. Canada. Department of Agriculture. Review of Co-operative Wool Sales in Canada. Ottawa, 191 7. Cave, Henry W. Golden Tips; a Description of Ceylon and Its Great Tea Industry. London, 1900. Cherington, Paul T. The Wool Industry of tlie United States, Chapters 10, 12. New York, 1916. Coffew, W. C. Growing and Marketing Wool. Champaign, 111., 1912. Geerligs, H, C. p. The World's Cane-Sugar Industry. New York, 1912. Henry, J. H. Thirty-Five Years of Oil Transportation — the Evolu- tion of the Tank-Steamer. New York, 1907. Ibbetson, a. Tea from Grower to Consumer. London, 1910. Keable, B. B. Cofee from Grower to Consumer. London, 1910. Marshall, T. R. Wool-Growers and th£ Wool Trade. 1915. Sheffeld, Charles A. Silk ; Its Origin, Cidture, and Manufac- ture. Florence, Mass., 191 1. Smith, Henry B. The Sheep and Wool Industry of Australi-a. Melbourne, 19 14. Surface, George T. The Story of Sugar. New York, 1910. Thurber, F. B. Cofee from Plantation to Cup. New York, 188.3. Torrey, Joseph. Tlie Rubber Industry. Official Report of the 4th International Rubber Congress held in London in 1914. London, 1914. Tower, Walter. The Story of Oil. New York, 190Q. * Quarterly Journal of Economics, vol. 32, p. 598, August, 1917. CHAPTER XII THE TRANSPORTATION OF OUR FOREIGN COMMERCE The commodities entering our foreign trade depend upon the railroads, inland waterways, and ocean carriers for their transportation. The products of interior points must first be conveyed to the ports, either by the railroads or by the inland waterways, and thence taken by ocean carriers to the foreign ports of destination. The network of railways that penetrate to every part of the country collect from the points of production the raw materials and foodstuffs for export, as well as those to be retained for domestic consumption, and bring them to some central distributing point, such as Chicago, St. Louis, Kansas City, Omaha, or Duluth. Here, also, are assembled the manu- factured products of the surrounding territory. The sur- plus commodities of all kinds that are destined for export are then forwarded to the seaboard, either by rail or by water, or by a combination of the two. At the ports these commodities are assembled at the wharfs, where they are loaded on the outbound vessels to be conveyed to the foreign ports of destination. Our imports from overseas enter the country through the ports, but only a fraction remain there. The bulk are taken up by the railroads and carried to the inland distributing points, where they are despatched as needed to scattered towns and hamlets of widely separated re- gions. A small portion of our imports is brought to in- terior points over our inland waterwa3^s. Inland trans- portation facilities, then, are quite as important a factor in our foreign trade as are ocean carriers. Only those 142 OUR FOREIGN COMMERCE 143 exports produced at the seaboard and those imports con- sumed there are in any way independent of the wonder- ful network of railways and waterways with which our country is provided. A consideration of the facilities now available for the transportation of our foreign as well as of our domestic commerce is essential to the understanding of the organ- ization of our foreign trade. These will now be discussed under the following heads: 1. Railroads. 2. Inland waterways. 3. Ports and terminal facilities. 4. The American merchant marine. 5. Ocean trade routes. Railroads of the United States. — The railroad mile- age of the United States, exclusive of that owned by switch- ing and terminal companies, was in 1914 252,230 miles. This is about 40,000 miles more than the total mileage of all the railroads of Europe, and is approximately three- eighths of the railroad mileage of the world. The rail- roads were built by a large number of independent com- panies, many of which received Uberal aid and encourage- ment from the federal government, but by a gradual process of consoHdation they have been brought under the control of a small number of capitalistic groups, so that in 191 7 four-fifths of the railroad mileage of the country- were controlled by less than a dozen financial interests. The right of the federal government to control the rail- roads through preventing unfair discrimination in rates, pooling, the granting of rebates, and other unfair practices, notoriously common for many years, has finally been es- tablished. The general regulation of railroads engaged in interstate commerce rests with the Interstate Commerce Coromission, created by act of Congress in iSSj. The powers of this commission have been enlarged from time to time; its decisions have proven, in the main, highly 144 FOREIGN TRADE OF UNITED STATES satisfactory. Before the railroads were taken over by the federal government in January, 1918, those in control were advocating the federal incorporation of interstate carriers, thus removing them from the jurisdiction of the various States. A convenient grouping of the railroads of the United States is in three divisions, as follows: 1. The territory north of the Potomac and Ohio Rivers and east of the Mississippi. 2. The territory south of the Potomac and Ohio Rivers and east of the Mississippi. 3. The territory west of the Mississippi. In the first division are the New England roads and the trunk lines. The New England roads mostly terminate at Boston. The trunk lines connect the Great Lakes and the Ohio River regions with the Atlantic coast. Buffalo, Cleveland, Detroit, Toledo, Chicago, St. Louis, Indian- apolis, Cincinnati, and Pittsburg are leading commercial centres served by these roads. This group of roads, with a network of ramifications extending to every part of the territory covered, has the most highly developed manu- facturing region of the United States in its territory. Hence it carries the largest traffic of any group. In the second division are the Southern roads, which have an im.mense traffic in cotton, lumber, and coal, which are carried from interior points to the coast cities of Norfolk, Wilmington, Charleston, Savannah, Jacksonville, Tampa, Pensacola, and New Orleans. In the third division, that west of the Mississippi, are the southwestern roads, the Granger roads, and the great transcontinental Hues. The Southwestern roads furnish an outlet for the grain, lumber, live stock, and cotton of the region southwest of St. Louis. The principal cities served by these roads are St. Louis, Memphis, and the Gulf ports of Galveston and New Orleans. The Granger roads, which were originally built or pro- OUR FOREIGN COMMERCE 145 jected by farmers of the territory they now serve, carry grain, live stock, and other agricultural products to the great distributing centres of Chicago, St. Louis, Kansas City, and Duluth. The transcontinental lines are those roads that connect the Pacific coast with Chicago, St. Louis, and other Mis- sissippi Valley points. There are three such lines in the North and six in the South. The Northern lines are the Great Northern, the Northern Pacific, and the Chicago, Milwaukee, and St. Paul Railway, all connecting Puget Sound points with the ports of Lake Superior and with Chicago and St. Louis. The Southern transcontinental lines include the Southern Pacific, the Union Pacific, the Atchison, Topeka, and Santa Fe, and the Western Pacific. Two other lines extend from the coast to Salt Lake City, v/here connections are made for Chicago and other Missis- sippi Valley points. These lines are the Oregon Short Line from Portland, and the Los Angeles and Salt Lake Railway from Los Angeles. Inland Waterways. — The navigable rivers and lakes of the United States, with the ship canals, make a wonder- ful system of inland waterways, over which a much larger traffic than is now carried could be handled to advantage. With the exception of the Great Lakes, our inland water- v/ays have been allowed to fall into comparative disuse. The Mississippi River alone, with its navigable branches, might be used to furnish cheap transportation for thou- sands of tons of freight that are now shipped by railroad to the Atlantic coast ports. A more extensive use of these natural arteries of trade, with the resultant lowering of freight costs, w^ould enable us to compete on more favor- able terms in the markets of the world. When the rail- roads adopt the practice of routing freight through, even when it is carried for a part of the distance over inland waterways other than the Great Lakes, when the federal government adopts a more uniform and more scientific 146 FOREIGN TRADE OF UNITED STATES method of making appropriations for the improvement of such waterways, and when the financial interests of the nation lend their support to the greater utilization of our rivers and canals, the advantage to the farmers, manu- facturers, and merchants of the interior will be reflected in a greater production of commodities at a decreased cost to the consumer. The New York Barge Canal — an en- largement of the Erie Canal — has just been built in order to win back to New York her primacy in the export grain trade, which had been lost owing to the competition of the water routes by way of the St. Lawrence on the north, and of the short rail routes to the Gulf ports in the south. Other projected canals include one to connect the Ohio River mth Lake Erie from Pittsburg, another to connect Lake Erie with Lake Michigan in a direct line, and a series of canals to connect Lake Michigan with the Mississippi River. The Great Lakes afford in conjunction with the Erie Canal a through waterway from the great lumber, grain, iron, coal, and copper producing regions along or near their borders to the Atlantic seaboard. Traffic in these commodities is enormous, that passing through the St. Marys or Soo Canal far exceeding in tonnage the freight carried through any other canal in the world. The great assembling and shipping centres of the Great Lakes region are Duluth and Superior, Milwaukee and Chicago. To Duluth, the head of navigation on the Great Lakes, and Superior, just opposite Duluth, immense quantities of grain, flour, lumber, iron ore, and copper are assembled by the numerous railways that penetrate to the remote corners of Minnesota, Wisconsin, and the Dakotas, and thence shipped to the manufacturing cities along Lake Erie or through to Buffalo, where part continues by way of the Erie Canal to the seaboard, and a larger part is car- ried by rail either to New York, Boston, Philadelphia, or elsewhere. OUR FOREIGN COMMERCE 147 Chicago, the greatest railroad centre in the world, col- lects the products of the great northern section of the United States, and ships such bulky commodities as grain, lumber, iron ore, and coal over the Great Lakes. Those commodities intended for export are transshipped at Buf- falo, and carried by rail or water to New York. Not all of the commodities enumerated are shipped by water; the trunk lines carry great quantities of coal, iron, lumber, and grain, making rates that, w^hen time is a factor, secure a large volume of such traffic. During the winter months, when the Lakes are frozen, all the traffic is necessarily diverted to the railways. Ports and Terminal Facilities. — The seaport is the gate- way through which nine-tenths of our foreign trade pass. From every producing section of the country the commod- ities that are destined for other countries are sent by rail or water to the ports, to be taken as line or charter traffic to their destination overseas. The facihties provided at the ports for the handling of freight received there for transshipment vary greatly. As a rule, the largest ports have a succession of piers or wharfs extending at right angles to the shore-line along which the vessels may lie while loading or discharging cargo. Ports that have closed harbors and sufficient space for a great number of piers and wharfs have a great advantage over those that are mere open roadsteads, without protection from winds and storms, such as are common along the coasts of South America. In such an open roadstead freight must be dis- charged into lighters, or small open boats. When the water is rough, it is sometimes impossible to discharge a cargo in an open roadstead, and a ship is obliged either to wait for days or to carry the cargo destined for that port to another or to keep it on board until the next trip. The Atlantic and Gulf coasts of the United States have numerous closed harbors, which have been so improved as to afford facilities for the loading and unloading of 148 FOREIGN TRADE OF UNITED STATES hundreds of ships at a time. A large part of the work of loading and unloading is done by the aid of machinery run by electric or steam power. Hydraulic cranes, hoisting apparatus by which twenty tons or more of merchandise can be lifted at one time, huge coal-buckets and steam- shovels, elevators, and other devices are available in the large ports. Ships are thus able to load or unload in a few hours, instead of requiring several days, as was formerly the case. The floating elevators, which are towed alongside the vessel in which wheat is carried, furnish an excellent example of the aid such devices are to commerce. By their use a cargo of 300,000 bushels of wheat can be loaded in two hours. The federal government, through the power conferred by the Constitution to regulate commerce, has control over the channels of rivers and of harbors in general, though the State usually has control of docks, wharfs, and the mechanical appliances provided for the loading and unloading of vessels. This authority is sometimes conferred upon the municipality, as in the case of New York City, where most of the wharfs and piers are owned by the city and administered by a city official, known as the harbor master. In Philadelphia, most of the harbor front is held in private ownership, but it is subject to the regulations of the State and city, and is administered by a public official. In California the harbors are under the control of the State, that of San Francisco being owned and managed by the State. Since the expenditures for wharfs, piers, facilities for handling merchandise, ware- houses, and elevators reach enormous proportions, these are usually divided among the national and State govern- ments, with supplementary improvements made by private capital. A greater co-ordination between railroads and port ad- ministration is needed, so that each might plan its terminals with due reference to the other. As it is now, railroad OUR FOREIGN COMMERCE 149 freight destined for ocean shipment is often unloaded miles away from the wharf, to which it must be carted, causing unnecessary expense and trouble. Piers having railroad tracks in the middle, with ships moored at either side, en- able a vessel to be loaded cheaply and expeditiously. About half of our foreign trade passes through the port of New York; a larger proportion of imports than of ex- ports are handled at this port. Galveston is second only to New York in the value of its export trade, which is largely made up of raw cotton. Boston ranks next to New York in the value of both imports and exports, with New Orleans as a closer third. The value of imports and exports passing through the port of Boston about balance each other, while New Orleans exports nearly four times as much as it im- ports. From the Southern ports great quantities of raw materials are exported, which accounts for the excess of exports over imports. The Pacific ports are steadily in- creasing the volume of commerce passing through them, though they have been greatly handicapped since the open- ing of the Panama Canal by the dearth of shipping. San Francisco is the most important port of the West coast. Next come the ports of Puget Sound. Los Angeles has converted its port at San Pedro from an open roadstead to a splendid harbor, and the port of San Diego has likewise been greatly improved in recent years. As soon as an adequate supply of shipping is available for the Panama Canal route, the trade of the Pacific coast is sure to increase at a wonderful rate. American Merchant Marine.— With ship-building, fish- ing, whaling, and commerce all profitable pursuits in New England and the Middle Colonies, the American merchant marine achieved a position of prominence in the early colo- nial period. As early as July 4, 1631, a thirty-ton bark, the Blessing of the Bay, was launched for her owner. Governor John Winthrop, of Massachusetts Bay. It is interesting to note that it was for the purpose of promoting I50 FOREIGN TRADE OF UNITED STATES foreign trade that lliis ship was built; in the words of Governor Winthrop: *' The general fear of want of foreign commodities set us on work to provide shipping of our own." In 1640 Salem celebrated the launching of a 300- ton ship, and Boston followed two years later with one of the same tonnage. By 1676 over 430 vessels were owned in the Massachusetts Bay Colony alone. These ships were either engaged in fishing, whaling, or in trade with the West Indies or with European or other ports. After 1 7 14 the schooner, with its two-masted fore-and- aft rig, was the best-known type of Yankee keel. For over a century and a quarter it maintained the first place in overseas commerce, to be supplanted finally by the far- famed clipper. Before the Revolution the Americans had won first place both in ship-building and in the carry- ing trade. After independence was gained, the merchant marine forged ahead, despite the attacks by the Barbary pirates, and by both the French and English during the French Revolution and later. Trade with the most remote countries was developed by the hardy adventurers who rep- resented the United States on the sea, China, the East Indies, India, the African coasts, the Pacific islands — all offered trade advantages which were promptly seized. The supremacy of the United States was unquestioned until steamships came into use. In 1838 two of these, the Sirius and the Great Western, made the trip from Liver- pool to New York. The next year the Cunard Line was founded by an English company, and steamship traffic across the Atlantic was placed on a permanent and profitable basis. The people of the United States were not content to see their maritime leadership disappear without making an effort to meet the new conditions, so the Collins Line of steamships was established by an American company, with the aid of Congress, in 1850. The time required by the steamers of the Collins Line to make the trip from New York to Liverpool was several hours less than that made by OUR FOREIGN COMMERCE 151 the Cunarders. The rivalry was keen, but ten days was the shortest time made. The famed Yankee sailing-vessels which had long borne the Stars and Stripes to every port of the world did not pro- pose to bow before the steamship. Instead, renewed efforts were made to improve both their speed and carr>dng capac- ity. The famous Yankee cHppers, '^long, low, rakish" craft, were the result. The speed made by these remark- able sailing-vessels was for a brief decade the marvel of the world. At a time when the speed of the fastest ocean steamship did not exceed fourteen miles an hour, the Sover- eign of the Seas, the Comet, the Flying Cloud, the Sea Witch, the New World, and their fleet sisterhood were mak- ing as high as fifteen, sixteen, and even seventeen miles an hour throughout a twenty-four-hour period. It was an ordinary occurrence for one of these slim, graceful clipper ships to overtake and pass a transatlantic steamer in mid-ocean, and to make the voyage in less time than was taken by its unwieldy rival. Twelve days for crossing the Atlantic was a record made by more than one famous clipper, proudly fl>ing the American flag. The Civil War put an end to our maritime supremacy. This, however, might have been regained had not the press- ing need for more railroads to keep pace with the develop- ment of the West offered a more enticing field for the in- vestment of capital, which turned to the huge profits to be made in railroad building and railroad financing, leaving the sea-traffic to England and other nations. The sup- planting of the wooden ship by that made of iron and steel, which became general in England in the early fifties, worked a revolution in the ship-building industry, and enabled England to build ships more cheaply than the United States. This has been a very important factor in the de- cline of our merchant marine. The tonnage of vessels engaged in foreign trade steadily declined from i860 to 19 13. From the adoption of the 152 FOREIGN TRADE OF UNITED STATES Constitution to 1840 an average of 85.5 per cent of our foreign trade was carried in American bottoms. This had fallen to 75 per cent in 1862, to 31.9 per cent in 1871, to 9.3 per cent in 1900, and to lo.i per cent in 19 13. It had long been felt that measures should be taken to re- habilitate our merchant marine, but it was not until the outbreak of the European War that any adequate effort was made to do this. In August, 19 14, a law was passed by Congress admitting foreign ships to American registry. This resulted in an immediate increase in American ship- ping. Ship-building was likewise stimulated by the dearth of ocean carriers due to the sinking of vessels by the bel- ligerents. A strong sentiment in favor of making a con- certed effort to regain our lost shipping supremacy resulted in the passage of a law in September, 1916, providing for the organization of a $50,000,000 corporation to build or buy merchant ships, under the direction of a national ship- ping board. The ships bought or built were to be avail- able for lease or charter by private interests or were to be operated by the government if private interests failed to take them. Every shipyard immediately began to speed up, so that some headway had been made when the United States entered the war the following April. Under the pressing need for ships to carry soldiers, war materials, and supplies overseas and to replace those being sunk by the enemy, the United States Shipping Board made every effort to speed up the production. Standardized ships, by which different parts were made in specialized yards and fabri- cated or assembled in central yards, were soon being turned out at a surprising rate. In the fiscal year of 1918, 1,430,793 gross tons of shipping were completed, an output which exceeded the total for the five-year period preceding. This, added to the enemy vessels taken over and to those chartered or requisitioned from neutral countries, made an addition of some 5,000,000 tons of shipping during the period we were in the war. OUR FOREIGN COMMERCE 153 In 1 9 14 the American tonnage engaged in foreign trade totalled 1,066,288 gross tons, while the entire tonnage, including that engaged in the coastwise trade and in the fisheries, was 7,928,688 gross tons. This had increased to about 12,000,000 gross tons by the end ofi9i8. Ini9i4 the United States had only 15 vessels of 1,000 tons and over engaged in overseas trade. A tabulation made late in 1 919 showed that there were at that date 1,280 Amer- ican ships engaged in ocean traffic, over 1,000 of these having been built by the United States Shipping Board in a period of two years. The Demand for Free Ports. — With the re\'ival of the American merchant marine has come a demand for a sys- tem of free ports in the United States which would over- come the obstacles to the free course of trade in foreign merchandise which our tariff laws have erected. A free port is a section of water frontage with docks, warehouses, and other terminal facilities, and a restricted area of ad- jacent land, altogether comprising a zone which is free from the customs regulations of the nation. Into a free port the ships of the world may enter and dis- charge their cargoes without the delay incident to the cus- toms inspection and the payment of duties. In such a port warehouses are provided where cargoes may be stored until there is a demand for them elsewhere. The territory included in the free-port zone may be large enough to per- mit the erection of factories where the raw materials as- sembled from other countries may be manufactured and shipped overseas, without the payment of duties on the imported materials. While a drawback is obtainable un- der our present system, against duty paid on imported raw materials when the goods manufactured from them are exported, the forms to be filled out and the strict regulations necessary to prevent fraud are more or less of a restraint on manufacturers. This privilege of manufacturing from im- ported raw materials, without pa}Tnent of duty, is, however, a secondary and minor advantage of the free port. 154 FOREIGN TRADE OF UNITED STATES The principal advantage of a free port is the stimulus it gives to the trade in foreign merchandise and to the carry- ing trade. The free port is a magnet that draws the ships of the world; first, because here they may discharge their cargoes without restriction or delay; and, second, because in such a port they are sure of finding return cargoes for whatever port they may be bound. In the free port cargoes may be broken up and reassem- bled; raw materials may be assorted, graded, cleaned, or even manufactured, and then taken to the best market, free of customs restrictions. Thus, free ports give to a tariff country the advantages of free trade in so far as the re-export trade is concerned. Goods moved from the free port inland are, of course, subject to the customs laws of the country. A free port not only stimulates the re-export trade, but becomes a vehicle through which domestic merchandise is given a wider world market; to free ports as to all merchandise marts traders from the four comers of the globe are drawn, for here they find wares from every land, including displays of domestic merchandise. In a free port sales are made, then, of domestic as well as of foreign merchandise. Buyers come primarily to contract for wares from far countries, but once in the free port, they commonly extend their interest to include the products of the country of which the free port is the market-place. The advantages of the free port are thus set forth in a recent article in the Annals of the American Academy of Political and Social Science: The great bulk of the carrying trade is done by Great Britain, because she is a free-trade country, and a reference to the rise of British shipping in the years which followed the repeal of the corn laws shows a tremendous and immediate increase in her oversea trade following the establishment of free trade. For fifty years she has been mistress of the seas for the very simple reason that ships could come to her ports from all over the world; they could OUR FOREIGN COMMERCE 155 there discharge their cargoes and find other cargoes awaiting them without delay. Here there were no obstacles, obstructions, or tariff barriers to interfere with traffic. All history is unanimous in its demonstration that carrying trade will go hundreds of miles to escape tariff barriers. Protective tariff's killed the Spanish trade; they destroyed the rich and prosperous cities of the Netherlands. They killed our own foreign shipping; for commerce hates tariff barriers. In recent years Germany has begun to compete with Great Britain for the carrying trade of the world. She has been able to do this through her free ports, which have existed in Ham- burg, Bremen, and Lubeck ever since the Franco-Prussian War. These concessions were insisted on by these old free cities when they entered the Empire. And by imperial law there exists in the har- bor of these cities a large free harbor, into which ships can come and go without the payment of customs duties upon their cargoes. By this means a free counter is provided, across which goods can be exchanged and transshipped to other destinations. Or they can be placed in great storage warehouses, where they can remain for an indefinite period until cargoes have accumulated for other ports. If desired, they can be shipped at any time into the Empire on the payment of the customs duties. Ocean Trade Routes. — Only about one-tenth of our for- eign trade is transported by land; most of it is overseas commerce. Hence, a general idea of the great ocean routes by which our trade is carried is important. The trade route that is by far the most important to America is the North Atlantic route. While it would seem that there are many routes across the North Atlantic, the fact is that the lines from and to the various ports all practically con- verge in mid-ocean, so that there is one route with many branches at either end. On the western end are the ports of the St. Lawrence, of the North Atlantic, of the Gulf of Mexico, and of the Caribbean Sea. The most important of these are, following the order from north to south, Montreal, Quebec, Halifax, Boston, New York, Phila- delphia, Baltimore, Havana, Pensacola, Mobile, New Orleans, Galveston, Vera Cruz, and Colon. On the eastern or European end of the North Atlantic route the principal 156 FOREIGN TRADE OF UNITED STATES f)orts are Liverpool, Glasgow, Belfast, London, Havre, Antwerp, Rotterdam, Amsterdam, Bremen, Hamburg, Copenhagen, and Christiania, Direct lines of this route also penetrate as far as Stockholm, Riga, and Petrograd. Over half of the tonnage of international trade is carried over this route. A route of the greatest importance is the one that takes up the threads of the North Atlantic route at the European ports and extends them through the Mediterranean Sea, the Suez Canal, and the Red Sea to India and southwestern Asia. Another route connecting the North Atlantic ports of America and of Europe with the East Indies and the Orient, on the one hand, and with Australia and New Zealand, on the other, is the one that passes south of Africa and thence to the east. This route is longer than the one to the Orient by w^ay of the Suez Canal, but it is used by freight- ships to save canal tolls. Fast mail and passenger steamers do not follow this route, but it is an important one for freight-steamers and sailing-vessels. Most of the vessels following this route call at Cape Town, the great trade centre of South Africa. A route that will lose its importance with the develop- ment of the Panama Canal trade is the one connecting the Atlantic ports of the United States and Europe witli the west coast of South America. Some of the lines of this route extend only to the eastern ports of South America; others carry vessels around the continent and up the west coast. There are two main-travelled routes across the North Pacific. The first connects the ports of the Pacific — Van- couver, Seattle, Tacoma, Portland, San Francisco, Los Angeles, and San Diego — with Yokohama, Shanghai, Hong Kong, and Manila. The most direct line of this route is the one from San Francisco to Yokohama which follows the great circle connecting these two points, pass- ing nearly 1,000 miles north of Honolulu. OUR FOREIGN COMMERCE 157 The second North Pacific route is the one connecting the Pacific ports of North America with those of New Zealand and AustraHa. Vessels of this route either call at Honolulu and Samoa or dip down to Tahiti and then proceed to New Zealand or Australia. The Panama Canal makes the circumnavigation of the globe a simple matter. Ships leaving European ports for the Orient by way of the Suez Canal may continue their journey to the Pacific ports of North America, where they can take on new cargoes, pass through the Canal, and thence across the Atlantic to the home ports. Trade between the Atlantic and the Pacific ports of the Americas is that most directly affected. Hitherto, this had to be carried around Cape Horn or else transshipped at Panama. Likewise, the trade between the Atlantic ports of the Americas and the Orient or Australasia is greatly facilitated by the Canal. The Canal shortens the distance from New York to San Francisco about 7,800 nautical miles, to Honolulu about 6,600 miles, to Valparaiso over 3,700 miles, to Yokohama nearly 3,800 miles, to Shanghai about 1,800 miles. From San Francisco to Liverpool the distance is shortened 5,600 miles, to New Orleans 8,800 miles, and from New Orleans to Yokohama 5,700 miles. Our trade with the Orient, with Australasia, and wdth South America is bound to be stimulated as the trade routes of the world are gradually altered so as to make use of this great waterway. Aircraft in International Trade. — The tremendous ad- vance in aviation during the war has made the question of the use of aircraft for commercial purposes no longer a theo- retical one. The transportation of mail and lighter freight by airplanes has proved entirely practicable, and the ex- tension of this use to overseas commerce has begun. In this development Great Britain has taken the initiative by organizing corporations for the purpose of building airships for use in foreign trade. Strategic points for air- craft stations have been secured in various countries and aircraft routes selected and mapped out. 158 FOREIGN TRADE OF UNITED STATES The most obvious use of the ships of the air in inter- national trade is as feeders for the ships of the sea. Rush merchandise that is not too heavy can be brought to the port in vessels and loaded at once into great dirigibles and transported inland in a few days where it would take weeks for delivery by the old methods. In South American and other countries where transportation facilities inland are poor, the advantage of aerial navigation is most marked. Lighter and smaller airplanes are of use as mail and ex- press carriers, especially for the rapid delivery of blue- prints, plans, and specifications for engineering works, and for other important documents for which rapid delivery is highly desirable. BIBLIOGRAPHY Bates, William B. The American Marine. New York, 1902. Chatterton, E. Keble. Ships mid Ways of Other Days. Lon- don, 1913. Clark, A. H. The Clipper Ship Era, 1 843-1 869. New York, 1910. Dunn, Russell L. The Efect of the Panama Canal on Sea Traffic. 63d Congress, 2d session. Senate document no. 540, serial no. 6595. Washington, 1914. Fletcher, R. A. Steamships ; The Story of Their Development to the Present Day. London, 19 10. Hill, Charles S. History oj American Shipping ; Its Prestige, Decline y and Prospects. New York, 1883. Hough, Olney B. Ocean Traffic and Trade. Chicago, 19 14. Howe, Frederic C. The Free Port an Agency for the Development of American Commerce. Annals of the American Academy of Pohtical and Social Sciences, vol. 59, part 3. HuTCfflNSON, Lincoln. The Panama Canal and International Trade Competition. New York, 191 5. Johnson, Emory R. Elements of Transportation. New York, 1916. Johnson, Emory R. Ocean and Inland Water Transportation. New York, 1906. Johnson, Emory R. The Panama Canal and Commerce. New York, 1916. Johnson, E. R., and Huebner, G. G. Shipping in Its Relation to Our Foreign Trade. New York, 1916. OUR FOREIGN COMMERCE 159 Johnson, E. R., and Huebner, G. G. Principles of Ocean Trans- portation. New York, 1918. Keys, C. M. Changing the Transcontinental Trade Routes. World's Work, vol. 24, pp. 403-14. August, 191 2. McElwee, Roy S. Ports and Terminal Facilities. New York, 1918. Mahan, a. T. From Sail to Steam. New York, 1907. Merchants' Association of New York. Fuiution and Utility of Free Ports. New York, 191 8. Paine, R. D. The Ships and Sailors of Old Salem. Chicago, 191 2. Parker, Walter. Inland Waaler Transportation — a Factor in Foreign Trade Development. Fifth National Foreign Trade Convention. Report, 1918. pp. 345~354- Smith, Joseph Russell. The Ocean Carrier. New York, 1908. Smith, Joseph Russell. The Organization of Ocean Commerce. Philadelphia, 1905. U. S. Bureau of Foreign and Domestic Commerce. Trans- Pacific Shipping, 1916. (Miscellaneous series no. 44.) U. S. Bureau of Foreign and Domestic Commerce. Government Aid to MerchafU Shipping. 1916. (Special agents series no. 119.) U. S. Bureau of Foreign and Domestic Commerce. Ports of the United States. 1916. (Miscellaneous series no. 33.) U. S. Tariff Commission. Free Zones in Ports of the United, States. 1918. CHAPTER XIII OCEAN FREIGHT Importance of Ocean Transportation. — Since overseas commerce, which forms by far the larger part of interna- tional trade, is dependent upon ocean transportation, the importance of this subject is apparent. Fully nine-tenths of the foreign commerce of the United States is overseas commerce; all of the foreign trade of the United Kingdom is sea-borne, and the greater part of that of all other na- tions taking an active part in international trade is trans- ported over the sea. The ocean has been characterized as the great international highway; it is the common prop- erty of all the nations, over which the ships of every coun- try go and come on a basis of equality. T3rpes of Ocean Traffic. — There are two distinct types of ocean trafl&c, known as Hne and charter traffic. The first is primarily intended for passenger, mail, and express service, though great quantities of freight are also carried. The ships used on the lines are steamships; they sail on definite routes according to fixed schedules, depending upon regularity and speed for their support. They carry all freight except that shipped in cargo lots on chartered vessels. Charter traffic is carried by ships operated as single units, owned either by corporations or by individuals. They are called tramps because they are wanderers con- stantly moving from one place to another, regardless of previous routes or any other consideration but the call of the moment. A tramp steamer may be loading lumber in Seattle in one month, may be leaving Liverpool with a 1 60 OCEAN FREIGHT i6i cargo of coal a few weeks later, may next appear in Buenos Aires, where the coal is discharged and wheat secured to be taken to Hamburg, or Liverpool, or Bombay. Wherever traffic offers the tramp steamer goes, provided the chances of securing a return cargo at a fair rate seem favorable. The tramp service includes all of the sailing-vessels, but it is not confined to these. The steamships engaged in this service are generally those of great carrying capacity and comparatively slow speed. Tramp ships may be char- tered for a certain voyage, for a stipulated length of time, or for the carrying of a cargo at an agreed price per ton. They are available only for the large shipper who can make shipments in cargo lots. The rates for such shipments are lower than those obtain- able from steamship-lines, and the service, unless great speed is required, is satisfactory. Such raw materials as grain, cotton, coal, iron ore, lumber, sugar, and petroleum, and such heavy manufactured articles as steel rails, loco- motives, and hea\y machinery are carried by tramp ships, which may be chartered to carry a cargo to any port from any other port. By far the larger part of ocean freight is handled by charter traffic. Professor J. Russell Smith, in his comprehensive work entitled Industrial and Commercial Geography^ thus sums up the service afforded by regular steamship-lines and that given by tramp ships: These two types of ocean service work together like freight- trains and express-trains. The tramps handle the trade of vast quantity; the liners handle the trade of high value and the ship- ments of small size and great number. The lines, therefore, serve the greater number of shippers. They serve the multitude who can- not fill a ship with one consignment, and among manufacturers there must be thousands of small shipments of finished goods to one that requires a tramp to handle it. The manufacturing state may depend upon the thousand ships that bring food and materials, but there is an equal dependence upon the 300 big liners that carry to market with greater speed the myriad small consignments of manufactured exports. Conversely, the raw-material-producing i62 FOREIGN TRADE OF UNITED STATES country like Argentina depends largely upon tramps to take its exports and upon liners to bring its imports of valuable manu- factured goods. Ocean Freight Rates. — Water transportation is cheaper than that by land. Only the carrier has to be supplied by man; the highway is supplied by nature. Hence, there is no expense for road or road-bed, none for terminal facili- ties, none for other equipment than the vessel. Harbor improvements are made and terminal facilities provided at each port by the State or municipality. While large steamship companies often build their own wharfs and docks in order to facilitate the loading and unloading of their vessels, this is merely a matter of choice and not of necessity. In all of these respects the ocean carrier has an advantage over the land carrier, the railway. Less capi- tal is thus required for ocean than for land transportation. These conditions all make for free competition among ocean carriers, with the consequent reduction of the charges made for ocean transportation of freight. This free competition not only tends to keep freight rates low in normal times, but also causes those rates to fluctuate from time to time, so that it is difficult to deter- mine long in advance what the freight on a given ship- ment ^ill cost. General quotations are seldom given by steamship companies, as the rates are so subject to change, being materially affected by seasonal and other conditions. But exact quotations are given for a specific shipment of a certain kind and quantity of goods at a fixed date between two ports. Since two shipments of the same size, weight, quality, and character, made at different dates between the same two points, may vary considerably in freight charges, great care must be exercised in figuring this item before making c. i. f. price quotations, which include the cost, insurance, and freight. The bulk of manufactured articles are shipped by line traffic in comparatively small quantities and not in full OCEAN FREIGHT 163 cargo lots by charter traffic. Ocean carriers reserve the right to compute freight either by weight or measurement, ''ship's option." The weight ton is the long ton of 2,240 l^ounds, though the metric ton of 2,204.62 is generally used in computing freight shipped from countries using the metric system of weights and measurements. The weight ton is used in calculating freight charges on heavy articles, such as grain, coal, iron ore, steel rails, and heavy machinery. The measurement ton is 40 cubic feet. It is used in com- puting ocean freight on bulky articles that run Hght, that is, that weigh less than 56 pounds to the cubic foot or than 2,240 pounds to 40 cubic feet. Most manufactured articles are, therefore, carried by the measurement or cubic ton. Where several tons are charged for on the basis of the measurement ton, the weight of the shipment may be actually less than a ton. An article weighing 2,240 pounds or less but measuring 80 cubic feet is charged as two tons. It is customary to make an extra charge on packages of ex- tra size or weight, or of unwieldy shape. Sometimes the charge is reckoned neither by weight nor by volume, but by the piece or dozen. Thus, quotations are sometimes given by the barrel or case or package. Since there is no uniformity in the methods of determining freight rates, this item must be ascertained by obtaining direct quota- tions from the company through which a shipment is to be made. As a general rule all but full cargo shipments must be sent as general cargo by regular Hne steamers, but there is an exception in the case of berth cargo, which consists of partial cargo taken at times by tramp ships and liners to complete the lading. The conditions under which such parrial cargoes are shipped are thus described by Professor Emory R. Johnson in his work entitled Ocean and Inland Water Transportation: It frequently happens that both chartered and Hne vessels may seek shipments of small quantities to complete the lading of the i64 FOREIGN TRADE OF UNITED STATES ships, or shipments of some special kind of a commodity needed as a complement to the main cargo. A vessel loading with cotton will gladly take a part cargo of steel rails or pig iron to place in the bottom of the vessel; and vice versa, a ship whose chief cargo is heavy freight, will welcome shipments of a light and bulky char- acter that will take up the unoccupied space with profitable cargo. This search for freight to complete or complement the cargo of a chartered or line vessel introduces bargaining methods into the making of rates. Berth cargo may thus consist of two or three commodities of varying weight or bulk, or, in some cases, of even a large variety of commodities secured in the form of small ship- ments, in no wise differing from the shipments usually made over line steamers. When the opportunity is offered to make small shipments in this way, shippers are quick enough to take advantage of it, for the rates thus secured are unusually low. Large shippers who have a somewhat regular volume of exports to ship each month find it to their interest to con- tract with steamship-lines for the transportation of a stipulated amount of ocean freight each month or each sea- son. Rates secured under such contracts are usually lower than those obtained otherwise, though the fluctuations in rates are so great at times that it is impossible to deter- mine this point in advance. The shipper making such a contract is certain of having the shipping facilities needed, and, knowing in advance what his freight will cost, he is enabled to quote c. i. f, prices without incurring the risk of ha^/ing the freight cost double or treble between the time he makes the quotation and the date of shipment. Ocean freight is usually prepaid by the shipper, and this charge is specifically added to the bill rendered the con- signee, and is included in the draft drawn against the ship- ment. In case the goods have been sold under a c. i. f. quotation, the freight does not appear on the bill, as it is included in the price. Primage is sometimes spoken of in connection with ocean freight. It is a charge that still OCEAN FREIGHT 165 appears on ocean bills of lading, a survival of the days when the captain and the crew were given a sum of money in appreciation of the care they exercised in handling the shipment. Parcels Receipts. — Steamship companies require a mini- mum payment for the issuance of a bill of lading. The disadvantage of making a small shipment, the freight on which is the same as on one several times as large, is evi- dent. When a small shipment is imperative, it can be handled best through a freight forwarding agent or by the use of a parcels receipt. A parcels receipt is a substitute bill of lading, designed to meet the requirements of small shippers. Goods thus shipped are not subject to trans- shipment, so their use is restricted to direct ports of call of the steamship in which the parcel is shipped. The weight, size, and value of shipments for which parcels receipts are issued vary with the different steamship com- panies. Ocean Freight-Agents. — Steamship companies maintain freight-agents at their ports of call and also in large in- land cities whose function it is to secure freight and to make arrangements for the shipments booked over their lines. Tramp steamers do not have such agents, but their carry- ing trade is greatly facilitated by the emplo>Tnent of ship- brokers, who practically direct the operation of charter traffic. These brokers maintain offices at the leading world ports and by an extensive use of the telegraph, the cable, and wireless telegraphy keep in constant touch \dth the movements of all charter vessels on their list and also mth the export and import needs of every nation and of every district. They work on a commission basis, and are indefatigable in their efforts to find ships for commodi- ties to be carried from one port to another, and to find cargoes for tramp vessels in every part of the world. Railroads ha\dng terminals at the seaboard maintain foreign freight-agents who keep freight or station agents 1 66 FOREIGN TRADE OF UNITED STATES at inland points informed of changes in foreign freight rates. These agents, as well as others representing fast freight lines, are experts in every detail of making foreign shipments. They are able to quote through rates from interior points to overseas destination on specific shipments for definite dates; they reserve cargo space for shipments; supervise the through movement of export freight; direct its transfer at the port of shipment, and attend to the final details of ocean shipments. Freight thus handled is on through bills of lading, in which the rate paid includes all the expenses incident to the shipment. In the Department of Agriculture bulletin entitled Methods and Routes for Exporting Farm Products the following information on export shipments is given: Merchandise shipped by the all-rail eastern route generally passes over several railroads before reaching its final destination, so that to simplify the methods of handling such through freight, as well as to insure its expedition, companies known as fast freight lines have been organized. These companies may or may not own rolling-stock, but their main object is to facilitate the rapid transit of tonnage over various lines of road in accordance with contracts entered into with the latter, and to generally supervise the through movement of all such freight, although to all intents and purposes the trafiic is under the control of the Hne over whose rails it is travelling. In the movement of export freight, these fast freight lines are extensively employed, as prompt delivery is always essential. In many instances railroads having terminals at seaboard cities em- ploy a foreign freight-agent, whose duty it is to communicate the ocean rates at least once a week to interior line agents, and should changes in the rates occur during the week the line agents are noti- fied by telegram. Any one wishing to export merchandise from interior points can receive all necessary information as to rates, routes, bills of lading, etc., by applying to the local fast freight- agent, who is generally represented by the freight or station agent of the railroad. . . . The rates submitted by these line agents will always be through rates from the place at which the fast freight line takes care of the freight to its foreign destination. The shipper has therefore nothing to do with the ocean rate, as it is OCEAN FREIGHT 167 of course included in the through rate quoted by the agent. In the event of a shipper living at an interior point, from which a local haul has to be made to the place at which the merchandise is con- signed to the fast freight Hne, the local rate covering such haul combined with the through rate given by the agent will be the rate to destination. C. I. F. Quotations. — Closely allied with the subject of ocean freight is that of quoting prices to foreign customers which cover not only the cost of the goods but also the cost of the freight to the port of destination. Such a quotation is referred to as a c. f. or c. a. f. quotation, meaning cost and freight. A c. i. f. quotation is one in which the cost of the goods, the marine insurance, and the freight are in- cluded. Such a quotation shows the exact cost of the goods on board ship at the port of destination. It does not in- clude the cost of landing or lightering or customs charges at the port of destination. Such charges are usually assumed by the consignee, whose familiarity with the customs of his own port enables him to determine the approx'mate expense incident to the landing of a foreign shipment and the duty that will be assessed. The cost of consular invoices, foreign exchange, and other incidental expenses are not usually included in c. i. f. quotations, though these must be included if it is definitely agreed that the price quoted covers the cost and all expenses up to the arrival of the goods at the port of destination. Foreign buyers are often deterred from plac- ing an order in the United States because of their lack of familiarity with the cost of inland freight or their misgiv- ings over possible charges that may be made for packing, drayage, or other incidentals. The quotation of a price covering the cost of the goods in the foreign port is often the deciding factor in the placing of an order. Conse- quently, the making of c. i. f. quotations is becoming more and more common in our export trade. The making of a c. i. f. quotation requires care and ex- i68 FOREIGN TRADE OF UNITED STATES actness. The quotation must be carefully calculated in order to avoid loss due to freight or insurance being higher than was estimated. It is customary to overestimate the cost of cartage and of both freight and insurance rather than to err in the other direction. It is a simple matter to lower a quotation, but is considered a poor business policy to raise one that has been submitted. The method of figuring a c. i. f. quotation is simple. The total expenses incident to the shipment are determined by adding together the charges for packing, cartage, inland freight, insurance, ocean freight, and any other items to be included, such as the cost of the consular invoice and of the exchange; this total being ascertained, the percentage it bears to the total cost of the goods is figured and this percentage added to the price of each article. For example, if the shipment consists of 14 articles priced at $100 each, making a total of $1,400, and the cartage is $6, the inland freight $12, the marine insurance $22, and the ocean freight and other expenses $44, then a total of $84 is to be added to the price of the goods. This $84 is 6 per cent of that price, $1,400. Consequently, 6 per cent is to be added to the regular price of each article. Hence, the c. i. f. quotation of each article in the shipment will be $106 instead of $100, and the 14 articles will be quoted at $1,484 instead of $1,400. There are other quotations that may be considered here. F. O. B. (Free on Board) means that the goods are to be delivered on board the steamer at the port of shipment at the expense of the seller. F. A. S. (Free at Side) means that the shipper is to deliver the goods alongside the steamer or lighter in the port of shipment in proper shipping condition. F. F. A. (Free from Alongside) means that the shipper pays the lighterage charges in the port of destination from the steamer. In each case all the subsequent charges are for the account of the customer. Packing Overseas Shipments.— The packing of foreign shipments is an important factor in exporting. The im- OCEAN FREIGHT 169 portance of exercising the greatest care in every detail of packing and shipping has become generally recognized by exporters of the United States, who have been severely criticised in the past for carelessness or failure to follow instructions to the letter in preparing their goods for ship- ment. It has been said that American packing methods are inferior to those of England and Germany, and that this has been the cause of losing much profitable trade in many markets. The extreme care now given to this de- tail in all exporting houses has put an end to most of the complaints and criticism on this score. In packing a foreign order, there are two distinct con- siderations: first, the protection required during transit, and, second, the customs regulations of the foreign coun- try to which they are consigned. The final place of destination of the goods determines the methods of transportation to be employed from the be- ginning to the end of the journey. In many cases, the ocean trip is only one stage; numerous transshipments, inland railroads, pack-trains, caravans, small river-boats, and even canoes may all be resorted to before the goods reach the customer. Hence, goods that leave the factory in excellent condition, apparently so stoutly packed and carefully protected as to be safeguarded against the rough- est handling, not infrequently reach their destination in a badly damaged condition. The treatment that export shipments are liable to be subjected to is best illustrated by a concrete example. Let us follow the shipment of a number of cases of household utensils to an inland point in Chile. The goods are manu- factured in Pennsylvania, shipped to New York by rail, and there dumped in the freight-sheds, to be later carted to the steamship wharf. Here they are loaded on trucks and taken to the side of the ship, where a rope sling is spread out to receive them. Into this they are heaved by sweating longshoremen, who are driven to the last ounce of lyo FOREIGN IRADE OF UNITED STATES energy they possess by the contractor who has the loading of the ship in hand. When this sling or rope net is filled, a great steel hook is coupled to it and it is hauled up over the ship's side. Often, through the miscalculation of the engineer in charge of the donkey-engine that operates this crane, the swaying mass, weighing several tons, crashes against the steel side of the ship, or, if it clears this, it may be jammed against the steel-shod hatchways of the hold, and land with a thud on the lower deck, where the pack- ages are again man-handled by the longshoremen and stored away in the ship's compartments in record time. Many a package freely marked with that most useless of legends, "Handle with care," is hurled into some sharp-edged corner, where it is smashed like an egg-shell and its contents lit- tered over the floor, to the joy of the grinning freight- handlers. Avoiding such a mishap, the packages are stored in the hold and start on their long voyage through heaving seas half round the world. If the voyage is a rough one and the ship encounters heavy seas or one of those lashing hurricanes that toss her about like a cockle- shell, causing part of her cargo to shift, the cases that are not a product of the packers^ art, inner stayed and outer strapped and cleated, will be a sorry sight, and the house shipping them will spend months in a vain endeavor to convince the consignee that the goods were ''properly packed but roughly handled." If the voyage is a smooth one through summer seas, the goods may arrive at the port of Valparaiso in prime condition. Here the ship drops anchor in the open roadstead, where the bobbing lighters come alongside to receive the cargo. The great rope sling is again spread out and the ship's crew, assisted by murderous-looking longshoremen, roll or tumble the goods end upon end or heave them from the top of some tier packed close to the roof to the ship's floor, where they are jammed together into the net, and hauled up rasping and grinding against the hatches and let down with a smash OCEAN FREIGHT 171 and a jolt into the lighter, which conveys them to the wharf, where they are again roughly unloaded. Passed through the custom-house through the services of a cus- toms broker, they are ready to start on their inland jour- ney over stiff grades on an open flat car to the end of the railroad; then, strapped on burros or mules, they go jog- ging on their way to reach the buyer after a ten-day trip, during which they have been left out in the open at night and subjected to all the extremes of heat and cold and the varying degrees of moisture that are to be encountered on such a journey. Unless each case was perfectly packed and was lined with tarpaulin or other moisture-proof ma- terial, the customer will open the long-awaited shipment only to find that the goods are broken, marred, dented, or rusted, in which case he firmly vows never to place another order in the United States. The Effect of Packing on Freight and Tariff Charges. — Not only must overseas shipments be packed so as to with- stand the roughest handling, an equally important con- sideration is the effect of packing on freight and tariff charges. In some countries the duties are ad valorem, in others specific duties are charged, according to the classi- fication of the articles or according to weight. The duty may be on the gross weight, which includes that of the pack- ing; on the legal weight, which is the weight of the goods plus the container but not the outer wrappings; or on the net weight, which is the weight of the goods less that of containers and other packing. When the gross weight is the basis of duties, it is necessary to keep the weight of the packing materials as light as is consistent with strength and durabihty. The use of battens, of iron and steel hoops and straps, and of strong but light materials, for boxes and crates reduces the weight without decreasing the resistance. The number of crates or packages is of importance, as there are often fixed charges per package, regardless of weight. On the other hand, extremely large or heavy packages are 172 FOREIGN TRADE OF UNITED STATES impracticable in many cases on account of the difficulties of transportation. Since ocean freight is charged by vol- ume, unnecessary bulk means excess freight charges. Goods subject to tariff duties are usually classified, the duty for one class often being many times as great as for another and quite similar class. When articles of different classes are packed in the same case, the result is that the entire contents of the case are charged the highest rate of duty. It is sometimes necessary to pack two parts of one article separately. Sometimes the removal of nickel or brass or other parts will make an amazing difference in the duty. The description of the article in the invoice or the speci- fying of the use to which it is to be put may affect the duty. For instance, tools for use in mining are admitted duty free in some Latin American republics, while tools for other purposes are assessed heavy duties. This phase of the packing question is well brought out by Chester Lloyd Jones in his monograph entitled The Consular Seroice oj the United States, as follows: The importance of filling orders with exactness has been re- peatedly pointed out, a slight deviation in width or failure to state the character of goods often subjecting the importer to fines, delays, and higher duties. The frequent diflEiculties which arise are typified by a dispute which arose in a Brazilian custom-house over a case of "stamped ware" (iron) which was listed as "prints" with customs charged by weight. Such difiiculties are not con- fined to the Latin American coimtries, however, as it is a caution constantly reiterated that in sending products with metal parts to Germany or Russia, for example, the different metals should be packed separately, as otherwise charge will be the rate for the highest-class article in the package. Under these rulings, heavy engines have been listed as "manufactured nickel ware" and lamps as "gilded brass fixtures." Importers of countries having such tariff regulations often furnish a detailed statement as to the packing and description of the articles. The exact wording to be used OCEAN FREIGHT 173 in the consular invoice is not infrequently furnished the exporter in the language to be used, thus safeguarding the importer against fines and excessive duties. While the precautions necessary seem burdensome, they become a matter of routine with investigation, study, and the col- lection of detailed information. BIBLIOGRAPHY Exporters^ Encyclopmdia. New York, 191 7. Hough, B. O. Ocean Traffi-c attd Trade. Chicago, 1914. Johnson, Emory R. Ocean and Inland Water Transportation. New York, 1906. Johnson, Emory R. Principles of Ocean Transportation. New York, 1918. Smith, Joseph Russell. The Ocean Carrier. New York, 1908. Smith, Joseph Russell. The Organization of Ocean Commerce. Philadelphia, 1905. CHAPTER XIV MARINE INSURANCE Importance. — Marine insurance is an important factor in overseas commerce, for by relieving the shipper of the risk of loss at sea it has greatly encouraged the extension of trade beyond continental boundaries. Its importance in facilitating the financing of overseas shipments is para- mount. Without marine insurance to cover the ordinary losses that may occur, bankers would be unwilling to dis- count bills of exchange drawn against imports or exports. Without being able to realize on goods sold abroad before they reached their destination and were paid for, manu- facturers and others engaged in export trade would find it impossible to extend the credit their customers require and demand, and the result would be that the free inter- change of the surplus products of one country for those of others would be retarded, and the volume of international trade would be comparatively small. Lloyd^s Association. — Lloyd's Association of London has had the controlling influence in marine insurance for over two centuries. This association received its name from a London coffee-house conducted by Edward Lloyd in the middle of the seventeenth century, which was frequented by those interested in marine insurance. Here all the in- formation available as to the value, condition, and move- ments of vessels was collected, disseminated, and discussed, and those engaged in underwriting marine insurance had ample opportunity offered them to select the risks they preferred. The association as now organized is composed of some 400 underwriters, each conducting business on an inde- pendent basis, but operating from the same place, the 174 MARINE INSURANCE 175 Royal Exchange, and following the same general plan of business. The following description of the methods fol- lowed by Lloyd's is taken from an article in the Quarterly Review for April, 19 14. The bulk of the business is brought to Lloyd's by brokers who have their representatives at different countries; the marine-in- surance companies, of which there are some ten or a dozen in the immediate neighborhood of the Royal Exchange, get their business, on the other hand, largely from their own agents at ports all over the world. . . . Let us follow the method of procedure. A broker receives an order to insure, say, 10 boats of values between £30,- 000 and £50,000 apiece. That may mean a total amount of about £400,000 to be insured. He approaches a leading under- writer and gets him to quote a rate. If the terms are satisfactory to the owner, the broker will get this underwriter to lead off with a certain amount. Perhaps this underwriter will write the sum of £300 on each boat; then the broker goes to the other underwriters and offers them the insurance at that rate. These men may either write similar or smaller amounts, according to their judgment, fancy, or finance. If it is a big order, the broker may sometimes be hard pressed to complete it, and he may have to call in the aid of small men who will be prepared, perhaps, to write £100 each. . . . Years ago many men wrote for themselves alone; nowadays it is customary for one man, known as the underwriting agent, to act for a syndicate of from three to a dozen names. These ''names" have a position analogous to sleeping partners in private firms. They rarely visit Lloyd's. . . . The underwriting agent may receive a certain fixed salary for acting for them, in addition very often to a percentage of the profits. In almost every case, too, he writes for himself. The association makes good any deficiencies in the settle- ments of its underwriting members. The association has agents located in practically every port in the world whose function it is to keep Lloyd's informed with regard to each and every fact in any way affecting shipping. The in- formation thus received is pubHshed for the benefit of the members of the association. Definition of Terms. — The terms used in marine in- surance are for the most part the same as those used in 176 FOREIGN TRADE OF UNITED STATES other insurance. The policy is the document expressing the contract entered into between the assured and the as- surer. The assured is usually a merchant making a ship- ment or a shipowner. The assurer is usually referred to as the underwriter. The premium is the money paid to the underwriter for covering the risk. The risk is the peril or danger insured against. It is also used to mean the liabihty of the underwriter under his contract. An in- surance broker is the agent who arranges with the insurer for the policy. These definitions are mostly taken from the work of William Gow on Marine Insurance, The Standard Policy. — The standard marine-insurance policy is expressed in practically the same v/ay to-day as it was over a century ago. Consequently, the language used is antiquated and difficult to understand. Every clause in the standard policy has been interpreted by the courts, but the ordinary reader does not know just what the correct construction is; he must depend upon a marine- insurance expert to explain the policy. It is said that not one marine-insurance broker in ten understands the exact conditions of the poHcies he writes. Until recent years only one form of marine-insurance pohcy was used. This was adapted to the special condi- tions of the contract by means of indorsements added to the printed form. There are now different forms printed, all following in general the standard form, but each de- signed to cover a particular kind of risk. The principal classes of poHcies are as follows: A time policy is one in which the property is insured for a certain period of time. A voyage policy is one in which the property is insured for transit from one point to another. A valued policy is one in which the amount at which the insured property is valued is stated. An open poHcy is one in which no value is stated; in case of loss or damage the value must be proved. A named policy states the name of the vessel and the limits of the voyage. A floating policy does not MARINE INSURANCE 177 name the vessel carrying the risk, but does signify the limits of the voyage, and usually specifies the class of vessel to be used; when the goods are shipped, the name of the vessel is furnished the underwriter, so that it may be indorsed on the policy. The first part of the standard marine-insurance policy names the person insured, gives a general description of the objects insured, and states the duration of the risk. The second part of the policy describes the kind of risk covered, or the perils insured against. It is important to note that a marine-insurance policy does not guaranty the safe arrival of the goods insured at the point of destination. The policy covers only the perils specified and the under- writers ''are just as plainly exempt from liability to in- demnify the assured against loss arising from any peril not specified." This is of the greatest importance, as not infrequently it happens that a shipper supposes that his goods are insured against any possible loss that may occur, regardless of the cause, when the fact is that the insurance covers only certain contingencies. Losses Insured Against. — The losses covered by a marine- insurance policy are expressed in the following phraseology, which is the language used by Lloyd's: Touching the adventures and perils which we, the assurers, are contented to bear and do take upon us in this voyage, they are, of the seas, men-of-war, fire, enemies, pirates, rovers, thieves, jettisons, letters of mart and countermart, surprisals, takings at sea, arrests, restraints and detainments of all kings, princes, and people, of what nation, condition, or quality soever, barratry of the master and mariners, and of all other perils, losses, or misfor- tunes that have or shall come to the hurt, detriment, or damage of the said goods and merchandise and ship, etc., or any part thereof. This is a formidable list that would seem to cover every possible mishap that either ship or cargo might encounter. But by the process of interpretation and indorsement the risks against which the property have been insured have 178 FOREIGN TRADE OF UNITED STATES been reduced to comparatively few. In the first place the risks are designated as '^ adventures and perils," which in- dicates that the insurance is limited to fortuitous accidents or casualties of the sea. Consequently, ''loss or damage arising from wear and tear and from inherent defect" is not covered. The limitations of the meaning of the words *' perils of the seas" are indicated by the following quota- tion from a court decision cited in William Gow's work on Marine Insurance^ Chapter VI: ''It is well settled that it is not every loss or damage of which the sea is the im- mediate cause that is covered by these words. They do not protect, for example, against that natural and inevitable action, which results in what may be described as wear and tear. There must be some casualty, something which could not be foreseen as one of the necessary accidents of the adventure." If a vessel springs a leak that is not due to accident, but to unseaworthiness at the time of sailing, the insurance company is not liable for loss resulting. Proper protection can be secured by having a clause inserted in the policy admitting the seaworthiness of the vessel. Such a clause makes leaks and any other similar accidents the results of the perils of the sea. Partial Loss. — Since an insurance policy contracts to indemnify the insured against partial as well as total loss, it is necessary to consider just what damages are construed to result from perils of the sea. Partial loss includes a loss of part of the goods and a loss of value due to damages sus- tained. Such damage must not result from negligence of the assured or his agents nor from the essential character or natural quality of the object insured nor from ordinary wear and tear. If goods deteriorate or lose their value dur- ing transit, the underwriter is not liable for damages unless the damage is due to some outside and accidental influence. For instance, it has been decided that hides rotted as the result of being wet by sea-water in the hold incurred the { MARINE INSURANCE 179 loss through a peril of the sea, and that, furthermore, tobacco spoiled by the reek of the putrid hides likewise suffered from a peril of the sea. In the latter instance, it was held that a peril of the sea was the proximate or in- direct cause of the loss. On the other hand, it has been held that damage to a cargo of wheat caused by sweating, which was due to the wheat being imperfectly dried or cured before shipment was made, was the result of the in- herent nature of the grain. The fact that dampness in the hold was a contributing factor in causing the sweating did not make the damage the result of a peril of the sea. War Risk. — Though the perils specified in the policy would seem to include every possible war risk, these are all excepted or cancelled by a special indorsement. Sep- arate war-risk insurance is available when needed but is not included in the standard marine-insurance policy. Fire. — Fire is recognized as a peril insured against, though where fire is the result of spontaneous combustion it is held that the underwriters are responsible for loss or damages incurred by the ship or cargo, but not to that part of the cargo in which such fire originated. If the entire cargo consisted of one kind of goods, as coal, and fire spontaneously broke out in this, the underwriters would not be liable for the loss of the coal. General Average. — ^A peril insured against is jettison, which means the throwing of goods overboard in order to lighten a ship in case of storm or accident. The loss thus sustained is known as general average. It is prorated and charged against the cargo, each shipper being assessed with his proportionate share. A loss to be covered by general average must be from a sacrifice made to protect both the ship and the cargo for the benefit of all. In- cluded in general average is any other expense incurred to avert an imminent disaster or danger threatening the ship and cargo. General average has been legally defined as *'all loss which arises in consequence of extraordinary i8o FOREIGN TRADE OF UNITED STATES sacrifices made, or expenses incurred, for the preservation of the ship and cargo." Ordinary losses and damages sus- tained by the ship must be borne by the shipowner. A sacrifice to be classed as general average must be voluntary, extraordinary, for the benefit of both ship and cargo and incurred in an emergency. Barratry, Seizure, and Other Perils. — Barratry is de- fined as any species of cheating or fraud, in a shipmaster, by which the owners or insurers are injured; as, by running away with the ship, sinking or deserting her, by wilful de- viation, or by embezzHng the cargo. It is '' an act of wrong done by the master against the ship and goods." In in- suring a ship and cargo against this peril, the underwriters are taking upon themselves the risk of dishonesty on the part of the master of a ship and his crew. Under the present highly organized system of keeping in touch with ships, resulting from the use of the cable and of wireless telegraphy, the risk from this peril is minimized. The risks from capture, seizure, and detention are ex- cepted in policies by writing the letters F. C. & S. in the margin, which signify ''free of capture and seizure." These, like war risks, may be especially insured against. The enumeration of the perils insured against is fol- lowed, in the standard policy, by the general statement, beginning, ''And of all other perils, losses, or misfortunes." This does not mean that the underwriters assume HabiHty for every kind of peril or loss that may happen. The clause is construed to apply to perils of a very similar nature to those specified. Its effect is to slightly broaden the con- struction of the policy in law. It does not include any peril fundamentally different from those enumerated. Additional Clauses. — In order to make the insurance policy fit the particular conditions applying to the prop- erty insured, it is customary for the underwriters or their agents to add clauses as required. Clauses so added to a poHcy are interpreted as follows : The printed conditions MARINE INSURANCE i8i are modified by first printed clauses pasted to the policy, these by the typewritten or written clauses, and then by clauses written on slips and pinned to the policy. These various additions are known as indorsements. An additional clause found in all standard policies is the one defining the conditions under which partial loss or damage to insured property is to be met. This is known as particular average. Such partial loss must be caused by the perils insured against. LiabiHty for particular average under 5 per cent of the value of the goods insured is excluded in most policies. This form of policy is referred to as an f. p. a. policy, or one free from particular average. Particular charges are expenses incurred for the protec- tion or preservation of the goods insured, other than gen- eral average and salvage charges. These are not included in general average or in particular average. They are covered in the poHcy by the clause granting permission to ''sue, labor, and travel for, in and about the defense, safe- guard, and recovery of the goods." Such special charges are recoverable from the underwriters. While loss from thieves is one of the perils insured against, it is necessary to have an additional clause to cover pilfer- age by a member of the crew or by a passenger. Thieves as used in the policy refers to pirates and other depredators. Other hazards that may be covered by additional clauses include those arising from pilferage, breakage, damage re- sulting from water in the hold, and losses sustained while the goods are on piers or lighters, in warehouses, and on the dock at the port of shipment and at the port of entry. It is customary for shippers to take out insurance on valuable shipments covering all ordinary hazards from the time the consignment arrives at the port of departure until it reaches the consignee. Taking Out Marine Insurance. — Most of the large fire- insurance companies issue marine insurance. Shippers arrange for it either at the place of manufacture or at the 1 82 FOREIGN TRADE OF UNITED STATES port of shipment, as preferred. Large exporters usually take out what is known as an open policy, which is issued for a stipulated length of time. Each shipment is covered under such a policy as it is made. Notice is sent to the insurance company as soon as each shipment is made, and full particulars are given to enable the company to fix the premium. Thereupon a certificate of insurance is issued by the insurance company and forwarded to the shipper. Insurance certificates are made payable to the order of the shipper, who indorses them in blank when they are turned over to a bank as part of a documentary bill of ex- change, or when they are forwarded direct to the consignee. It is customary to take out marine insurance for a sum equal to the selling price of the goods, plus lo per cent, plus the cost of the freight; this is considered to be the value of the goods at the port of destination. Where shipments are financed through a bank, it is necessary for the insurance to be taken out by the shipper; otherwise the security for the draft would be inadequate. When the foreign customer pays cash for the merchandise, he sometimes prefers to arrange for the insurance through his own agent. Marine insurance is issued for goods sent by mail, by express, or by freight. BIBLIOGRAPHY Chubb, Hendon. Development of American Marine Insurance. In National Foreign Trade Convention. Official Report of the Fifth Meeting, April 18-20, 1918. 1918. CoNGDON, Ernest W. General Average. New York, 191 3. Duckworth, L. An EficyclopcBdia of Marine Law. New York, 1907. Duckworth, L. An Epitome of the Law Afecting Marine Insur- ance. 2d edition revised and enlarged. London, 1907. Fox, B. H. Principles of Marine Insurance Essential for the Ex- porter and Importer to Know. Economic World, n. s., vol. 15, pp. 457-8, March 30, 1918. Gow, William. Marine Insurance : a Handbook. London, 19 10. MARINE INSURANCE 183 Gow, William. Sea Insurance According to British Statute. New York, 1914. HuEBNER, Solomon. Property Insurance, Fire aftd Marine In- surance, etc. New York, 1911. Johnson, Emory Richard, and Huebner, Grover G. Principles of Ocean Transportation. New York, 191 8. Keate, Henry. TIw Students^ Guide to Marine Insurance. 191 1. Leake, P. D. Marine Insura^ice Time Premium Tables. Chi- cago. 0\VEN, Douglas. Ocean Trade and Shipping. New York, 1914. ScRUTTON, Thomas Edward. Charter Parties and Bills oj Lading. Toronto, 19 14. Templeman, Frederick. Marine Insurance ; Its Principles and Practice. London, The London Chamber of Commerce, 1903. CHAPTER XV THE EXTENSION OF CREDIT The Importance of Credit. — One of the most vital factors in foreign trade is the term of credit upon which business is conducted. The statement is persistently made that the average American manufacturer does not meet his European competitor in the matter of the extension of credit to his foreign customers. Investigation tends to show that this charge is not made without cause. While there are manufacturers in the United States who offer just as favorable credit terms to foreign customers as they can obtain from German, English, or other European houses, the average American manufacturer who *' dabbles" in foreign trade is still shy of the comparatively easy credit arrangements demanded by so many European and Latin American importers. It is an estabhshed fact that the bulk of export business of the world is transacted on a basis of 90 days sight or longer. European houses that have built up extensive and profitable business with foreign customers have established the custom of selling goods on these terms, or on even more liberal terms. The American manufacturer who is not prepared to finance his shipments on this basis cannot hope to carry on a successful direct export business. He must sell through an export house, which will pay cash at the seaport, and exact the usual middleman's profit. One reason for the failure or discouragement that has met the efforts of American manufacturers to estabKsh a profitable export business is that they have attempted to do business on a cash or practically cash basis. They have expected to receive cash with the order or when the 184 THE EXTENSION OF CREDIT 185 order was shipped. Others have thought to extend credit only until the goods were received by the customer, drawing a draft to be accepted through a bank before the bill of lading was delivered, the draft to be paid at sight or at thirty days sight. This is only practicable when there is little or no competition from houses of other nationahty. Necessity for Credit. — The necessity of transacting for- eign business on a credit basis is evident. In the first place, that is the established custom in export trade and the firm that refuses to extend credit cannot get the busi- ness. The time required for the delivery of goods and for their passage through the custom-house is an important factor that makes the payment of cash in advance by the importer a hardship in many cases. The custom of some manufacturers of demanding ^'cash against documents" in New York is one that all exporting firms would like to follow, but it is not one calculated to build up an extensive and permanent foreign trade. Countries devoted principally to agriculture are es- pecially dependent on credit. When the crops are marketed the farmer pays his bills, with the result that the retailer who has extended credit to the farmer is enabled to meet his obKgations at this time. The importer is then in a position to pay for the foreign goods he has purchased throughout the year, and this is the system that he is de- termiined to follow. To be called upon to pay for imports at an earher date would seriously handicap many large firms of unquestioned standing in Latin America and other countries where the tide of business ebbs and flows with the seasons. Another factor of importance in credit arrangements is the seasonal fluctuations in exchange. This is especially true in regard to Latin America. Exchange is profitable there at the time the principal exports are being marketed ; consequently, this is the time when importers prefer to pay their bills. At this time there is an influx of bills of ex- 1 86 FOREIGN TRADE OF UNITED STATES change from foreign buyers, and exchange on other coun- tries may be purchased at a low rate. Wherever possible, business finns the world over desire to turn over the goods they purchase before paying for them; otherwise, too much capital is required to carry on business. Where there is a close business relation between importers and banks, and money can be borrowed at low rates of interest, the demand for a fairly long credit period is not so consistent, but where banks ask a high rate of interest, as in many parts of Latin America, where 12 per cent is not considered exorbitant, the term of credit is of the ut- most importance. Not infrequently the obtaining of a liberal credit term quite overbalances considerations of price and quality, and contracts are given on this basis. Credit Caution. — It must not be assumed that because the American manufacturers have been criticised for a narrow credit policy in foreign trade a looseness or care- lessness in credit arrangements is to be reconmiended. There are certain fundamental business principles that govern here just as in domestic transactions. For the American manufacturer to take undue risks, to extend credit to foreign customers without thorough investigation of their financial responsibility and business standing, to sell goods without having a definite agreement as to the time at which payment is to be made, or to encourage open accounts, except in special cases, are alike unwise, unbusi- nesslike, and undesirable methods. Whenever possible, personal investigation by a repre- sentative of the manufacturer is made of the financial standing and business reputation of prospective customers, and this information is checked up from time to time. This is one of the duties of travelling salesmen in foreign fields. The information thus gained is used as the basis for further and systematic investigation by the credit de- partment or whoever has this branch of the foreign busi- ness in charge. Inquiries are continually being received THE EXTENSION OF CREDIT 187 by United States consuls as to the responsibility of foreign firms. While consuls are instructed to send to exporters making inquiry the names of commercial houses in good repute who might be interested in their lines, they are forbidden to report upon the financial standing or commer- cial repute of business men or houses in their district. The various channels through which reliable credit information can be obtained will be discussed elsewhere. The different methods used in the extension of credit to foreign customers will now be considered. Methods of Extending Credit. — There are three distract ways in which credit may be extended to foreign customers. The first and most corrmion method is to make the ship- ment subject to the acceptance of drafts, which are for- warded along with the bill of lading and other documents to a bank in the foreign country for collection. The second method is to make the sale on open credit. The third and least common method is to sell on long-time credit. Each of these requires careful study. Credit Against Acceptances. — The basis on which the greater part of international trade is transacted is ninety days credit. Such credit is extended only against the ac- ceptance of a draft, which is attached to the bill of lading and forwarded through a bank. The insurance certificate and a copy of the invoice usually accompany the draft and bill of lading. Sometimes the invoice is omitted. The three documents first mentioned comprise a foreign commercial bill of exchange. The draft represents the amount due the manufacturer for the goods specified in the bill of lading plus whatever charges are rightfully added. The bUl of lading is the contract between the shipper and the transportation company for the carrying of the mer- chandise. The importer or consignee cannot obtain posses- sion of the goods without the bill of lading. When the documents are received at the foreign bank to which they are sent by the local bank, the consignee is 1 88 FOREIGN TRADE OF UNITED STATES notified. He may accept the draft and secure the bill of lading at once, or he may prefer to wait until he is certain that the shipment has arrived. Occasionally foreign con- signees insist upon taking their time before accepting the draft, leaving the goods on the docks or in the warehouse until they need them. By so doing they secure longer time in which to make payment, as drafts are usually drawn at a specified number of days after sight. In the case of a ninety-day draft, some firms allow 30 days for the arrival of the goods and 30 days more for the receipt of the payment, making a total of one hundred and fifty days credit. It is customary in Latin America and in some other countries to charge interest at the rate of 6 per cent per annum from the date of the draft until the date of payment. This is an important factor, as it makes the financing of shipments by discounting drafts much easier. While ninety days is the usual credit term, documentary drafts (those attached to bill of lading and forwarded through a bank) are sometimes drawn for a period of six, nine, or even twelve months from date or from sight, with interest at 6 per cent. Open Credit. — Foreign business is sometimes done on a basis of open credit. This means that goods are sold T^th the agreement that payment shall be made at the end of a certain fixed period, as sixty or ninety days. The bill of lading is sent direct to the customer, and the acceptance of a draft is not required. The customer is expected to remit at the expiration of the credit term. It is sometimes agreed that the manufacturer will draw on the customer when payment is due. It is to be noticed that such a draft, drawn on a customer after he has received the goods, is quite different from a documentary draft. It is called a clean draft, because no documents are attached, and its acceptance rests with the drawee, v/ho may refuse to accept without materially impairing his credit in banking circles. Refusal to accept a documentary draft results in the non- THE EXTENSION OF CREDIT 189 delivery of the documents. Refusal to honor such a draft after it is accepted seriously impairs the credit standing of the drawee. While many Enghsh firms allow open credit accounts, they are usually confined to old customers of known re- liability and highest financial standing. Exporters main- taining a branch office or resident agent in a foreign mar- ket can extend open credit without incurring undue risks. However, the use of the documentary draft or com.mercial bill of exchange is favored by the most successful exporters. It is a principle of all business, applying to foreign as well as to domestic transactions, that unnecessary risks, careless methods, and the haphazard extension of credit are bound to result in annoyance, misunderstandings, and loss. A consignee who receives goods with no obligation to pay may be tempted to delay, evade, trump up claims for shortages, or to ask for unwarranted rebates or discounts, all of which could have been avoided by close adherence to business principles on the part of the exporter. William E. Peck, a successful New York exporter, has this to say of open credits: *' There is a sufiicient risk in draft operations without even considering business on open account, and the shipper vrho is foolish enough to attempt the latter is doomed to failure. Most of the merchants south of the equator, especially in South America, know that American shippers do their export business against drafts instead of an open account and it is unnecessary, therefore, to incur this risk." Long-Time Credits. — Exporters are sometimes called upon to sell goods on long-time credits, extending from one to three years. Such accounts draw a fixed rate of inter- est. As a rule payments are required at stated intervals. In some cases security is given in the form of a mortgage. The occasion for such credits is the sale of expensive ma- chinery or equipment to large and responsible firms, or other equally important sales, seldom made except after I90 FOREIGN TRADE OF UNITED STATES personal investigation on the part of the manufacturer or his representative. As a rule the term of credit does not exceed six, nine, or twelve months, at the most, though in case of adverse business conditions that particularly afifect the importer, English and German firms have followed the custom of extending the time of payment to meet the neces- sities of the case. By so doing they have cemented the closest business relations with valuable customers, without incurring serious risks or losses. Interest is charged on the extension of time thus granted. Foreign Credit Department. — Just as a credit department is found to be essential in every large mercantile business engaged in domestic trade, so does foreign trade necessi- tate the placing of this important phase of the business in trained and competent hands. To accept the rec- ommendation of salesmen, anxious to increase the volume of their sales, as to the responsibility of foreign customers, when the recommendation of just as capable and trust- worthy salesmen in regard to the extension of credit to customers at home would have very little \veight, is a policy that is unsound. Manufacturers having salesmen in foreign markets expect them to carefully investigate and report on the financial standing and responsibility of prospective customers, but these reports are not in them- selves sufficient. The credit department is constantly on the alert securing all of the credit information possible, using to this end every available means. There are four distinct phases of the foreign credit man's work. He must know, first, how to assemble credit in- formation in regard to foreign customers; second, how to safeguard foreign accounts, once they are opened; third, how to keep in touch with his customer so as to ascertain the changes that may occur in his business standing; fourth, how to make collections abroad. Even in firms where there is no credit man who has charge of this branch of the business, there is some one who attends to this important THE EXTENSION OF CREDIT 191 work, and the good judgment and thoroughness here dis- played are an important factor in the success of the foreign trade developed by the firm. Each of the four di\dsions of the work of the credit department will now be considered in some detail. How to Assemble Credit Information.— Before extend- ing credit to foreign customers a thorough investigation as to their financial responsibility and business standing is necessary, just as in domestic business. Questions to be determined before the extension of credit include the nature and extent of the customer's business, his financial worth, business standing, reputation in the community, and the way in which he has met his obligations in the past. In domestic trade the first method taken to ascertain the facts required about a customer is to ask him to make out and forward a detailed statement as to his assets, liabiHties, net worth, the volume of his business, the amount of money he has in the bank, etc. This method is not familiar to all merchants in foreign countries, and unless they are approached with the utmost tact they take offense and break off all business relations \nth the firm asking for the statement. Pointed questions as to assets and Ha- bihties, which are answered as a matter of course by Ameri- can merchants, are particularly objected to by many for- eign business men in good standing. A custom followed by some successful credit men is to preface the request for credit information with a statement of the same character as to the financial standing and responsibility of the American firm sending out the request. The explanation is given that since the opening of a credit account is anticipated, it will be mutually advantageous for each party to the transaction to know something about the rehability and business standing of the other. The customer needs to know that the firm with which he is dealing is a responsible one; otherwise, it would be ill- 192 FOREIGN TRADE OF UNITED STATES advised for him to accept a draft before examining the con- tents of the shipment. The exporter must be assured that his customer is a business man accustomed to fulfilling his obligations; otherwise, the sale of goods on credit terms en- tails too great a risk to be undertaken. Some of the most successful credit men in America report that they seldom fail to receive satisfactory and courteous replies to such requests for credit information, which are invariably ex- pressed in such polite phrases that exception can hardly be taken to them. While answers may not be given to a long list of specific questions, other valuable information is given, including the names of American firms and local or American banks with whom they have transacted busi- ness. Another method of obtaining foreign credit information is through application to a bank or banks doing business in the customer's home market. Such inquiries may be sent direct to the foreign bank or may be made through an American bank. American branch banks located in for- eign markets give much attention to the gathering of credit information for the benefit of clients of the home bank. They will usually furnish any information which they have in regard to a foreign firm's credit standing w^hen the rea- son for desiring the information is specifically stated. The branch banks of the National City Bank of New York, of the Guaranty Trust Company, the Mercantile Bank of the Americas, the Irving Trust Company, and of other banking corporations, are spending much time and effort in gathering reliable credit information about the business firms of the various centres in which the banks are located. This information is furnished free of charge to any established American firm which makes a specific inquiry. The exchanging of credit information among American manufacturers is becoming common. Hence, the credit man has no hesitancy in applying to any American firm THE EXTENSION OF CREDIT 193 given as a reference as to the business standing of a foreign customer. Often valuable information as to the business methods of a prospective customer as weU as to liis financial standing is thus obtained. The free interchange of such information is bound to be of advantage to American manu- facturers. Foreign banks also answer inquiries as to the business standing of local firms, though the information thus ob- tained is often meagre and cannot always be implicitly de- pended upon. No bank is anxious to impeach the standing of its clients. Neither is a bank expected to answer ques- tions propounded by strangers with as much fulness as it gives to the inquiries of its own customers. There has been a decided tendency on the part of some foreign banks to withhold credit information from manufacturers with whom they have no business relations or sympathies, especially if they belong to a nation that is trying to break in on the trade of countries with which the banks are affiliated. The mercantile agencies afford a reliable means of obtain- ing credit information. There are two such agencies in the United States having numerous branches in the foreign field. These are the agencies conducted by R. G. Dun and Company and Brads treet. They maintain branches in all of the large trade centres and have reporters and corre- spondents in practically every market. They can usually furnish, on short notice, valuable data as to the credit rating of any foreign firm. If they have not this data on file, they w^ill procure it upon request. Their charges for furnishing credit information are reasonable. The National Association of Manufacturers, which main- tains headquarters at New York City, has been for years assembhng credit information about foreign business houses. For this purpose the association has over 1,800 correspon- dents located in various markets in all quarters of the globe. These correspondents furnish valuable information as to 194 FOREIGN TRADE OF UNITED STATES the business rating and financial standing of merchants and firms in the foreign field. Membership in the association carries with it the right to a limited number of credit re- ports, and for a small additional fee other reports are furnished. The Philadelphia Commercial Museum maintains a credit information bureau for the benefit of its members. It assembles this information in practically the same way as does the National Association of Manufacturers. The services which the museum is prepared to render its mem- bers are so varied and so valuable that membership in it is sought by practically all large manufacturers. Among these services may be mentioned the translation, for a nominal fee, of foreign correspondence, the preparation of reports on business conditions and business opportunities in any foreign market which the member may be inter- ested in, the supplying of specific information as to customs regulations, or other laws affecting commerce, and the col- lection of deHnquent accounts in foreign countries. The fees charged in each instance are reasonable. The American Manufacturers Export Association fur- nishes credit information to its members. It also assists members in many other ways in developing and carrying on a profitable export trade. Headquarters are located in the Manhattan Life Building, New York City. The various chambers of commerce, manufacturers as- sociations, and credit men's organizations are prepared to give some assistance in the matter of collecting foreign credit information, and the capable and alert credit man is careful to keep in touch with all such organizations. From the brief review just given of the various channels through which credit information in regard to foreign cus- tomers may be secured, it is evident that the obtaining of such information is not so difficult as might appear at first thought. Hence, the manufacturer who hesitates in re- gard to extending credit to foreign customers on the grounds THE EXTENSION OF CREDIT 195 that it is difficult or impossible to obtain reliable credit data needs the assistance of an expert along that line. How to Safeguard Foreign Accounts. ^The first way in which the credit man safeguards his foreign accounts is by making every effort to secure reliable and complete credit information in regard to every foreign customer. This enables him to determine to just what extent credit may be extended to each customer. Unless the reports relative to a customer's credit standing are practically uniform in stating the risk to be a good one, the credit man will insist upon business being transacted on a cash basis. The credit man can further safeguard his foreign ac- counts by using his influence in making the policy of the firm one that invariably requires that every foreign order be filled, packed, and shipped exactly as directed. By so doing the number of legitimate claims for substitution, shortages, or damages sustained in transit resulting from improper packing are reduced to the minimum or entirely ehminated. Co-operation between the credit department and the other departments also has the effect of insuring that exact attention to every detail, in making out shipping and other documents, which is so important a factor in every foreign shipment. The proper making out of every invoice, bill, statement, biU of lading, draft, etc., is an important ele- ment in safeguarding a foreign account, for delays, misun- derstandings, and dissatisfaction are thus avoided and no excuse given the consignee to delay payment while com- plaints are adjusted. There are certain legal requirements in regard to drafts that the vigilant credit man must know. In most Latin American countries the words ''Value received" or ''Value on account" are required; these words are added when the draft is indorsed, as well as the place and date of indorse- ment. In nearly all countries a draft must be- noted and protested in case it is dishonored by the non-acceptance or 196 FOREIGN TRADE OF UNITED STATES non-payment of the drawee. Otherwise it loses its status as a promise to pay and becomes, provided it has been accepted, a mere evidence of indebtedness. The first step in protesting is called noting. It is done by a notary, who, when a draft is dishonored, notes the fact on the back as the grounds of a protest. A protest is a formal declaration made by a notary public, at the request of the holder of a draft, for non-acceptance or non-pay- ment of the same, protesting against the drawer and others concerned for the exchange, charges, damages, and interest. In most European countries, after protest for non-accep- tance, the holder is required to present the draft again at maturity, and if it is not paid he must protest for such non- payment. In most countries the protest for non-payment of a draft must be made on the day it is due, though in France one day of grace is granted and in Germany two days are allowed. Not all banks taking drafts for collec- tion will protest in case of non-acceptance or non-payment unless they are so instructed when the draft is sent to them. Hence, such instructions should accompany every draft forwarded through a bank. A safeguard used in drawing a draft is the insertion in it of the name of a person, firm, or bank to whom the holder may refer in case the draft is dishonored. The name so inserted is preceded by the words "In case of need," or "In case of need notify." The person so specified is author- ized to either take up the draft (by paying it) or to use his good offices to induce the drawee to honor it. He is often called "the referee in case of need." How to Keep in Touch with Foreign Risks.— The neces- sity of keeping in close touch with every foreign customer to whom credit has been extended is apparent. Even though the firm may be one of the highest financial stand- ing and the credit may have been granted only after a thorough investigation, changed conditions may at any time seriously affect the credit standing of a foreign as THE EXTENSION OF CREDIT 197 well as of a domestic firm. Successful credit men confirm the credit reports they have on file at least once a year. They also make use of any new avenues of information which may be brought to their attention. A close scanning of the various trade bulletins and trade papers often re- sults in the acquisition of valuable information in regard to business conditions in foreign markets which materially affects the credit status of the firms located in those mar- kets. In case of panics, unfavorable conditions in regard to exchange, business depressions, and similar conditions, the credit man must guard his accounts in those countries with especial care and be prepared to act promptly in case of emergency. The Collection of Foreign Accounts. — Even when the greatest care is exercised in the extension of credit it oc- casionally happens that foreign customers become delin- quent in making payment. The first thing for the credit department to ascertain is the reason for this delay. It may be dissatisfaction with the goods and the consequent demand for discounts or deductions, or it may be the in- ability of the customer to meet his obhgations when due. If payment is not made because of dissatisfaction on the part of the customer, the wise credit man makes every eft'ort to come to some amicable settlement. In every case where a claim is made for shortages, for damages incurred during transit due to poor packing, or for other allowances, the most careful attention must be given to the complaint. If it seems at all probable that the claim is well founded, fair and even generous allowances are ad\dsable. In de- ciding as to the justice of the claim, the reputation of the customer, his record in dealing with other firms, and his standing in business circles have great weight. As a rule, when a reputable foreign firm of excellent business standing makes a claim there is good reason for it. If claims are to be allowed, this should be done promptly. Protracted correspondence and objections, with the final and seemingly 1 98 FOREIGN TRADE OF UNITED STATES unwilling capitulation of the creditor, only result in the loss of prestige and the loss of business. On the other hand, readiness to admit and rectify mistakes often re- sults in the obtaining of new and important business. All correspondence with foreign debtors should be con- ducted with tact and politeness; a brusque or too direct statement may be deeply resented by a Latin American or other foreign customer, even though no offense was in- tended. Courtesy is a valuable business asset. While the policy of adjusting claims made by foreign customers in a spirit of fairness and even of generosity is generally advisable, there are, nevertheless, instances wherein the foreign customer makes unwarranted and un- founded complaints and claims. These probably occur no oftener in foreign than in domestic business. When a claim is patently unwarranted, a full explanation of the facts, coupled with a firm though politely couched refusal to allow the claim, is necessary. If pa>Taent is still with- held, the mediation of a bank or other agency is sometimes sought with good results. If all efforts for amicable ad- justment fail, the services of a lawyer may be necessary. Only such foreign lawyers as have been recommended by a bank or mercantile agency are retained. Whenever possible, Htigation is avoided, as a non-resident trying to collect a debt in a foreign court labors under certain dis- abiHties and disadvantages which need not be enumerated here. When correspondence and the mediation of a bank or other third party alike fail to secure the payment of a foreign account, it is generally turned over to the collection department of one of the agencies mentioned in connec- tion with the assembling of credit information. The Na- tional Association of Manufacturers has an especially well- organized collection department conducted for the benefit of its members. The mercantile agencies have collection departments which handle foreign accounts. American THE EXTENSION OF CREDIT 199 banks having branches in the foreign market will usually give assistance in trying to force collection of a draft, and where litigation is necessary such banks will engage a reputable lawyer for the American manufacturer. BIBLIOGRAPHY Bartlett, Dudley. Facilities Necessary for Safe Clearance of For- eign Credit Risks. In Official Report of the Fifth National Foreign Trade Convention. 1918, pp. 403-422. Gonzales, V. Credit and the Future of American Foreign Trade. In Proceedings of the International Trade Congress. New York, 191 5. Matthews, James. Credit Conditions in South American Coun- tries. In Journal of Accountancy, vol. 22, pp. 443-450. De- cember, 1916. Tarlton, W. E. What Part Credit May or Should Play in the Development of Our Foreign Trade. In Official Report of the Fifth National Foreign Trade Convention, 191 8, pp. 390-403- U. S. Bureau of Foreign and Domestic Commerce. Banking and Credit in Argentina, Brazil, Chile, and Peru. Washing- ton, 1914. (Special agent series no. 90.) U. S. Bureau of Foreign and Domestic Commerce. Foreign Credits. A study of the foreign credit problem with a review of European methods of financing export shipments, by Archibald J. Wolfe. Washington, 1913. (Special agent series no. 62.) Von Seebeck, Georg. Credits Against Imports and Exports. In Proceedings of the International Trade Conference. New York, 191 5. Zimmerman, T. J. Credits and Collections ; the Work and Scope of the Credit Department . . . Foreign Credits. Chicago, 1907. CHAPTER XVI FINANCING EXPORT SHIPMENTS Handicaps to Our Export Trade. — Superiority of prod- ucts, indomitable energy, and unflagging enterprise, com- bined with a great wealth of natural resources, have made the United States a leader among the nations of the earth in international trade. In competition with the exporters of other nations, our manufacturers and exporters have been handicapped in more than one respect. An inade- quate merchant marine and banking facilities for the ex- tension of foreign trade far inferior to those possessed by the other great commercial nations have been two handi- caps to our foreign trade development. Until recently the facilities for financing exports have been entirely inade- quate, and in no way comparable with those at the service of the English and German exporter. The comparatively long-term credits demanded in many markets make it essential for the manufacturer to have banking facilities that enable him to realize on his shipments before the cus- tomer pays for them. In the words of an officer of the Guaranty Trust Company of New York: "The basis for the successful commercial attainments of England and Germany is to be found in the underlying system of credits granted by bankers to im- porting and exporting houses. Similar and just as effec- tive results may be obtained for Americans by combined efforts along the same lines." Banking Facilities Needed. — The first consideration of the average manufacturer or exporter in developing trade with other countries is the willingness and ability of the 200 FINANCING EXPORT SHIPMENTS 201 domestic banks to discount or buy commercial paper based on legitimate business transactions with other nations. Only when a manufacturer can depend upon being able to sell his drafts on his foreign customers to an American bank, preferably to the one he does business with, is he able to extend the credit necessary to the successful carry- ing on of an extensive and profitable foreign trade. Of course there are exceptions to this in the case of very large and prosperous manufacturers, but the number of such concerns is comparatively few. While the direct financing of foreign shipments by buy- ing or discounting the drafts drawn against such shipments is the primary banking facility demanded by those engaged in foreign trade, there are other ways in which banks have a direct and highly important part in trade development. These include the assembling of rehable credit information in regard to foreign merchants and importers and the furnishing of such information to American exporters upon request, the guarding of our exporters against losses through fluctuations in exchange, and the arranging, either through correspondent or branch banks located in foreign countries, for the collection of payment for the goods when such pay- ment is due. In case the shipment is not accepted by the importer, the exporter must depend largely upon the corre- spondent or branch bank to make the best arrangements possible for the disposal of the goods to the best advantage. Benjamin Joy, Vice-President National Shawmiut Bank of Boston, says in regard to the functions of banks in fur- thering export trade: "The exporter must take the selHng risk and the bank must take the financial risk. The bank's responsibihty is the collection of up-to-date and accurate information, the offering of proper faciUties for financing the merchant in the most economical way, and for the proper handling of the shipment at the other end and the collection of the amount involved when due.'' The Federal Reserve Act of 191 5 made it possible for 202 FOREIGN TRADE OF UNITED STATES American banks to extend the needed facilities for the development of foreign trade, and the leading banks are taking advantage of this and showing a disposition to ex- tend to the exporter the facilities thus made possible. A brief consideration of the provisions of the Federal Reserve Act directly relating to foreign trade is necessary. Effect of the Federal Reserve Act. — There are three provisions of the Federal Reserve Act of the greatest im- portance to all engaged in foreign trade. The first is the provision authorizing the various Federal Reserve Banks to rediscount "notes, drafts, or bills of exchange arising out of commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, of which the proceeds have been used or are to be used for such purposes. '' The second is the provision authorizing any member bank to accept "drafts or bills of exchange drawn upon it and growing out of transactions involving the importation or exportation of goods having not more than six months sight to run.'^ It is further provided in this connection that such acceptances may be rediscounted at any Federal Reserve Bank when they have a maturity at time of rediscount of not more than three months. The third provision having direct bear- ing on our foreign trade is the one authorizing American banks having a capital and surplus of $1,000,000 to estab- lish branch banks in foreign countries. The fiirst provision referred to makes the discounting or buying of bills of exchange based on commercial transac- tions especially desirable for banks, for it provides a ready market for the rediscount of such paper. The second pro- vision permitting bankers^ acceptances affords a convenient means of financing export shipments that was hitherto for- bidden by law, although it is a method long used in England and other countries. It will be more fully discussed later. The permission to establish branch banks in foreign coun- tries is looked upon as of the greatest importance. A FINANCING EXPORT SHIPMENTS 203 promising beginning in that field has been made in Latin America, where the National City Bank of New York made the initial step in November, 1914, by establishing a branch bank in Buenos Aires, Argentina. This was followed by the establishment of other branches from time to time in Latin American and other countries. The International Banking Corporation has established branches in India, China, Japan, and elsewhere. The Mercantile Bank of America, the Asia Banking Corporation, and the Guaranty Trust Company of New York were early in the field with branch banks in important trade centres. Other banks are rapidly taking up the work, so that the banking facili- ties offered the American exporter are fast becoming the equal of those offered by the other leading commercial nations. Methods of Financing Exports. — Drafts used in connec- tion with the financing of exports are of two classes: first, those drawn on banks or bankers; second, those drawn on individuals, usually upon foreign customers. Those of the first class are referred to as bankers' accep- tance or acceptances. In accepting such drafts banks are extending credit either to the American exporter, or to the foreign importer, who arranges for such acceptance through his local bank. Those drafts drawn on individuals are usually docu- mentary drafts, i. e., they are attached to the bills of lad- ing, insurance certificate, and other documents required in making export shipments. Bankers' acceptances and docu- mentary drafts are quite distinct, and their use must be carefully distinguished. Bankers' Acceptances. — Since the passage of the Federal Reserve Act the use of bankers' acceptances as a means of financing export shipments has become usual. The ex- porter draws a sight draft (usually for sLxty or ninety days) on the bank for the amount of the shipment. When this draft is accepted by the bank it is discounted by the ship- 204 FOREIGN TRADE OF UNITED STATES per, eitlier at the bank upon which it is drawn or elsewhere. He is thereby enabled to realize on his shipment before it leaves the United States. The bank charges a commission for its acceptance. A feature of this plan is that returns from the shipment, which is sold under the usual docu- mentary-draft arrangement, are received by the shipper by the time he is required to take up his draft on the bank. If there is delay, the bank will ordinarily renew its accep- tance for a reasonable period. Bank acceptances have been the standard credit instru- ment in Great Britain and other countries for years. By their use the element of risk is eliminated, so far as the purchaser of the draft is concerned. They command the best discount rates in the market; in fixing the discount rate, only the interest on the money paid for the bill until its maturity is considered. It is thus seen that the accep- tance of a draft by a bank of repute makes such a draft, known as an acceptance, easily marketable. The accep- tance brings the banker an interest return and m.akes the conversion of the draft into money by the exporter an easy matter. Since a draft drawn by an exporter against a foreign shipment is made large enough to cover the dis- count and other expenses, the exporter can extend the usual sixty or ninety days credit to his foreign customer without losing a day's interest on the amount of the bill. When he discounts the bill of exchange he receives the full amount of the invoice plus the cost of shipping, insurance, etc. While the importer has these charges to pay, he is, never- theless, buying under favorable conditions, for he is not required to pay the bill until maturity. He thus has the goods in his possession before he has paid for them, and may dispose of them before the time of payment is at hand. The advantage to the bank which accepts a draft is thus expressed by John Clausen, vice-president of the Chemical National Bank of New York: FINANCING EXPORT SHIPMENTS 205 The power of a bank to accept a draft or bill of exchange enables it to make use of and to sell for a consideration its credit, and so lend, for legitimate use in trade, vast sums without depleting its reserve or impairing its capability in making additional loans and advances to its clients. Bank acceptances based on credit established by the foreign customer through his local bank are also used to a limited extent. In this case, the foreign customer ar- ranges with his local bank to request its American corre- spondent bank to accept for its account a documentary draft drawn by the exporter. At the time agreed upon for the payment of the goods the American bank looks to its foreign correspondent for cover. The draft drawn by the exporter on the American bank is usually discounted by the bank accepting it. Thus, the exporter has his money for the shipment and the foreign buyer has the advantage of a term of credit. He pays his local bank a commission for arranging the acceptance. A foreign firm of the high- est standing may be able to arrange directly \^dth an Ameri- can bank for its acceptance of the draft drawn by the ex- porter, though the acceptance is usually arranged through the buyer's local bank. Discounting Documentary Drafts. — As the usual method of extending credit to a foreign importer is by means of the documentary draft, drawn on the foreign customer, payable either upon the delivery of the goods or at a later date, so the common method of financing export shipments is for the exporter to dispose of the documentary draft drawn on his foreign customer either to a bank or to a broker. Such drafts are said to be sold or discounted, the words being used interchangeably. Clean drafts are disposed of in the same way. The bank or broker has re- course to the drawer of the draft in both cases, that is, the drawer of the draft is responsible for its payment. In case of a documentary bill of exchange, which is another name for a documentary draft, the bank or broker retains 2o6 FOREIGN TRADE OF UNITED STATES a lien on the goods until the draft is satisfied. The usual period for which such drafts are drawn is either for sixty or for ninety days after sight. The documentary bill of exchange consists, as explained in the chapter devoted to The Extension of Credit, of the draft, the bill of lading, the insurance certificate, and the invoice. Each of these documents is issued in duplicate, in case one set may be lost. They are plainly marked '' original " and ** duplicate." Instead of marking one draft original and the other duplicate, the words ''first of ex- change" and "second of exchange" are often used. The set of original documents is sent by the steamer in which the merchandise is shipped or by a faster one; the duplicate set is sent by the next steamer. For many years the custom has prevailed of drawing foreign commercial drafts either in pounds sterling or in the money of the country to which the goods are shipped. It is estimated that three-fourths of the drafts drawn in international trade have been in pounds sterling. The establishment of ''dollar exchange" is desirable for many reasons, and a well-organized effort to bring this about has produced tangible results, especially in our trade with Latin America. This subject is more fully discussed in the chapter devoted to the subject of Foreign Exchange. When a foreign commercial bill of exchange is drawn in sterling or other foreign currency, the expenses, such as commission charged by the bank or exchange broker, in- terest, postage, and other incidental expenses, are indirectly charged to the drawee, by the simple method of fixing the rate of exchange so as to include these. In case the draft is drawn not in sterling or other foreign money, but in dollars, the total of these charges must be added to the cost of the shipment. When this course is pursued, a direct understanding to this effect is necessary; otherwise, the drawee may refuse to pay the charges. Likewise, objections may be made to including these in- FINANCING EXPORT SHIPMENTS 207 cidental expenses in the amount of the draft when it is drawn in sterhng or other foreign money unless it has been agreed upon that the rate of exchange prevaiUng in the American market on the day of shipment is to be the rate by which the conversion from dollars is to be made. Such agreements are easily made in advance and they are important because they avoid misunderstandings, dissatis- faction, and loss of business. In disposing of a foreign commercial bill of exchange to a bank or in forwarding one for collection through a bank it is necessary to give definite and exact instructions in regard to the deHvery of the documents, the action to be taken in case of non-acceptance or non-payment of the draft, and of the disposition to be made of the shipment if for any reason it is not taken by the consignee. Included in the instructions are the exact conditions in regard to payment. If payment is to be made upon deHvery of the papers, the words ''documents for payment" are used, sig- nifying that the bill of lading and the consequent posses- sion of the goods are to be withheld until the draft is to be paid. The letters d. p. are used to express this condition. If the delivery of the documents, w^hich gives possession of the goods, is to be made upon acceptance of the draft by the drawee, the words ''documents for acceptance" are used. This may be expressed d. a. The use of such ab- breviations, however, is not favored by careful exporters. The writing out clearly and definitely of all instructions is preferred, as by so doing misunderstandings are often avoided. As has been said, a bank discounting a documentary draft for an exporter has recourse to the latter in case the draft is not satisfied by the importer. Thus, the financial responsibihty of the drawer of a draft is of paramount importance, though the nature of the merchandise and the country to which it is being shipped are also important considerations. If the goods are of a perishable nature the 2o8 FOREIGN TRADE OF UNITED STATES risk is greater; likewise, if they are of special design and are not of staple character the risk is increased, for the chances of disposing of them to advantage in case the con- signee does not accept them are less than in the case of standard machinery or of such staple products as wheat and other raw materials. The reputation of the drawee is also considered by the bank discounting a commercial bill of exchange, but this is of much less importance than that of the drawer of the draft, to whom the bank looks for reimbursement in case the draft is not covered at maturity. Del Credere Guaranty. — The negotiation of a documen- tary draft is sometimes facilitated by the use of the so- called del credere guaranty. This is a guaranty given by a foreign bank that the importer will pay for the goods according to his agreement. The guaranty is usually given through the American correspondent of the foreign bank giving the guaranty. The conditions specified vary according to the agreement entered into between the ex- porter and his customer; this may provide for payment upon the arrival of the goods in the foreign market or upon the maturity of the draft. In any case, though it does not insure immediate payment to the shipper, it makes the sell- ing of the draft on the customer thus guaranteed a com- paratively easy matter. If the customer fails to meet his obligation, the shipper has recourse to the bank which gave the guaranty. The customer pays the foreign bank a commission for making this guaranty. A Typical Transaction. — Since the discounting of docu- mentary drafts is the commonest method used in financing export shipments, a definite understanding of the entire transaction is of the utmost importance. This will be made clearer by tracing such a transaction from the be- ginning to the end. Let us say that the firm of Wheeler & Layton, manufacturers of agricultural machinery in Illinois, agrees to sell to Rodrigo Martinez, a Brazilian mer- chant, a consignment of ploughs, the invoice price of which FINANCING EXPORT SHIPMENTS 209 is Si, 000. No c. i. f. quotation is made, but it is agreed that Wheeler & Layton are to pay the inland and ocean freight, the marine insurance, the cartage and other ship- ping expenses, and add these to the invoice price of the ploughs. It is also agreed that payment is to be made by means of a ninety-day documentary draft, drawn in dol- lars, and that the expense of negotiating this draft is to be borne by Rodrigo Martinez. When the ploughs are ready for shipment, they are sent by rail to the port decided upon, which we will say is New York City. The freight is prepaid. The railroad bill of lading and the invoice, with the certificate of insurance, if that has been secured, are immediately forwarded to the agent of Wheeler & Layton at New York. Both the bill of lading and the insurance certificate are drawn to the order of Wheeler & Layton. Their agent in New York is either given a power of attorney which gives him legal authority to indorse them, or they are indorsed in blank before they are forwarded to him. When the ploughs arrive in New York, the agent attends to all the details of shipment, as outHned elsewhere, and then presents the draft covering the full amount due Wheeler & Layton, with the other documents, to the bank or exchange-broker \\dth whom he has arranged to negoti- ate the bill of exchange. The draft is drawn in dollars, as agreed; it is drawn on Rodrigo Martinez, and reads *' Ninety days after sight of this first of exchange (second unpaid), pay to the order of ourselves $1,220.00, value received.'^ The name of the steamship on which the ploughs are shipped is inserted, as is a statement indicating the nature of the shipment. This draft is signed by Wheeler & Layton. It was either drawn by them and forwarded to their agent with the in- voice and bill of lading, or it was drawn later on telegraphic advice of the exact amount of the expenses to be included, indorsed in blank, and sent by registered mail to the agent 2IO FOREIGN TRADE OF UNITED STATES or to the bank discounting it. For even an authorized agent to sign any of the documents forming part of a commercial bill of exchange is not good practice, and usually makes the negotiation of such a bill of exchange difficult. This difficulty is overcome, when time permits, by the agent sending all of the documents to the shippers for their signature. It is more satisfactorily overcome by Wheeler & Layton securing a through bill of lading from the railroad company, which included the steamship bill of lading, and by their negotiating the bill of exchange through their local bank. This is being done more and more in case of car-load shipments, but is not yet the prevailing custom. The New York bank examines each document with great care, and if all are found to be correct and complete in every detail, discounts the draft at the rate agreed upon. As it is drawn for an amount to include the discount, Wheeler & Layton receive payment in full for the amount of the invoice plus all expenses. The New York bank in- dorses the draft and forwards it to its correspondent bank in the Brazilian city where Martinez lives. This bank notifies Martinez to call and accept the draft. He does so, and is then given possession of the bill of lading and other documents, which enable him to get the ploughs from the warehouse. Complete instructions as to the delivery of the documents accompanied the bill of exchange, so that no misunderstanding would occur. The directions on this draft read ^^ Documents upon acceptance." If they had read '' Documents upon payment," Martinez would have been obliged to pay the draft before maturity if he desired to get possession of the documents and so of the ploughs. In this case the local bank would have allowed him the prevailing rate of discount for the number of days the draft was paid before maturit}^ Two methods of financing exports, which do not, however, involve the extension of a term of credit to the customer, FINANCING EXPORT SHIPMENTS 211 may be considered here. These are the commercial letter of credit and confirmed credit. Commercial Letters of Credit.— A large proportion of our import business has been transacted by the use of com- mercial letters of credit. A letter of credit is an authority from the banker who signs it to the banker to whom it is addressed, upon certain conditions to honor the draft of the person named in it. Occasionally letters of credit are addressed to the firm from whom the goods are purchased instead of to a bank in his country. The usual conditions set forth in a letter of credit are the presentation by the shipper of the documents showing that the goods have been shipped as directed and the com- pleting of the transaction within the time allotted. As a rule drafts drawn under the letter of credit are at sixty or ninety days sight, though shorter or longer periods are sometimes stipulated. Commercial letters of credit are being used in export business to a considerable extent. They make the sale of the drafts drawn under them a comparatively easy trans- action, as is the case with all prime bank acceptances. If the banker confirms the letter of credit, the transaction becomes one for the shipper of cash against documents, and the bank has no recourse on him, if the goods are not accepted and paid for by the consignee. Its recourse is to the bank signing the letter of credit. Confirmed Credit. — This is not strictly a form of credit, as it stipulates for the opening of a credit account by the foreign customer with an American bank, with instructions to the bank to accept the exporter's sight draft with bill of lading and other documents attached when the shipment is made. It is called a confirmed credit because the bank with which the foreign buyer opens the account is instructed to notify the manufacturer that such a credit has been es- tabhshed; the credit is thus confirmed by the bank. As the customer has the money in the bank before the ship- 212 FOREIGN TRADE OF UNITED STATES ment is made, he is really paying cash for the goods. He has this advantage, however, that his money is not paid until the goods are actually shipped. The American bank is given exact instructions as to the conditions that are agreed upon as to the shipment, and invariably takes the utmost precautions to ascertain that the goods are being shipped exactly according to the agreement entered in be- tween the foreign customer and the American manufacturer. BIBLIOGRAPHY American Exchange National Bank, New York. Acceptances, Their Importance as a Means oj Increasing and Simplifying Domestic and Foreign Trade. New York, 1913. Arnold, J. J. Financing Cotton. In the Annals of the American Academy of Political and Social Sciences, vol. 38, pp. 579-609, September, 191 1. Guaranty Trust Company, New York. Acceptances. New York, 191 7. Guaranty Trust Company, New York. How Business with Foreign Countries is Financed. New York. Kent, F. I. Financing Our Foreign Trade. Annals of the Ameri- can Academy of Political and Social Science, vol. 36, pp. 492- Soi. National City Bank, New York. Acceptances. New York, 1917. National City Bank, New York. American Banks in Foreign Trade. New York, 191 7. Rovensky, John E. The Development of the American Discount Market and Its Relation to Foreign Trade. (In Proceedings of the International Trade Conference. New York, 191 5.) Van Deusen, W. M. Acceptances. (In Official Report of the Fifth National Foreign Trade Convention. New York, 191 8.) Warburg, Paul M. The Discount System in Europe. U. S. 6ist Congress, 2d Session, Senate document 402. CHAPTER XVII FOREIGN EXCHANGE Domestic Exchange. — An understanding of the subject of Foreign Exchange will be made easier by prefacing that study with a brief review of the methods by which exchange between different places in the United States is carried on. Specific illustrations make the comprehension of these methods easy. Supposing that during the first week of November of last year there was shipped from Chicago to New York City $2,000,000 worth of merchandise, and during the same week Chicago merchants bought from New York firms goods valued at $1,500,000. These goods will be paid for, with few exceptions, by means of checks, bank drafts, and commercial drafts. The checks and bank drafts paid by the New York buyers of Chicago goods will be drawn on New York banks. The commercial drafts drawn on the New York firms by their Chicago creditors will be sent to New York for collection through the local banks. So, as the business stands between the banks of New York and the banks of Chicago, the former will be in debt to the latter for the sum of $2,000,000. But this is offset by the pur- chases, amounting to $1,500,000, which the Chicago mer- chants have made from New York houses. These Chicago buyers mil pay their debts by means of bank checks, bank drafts, and by the acceptance and honoring of commercial drafts drawn on them, through their local banks. Thus, Chicago banks, upon which these checks and drafts are drawn or through which the commercial drafts are col- lected, will be called upon to pay New York banks the sum 213 214 FOREIGN TRADE OF UNITED STATES of $1,500,000. Only the balance, amounting to $500,000, will be transferred from New York to Chicago. But this will not be done unless the balance is in favor of Chicago for some time; one week's balance may and often does quite cancel that of the preceding week, or cause the balance to stand on the other side. The rate of exchange is determined by the condition of this balance between trade centres. If, in a given week, the balance is in favor of Chicago, the banks of that city, hav- ing a goodly credit balance in New York, will be ready enough to sell drafts to merchants or others having pay- ments to make in New York, for this is the easiest and quickest method of getting into their own vaults some of the money due them. In this case, exchange on New York is at a discount in Chicago. But the condition in New York would be just the reverse. Chicago exchange is scarce in New York — there are not enough checks and drafts to can- cel New York's indebtedness to Chicago — hence, the New York banks are not anxious to sell any drafts on Chicago banks, for this would mean increasing their indebtedness to Chicago, so they charge a premium for such exchange. It is understood that in actual business such simplicity as is suggested in the above transactions is seldom found. As a matter of fact, before a balance is struck the entire indebtedness of Chicago, not only to New York banks, but also to all other banks in the country, is compared with the entire amount due Chicago banks from New York and all other points in the United States, and the difiference con- stitutes the balance. The one central clearing-house of the United States is located at New York. Bankers throughout the United States have correspondent banks in New York where they keep deposits at all times. They are, therefore, al- ways in a position to sell drafts on New York or New York exchange. Balances due from the banks of one city to another are usually paid in New York exchange. New FOREIGN EXCHANGE 215 York City is thus the financial centre of the United States, as it is one of the leading financial centres of the vrorld. Just as the bulk of exchange within the United States is that on New York, so the greater part of exchange in inter- national trade has been on London, though the World War has caused New York to gain in importance as a financial centre at the expense of London and continental centres. The important banks of the world have for years had deposits in London banks, which enabled them at any time to draw drafts on London. These deposits have, to a large extent, been transferred in international transac- tions to New York, and dollar exchange on New York is being used instead of sterling exchange on London. Preliminary Definitions. — Foreign exchange is the system by which commercial nations discharge their debts to each other. The e\ddences of such debts are bills of exchange, which are bought and sold the same as any commodity is bought and sold. \\Tien a bill of exchange is sold by a manufacturer to a banker the latter buys the debt; he pays a sum of money down in return for the payment to him of a larger sum at a later date. The difference in the amount paid and the amount called for in the bill of ex- change is the banker's charge for discounting the bill or advancing the money on it before m^aturity. As usually defined, a bill of exchange is an unconditional order in writing addressed by one person to another, re- quiring the latter to pay on demand or at a fixed time a sum of money to or to the order of a third party or to the bearer. A bill of exchange becomes an acceptance when the drawee has signed his name across it, with the date. It is a negotiable instrument transferable by indorsement. The term draft is used interchangeably with the term bill of exchange, although, strictly, all drafts are not bills of exchange. A draft is not necessarily a negotiable in- strument, as it may be drawn subject to certain conditions, as the arrival of goods at a stated place. Bills of exchange, 2i6 FOREIGN TRADE OF UNITED STATES then, are the most common form of draft, but every draft is not a bill of exchange. A check is a draft drawn on a banker payable on demand to the payee, or to his order, or to the bearer. Sight drafts and demand drafts may be drawn either on bankers or on other persons. A check can be drawn on a bank only when the drawer has funds in the bank; a draft may be drawn by agreement upon a bank when the drawer has no funds on deposit. Not until a draft is accepted does it become an obligation on the drawee. The drawer of a draft is the person who draws or signs it; the drawee is the person on whom it is drawn, and who is expected to pay it; the payee is the person to whom or to whose order it is to be paid. The payee may be the drawer, the drawee, or any third person. The indorser of a draft or bill of exchange is the person who signs his name on it other than as drawer or accepter. He does this in order to transfer title to it or in order to guaranty its payment. A bill is indorsed in blank when no person is specified to whom it is to be paid. It may be indorsed payable to some specified person or to his order; a person so speci- fied is the indorsee. Occasion for Exchange. — By means of foreign exchange a pa3rment of any indebtedness in one place is exchanged for a payment in another place. A merchant in New York owing a London exporter for a bill of goods may discharge his debt by buying a bill of exchange, in the form of a banker's check on London, which is forwarded to London and there paid to the exporter. The New York merchant pays his money in New York; the same amount of money but not the same money is paid to the exporter in London. The intermediaries are the New York and London banks involved. The typical example of this buying and selling of debts involves four parties, two located in one country and two in another. We will say that A and B live in the United FOREIGN EXCHANGE 217 States and C and D live in England. A sells goods to C; D sells goods to B. A draws a draft or bill of exchange on C and sells it to B. B buys it because he wishes to cancel his indebtedness to D; B therefore remits this bill of exchange to his creditor D. The draft is drawn on C, so D presents it to C, who accepts it and pays the amount stipulated upon maturity. In this case, only one draft was required to cancel two debts between four people. In actual practice, commercial transactions do not thus offset each other, either in amount or in time. Hence, a bank is necessary as an intermediary. Therefore, A draws on C and sells this bill of exchange to his bank in New York. D draws on B and sells his biU of exchange to his London bank. A's bank forwards the bill of exchange on C to its London correspondent for collection; D's bank forwards the bill of exchange drawn on B to its New York correspondent for collection. The collections are made at the time of maturity. If the amounts specified in the two bills of exchange are equal, two transactions balance each other; if the amounts differ, there is a balance to be settled between the banks. While the importation and exportation of goods between countries give rise to the greater number of transactions in foreign exchange, there are many other factors to be con- sidered. The indebtedness of the United States to other countries may arise in the importation of goods, in the ex- penses of Americans travelling or residing in foreign coun- tries, in the cost for transportation of goods in ships owned abroad, and in the interest due on foreign capital invested here. All payments made on money loaned in the United States by foreign capitalists, all sales made by foreigners of American securities previously bought, all remittances of foreign-born residents of the United States to their rel- atives in foreign countries, all gifts and benefactions made by Americans to the people of other nations, and all loans and investments made by American capitalists in foreign 218 FOREIGN TRADE OF UNITED STATES countries arc transactions which involve the remitting of money or of commercial paper from the United States to other countries. To offset these are payments for our exports, loans made by foreign capitalists to Americans, investments made by foreigners in America, interest or dividends received by our capitalists on money loaned or invested in foreign countries, the proceeds of the sale by Americans of foreign securities previously bought, and all other transactions which involve the remitting of money or of commercial paper from other countries to the United States. The Buying and Selling of Exchange.— All large Ameri- can banks conducting a direct foreign exchange depart- ment have correspondent banks in the principal financial centres of foreign countries in which they maintain accounts. In this way such a bank is able at any time to sell a bill of exchange on any of the trade centres of the world. It sells to the customer, for cash or for his check, a bill of ex- change payable at a specified time in the foreign city. The term bill of exchange is used to signify checks, demand drafts, and drafts payable at a certain number of days after sight or after date. Telegraphic and cable orders are also sold in the same way as bills of exchange. In addition to selling exchange, banks also buy exchange. A merchant or other person having a commercial bill of exchange drawn on a debtor in a foreign country often de- sires to secure immediate payment. In that case he goes to a bank or exchange-broker and sells it at a fixed dis- count rate. The terms ''sale" and ''discount" are used synonymously to describe this transaction. When a bill of exchange is sold, it is said to be negotiated. Such a bill is indorsed when the transfer is made. The word ex- change is often used, as in the first line of this paragraph, to designate a bill of exchange. The Discount Rate.— The discount rate, referred to in the preceding paragraph, is the rate per cent at which banks FOREIGN EXCHANGE 219 and exchange-brokers discount the various classes of bills of exchange which they buy. In countries having govern- ment banks, this rate tends to be uniform throughout the country. In the United States the rate differs in various parts of the country. However, the official rate of the Bank of England has had a powerful influence upon the discount rate in every financial centre. This rate is es- tablished at the regular meeting of the board of directors on Thursday of each week. In normal times the official discount rate thus established may remain unchanged for weeks, depending upon the condition of the money market as indicated by the prevailing interest rate. Private banks in England usually have a private rate, which is lower than the official or bank rate, as it is often called. The rate quoted on prime bank acceptances, which are sixty or ninety day bills drawn on banks, fixes the level of the market. Bank-bills are always discounted at the best rates. The rate for commercial bills of exchange is about yi per cent higher than for bank-bills of exchange having the same time to run. Monetary Systems. — The failure of the commercial na- tions of the world to adopt a uniform monetary system greatly complicates exchange transactions. A knowledge of the monetary systems of the different commercial na- tions is essential to an understanding of foreign exchange. We will consider the money of the leading commercial nations other than the United States. The monetary system of Great Britain is the most im- portant of all, because the great bulk of foreign exchange has long been drawn in sterling. The pound sterling is equal to 20 shillings, i shilling is equal to 12 pence, and each penny is equal to 4 farthings. The Enghsh pound is often called the sovereign. It is the largest unit of money with the exception of the Peruvian libra and the Egyptian pound. The pound sterling has been for over a century the basis 2 20 FOREIGN TRADE OF UNITED STATES of international exchange. The efiFect of the World War has been to promote the use of dollar exchange. This will be discussed later. The mark or reichsmark is the principal German coin. France has for its principal coin the franc, which is di- vided into loo centimes. Belgium and Switzerland have the same monetary system as France. Italy has prac- tically the same system, but uses different names, the coin corresponding to the franc being called the lira. It is di- vided into loo centesimi. Greece, Spain, Bulgaria, Ru- mania, Serbia, Austria-Hungary, and Finland all have monetary systems similar to that of France, the unit being a coin of the value of the franc. The Mint Par of Exchange. — These monetary systems are better understood by comparing the unit of one coun- try with that of another. This is done by comparing the amount of gold contained in the currency unit of the two countries. This is called the mint par of exchange. It is the fixed, intrinsic value of the standard coin of one coun- try expressed in terms of another. The mint par of ex- change between the United States and England is the actual value in dollars and cents of the pound sterling, ac- cording to the weight and fineness of the gold in the two coins. The mint par of exchange between any two countries may be readily determined by dividing the weight of the pure gold, as fixed by law, contained in the gold unit of one country by the weight of the pure gold, as fixed by law, in the gold unit of the other country. In case of silver monetary units, the exact value of each may be ascertained in gold and then the comparison made. Gold is the gen- erally accepted standard of value. It is the only metal of which the value is fixed by law. The price of silver fluctuates according to market conditions. The mint par of exchange of the pound sterling or sover- eign in United States money is $4.8665; of the franc and FOREIGN EXCHANGE 221 lira, 19.3 cents each; of the reichsmark or mark, 2;^, 8 cents. The Rate of Exchange. — While the mint par of exchange is stationary, the commercial par of exchange, or the price paid for a bill of exchange in one country on another, is subject to fluctuations. The commercial par of exchange is the same as the mint par of exchange when a demand draft on one country sells in the other for the exact equiva- lent in coin of its face value. Theoretically, this is the case when the debits and credits between two countries are exactly equal. For example, if the United States owed England precisely the same amount as England owed the United States, the price of exchange would be at par. If England owed the United States more than we owed Eng- land, the demand for exchange on England would not equal the supply, with the result that sterHng exchange here would be at a discount. The reverse would be the case in England, where there would be an active demand for ex- change on the United States, with the result that it would be at a premium. The Gold Points. — The fluctuation in exchange is limited to the cost of transporting the coin or bullion between the two countries involved. This cost of transportation in- cludes the cost of packing, shipping, insurance, and the slight loss in weight caused by wear in transit. Interest on the money for the period required to transport it from one country to another is also to be added. In normal times, the premium paid for exchange on one country in another will not exceed this cost of transportation; if it does, gold will be shipped in preference to paying th^e high premium. The cost of foreign exchange thus fluctuates between tv,T) points, the gold-exporting and the gold-im- porting points. Gold is exported when the premium on exchange exceeds the cost of transportation; gold is im- ported when the discount on exchange exceeds the cost of transportation. 222 FOREIGN TRADE OF UNITED STATES The rate at which gold leaves a country and the rate at which it enters a country are the two extremes in the rate of exchange known as the Gold Points. What has been said applies only when conditions are normal. An em- bargo on gold, abnormal trade balances, and other unusual conditions making it impossible to pay balances in gold result in extreme fluctuations in exchange. Fixing the Rate of Exchange. — The rate of exchange has been defined as the price paid for a bill of exchange in one country on another. It is also referred to as the commer- cial par of exchange. The term exchange is often used to signify the rate of exchange. The rate of exchange is quite distinct from the discount rate, though when a bill drawn in a foreign currency is purchased, the discount is charged in the rate of exchange. The method by which the rate of exchange is arrived at is of interest. The prevailing rate of exchange for various countries is estabUshed in the financial centres or centre of each country. For example, the rates on London, Paris, Antwerp, etc., that is, the rates at which bills of ex- change payable in those cities are sold in New York, are established by New York bankers daily. This rate largely determines the rate for other cities in the United States. The determining factor in fixing the rate of exchange is the relation between the demand for bills of exchange and the supply of the same. In the United States at the outbreak of the World War in the fall of 1914 the de- mand for exchange on England greatly exceeded the sup- ply, because it happened that just at that time there was a balance of indebtedness estimated at about $250,000,000 of America to European countries. In the natural order of commerce, this indebtedness would have been largely offset by the exportation of great quantities of grain, cotton, and other products usually shipped in the fall. As com- merce was practically suspended for the time being, these exports could not be shipped. The balance, therefore, had FOREIGN EXCHANGE 223 to be settled by the use of money or bills of exchange. Gold shipments could not be made, for fear they would be cap- tured by one of the belligerent nations. The Kronprin- zessin Cecilie attempted to sail for Europe from New York on July 28, 1 9 14, with a consigmnent of gold aggregating nearly $10,000,000, but was recalled. Fluctuations in Exchange. — Such a situation created an unparalleled demand for bills of exchange, with the result that the rate for exchange on London rose far above the usually accepted gold-shipping point of $4.88^ or S4.89. The rate of $5.00 was first quoted, and then, under the general disorganization, quotations of $6.00 and even $7.00 were made. In order to restore the rates to something like normal, the New York bankers joined in an arrangement wdth the Bank of England to ship gold in great quantities to the Canadian Government at Ottawa, at the rate of $4.90. This had the desired effect of stabilizing exchange until shipments of commodities could be resumed. The excessive rates just referred to, if they had continued, would have meant the financial ruin of many importers and others having obligations to pay in England or else- where in Europe. Hardly had the excessive rates for pounds sterling and for other foreign bills been reduced to about normal before a change in the other direction occurred. This was occa- sioned by the immense sales Americans made to England and to other foreign countries, which, before the close of 191 5, placed the United States in the position of a creditor nation, the indebtedness of other countries to us far ex- ceeding our liabilities. Such a situation created an un- precedented condition — that of an excess of bills on Lon- don, and the problem that confronted the exporter was how to obtain cash for such bills. The result was that the rate of exchange on London fell as low as $4,483^ in August, 1915. Conversely, the unprecedented demand in London for bills on New York caused the dollar to be quoted at a 2 24 FOREIGN TRADE OF UNITED STATES premium. Our trade balance had become so enormous that the idea of shipping gold to cancel it could not be en- tertained. It was cancelled in three ways: First, by the sale of American securities held abroad, the return of these securities taking the place of gold shipments. Second, by the sale in America of British and other foreign securities, which created a great credit here in favor of the foreign nation selling the securities. Third, by the actual ship- ment of great quantities of gold. Our excessive sales could not have been continued without the transfer of securities. The depreciation of the pound sterling was checked in the period between 191 6 and 1919 by government loans made by the United States to Great Britain, supplemented by private loans. These loans created a demand in New York for exchange on London, offsetting the demand for exchange on New York to pay the enormous merchandise balance due the United States. In other words, our ex- ports to Great Britain were offset by our imports from Great Britain plus the loans made to that country. Thus sterling exchange was m.aintained at not far below par. In 1 91 9 and 1920, after the artificial props that upheld exchange during the war were removed, sterling exchange fell to the lowest point ever reached, the pound being quoted on August 20, 191 9, at $4. 12^2. It seemed that the downward trend could go no further, but this proved to be only the beginning. By February, 1920, the pound had fallen to $3.20. The franc, the lira, and other foreign money units suffered even greater depreciation, while the German mark fell almost to the vanishing-point. At the same time the American dollar stood at a premium in Great Britain, France, Italy, and in all but a few other nations. Wherever the dollar stood at a premium, the trade balance was in favor of the United States; in Japan and certain South American and other countries from which we pur- chased more than we sold, the demand for dollar exchange was not equal to the supply, with the result that the dollar FOREIGN EXCHANGE 225 stood at a discount in these countries. After the embargo on the exportation of gold was Hfted, large shipments of this metal were made to the countries in which the balance was against us, thus offsetting in a measure the tendency for the dollar to be depreciated there. The following from Moody's Investors^ Service^ New York, sums up the situation in the early months of 1920: For us this foreign exchange situation points to smaller net mer- chandise exports, increased competition with foreign goods both at home and abroad, a further decline in ocean freight rates, special competition in such international products as dyes, chemicals, and textiles, and lower prices for the majority of products which are subject to foreign competition. For Great Britain the monetary and foreign exchange outlook is good; but for France it is filled with great difficulties; while the monetary position of Germany and Italy is very uncertain in- deed. The European neutrals and Canada, AustraHa, Japan, and the South American countries are in good shape. The depreciation of the bills of Great Britain, the European small neutral nations, and of South American countries may be attributed mostly to trade balances, and to their heavy purchases of foreign goods; but the depreciation of francs, marks, lira, and kronen seems to be due almost wholly to the paper-money inflation. Exchange Quotations. — Quotations of foreign exchange rates are pubhshed each day in leading city papers. Quo- tations are for checks or demand drafts, cable transfers, and time drafts. Exchange on each country is quoted differently. For instance, the quotation for sterUng is given by stating the rate in United States money per pound. On the other hand, the rate for French francs is stated as the number of francs and centimes allowed for a dollar; it is expressed thus: 5.15, meaning that 5 francs 15 centimes are allowed for one dollar. The quotation on Germany is made by stating the price allowed in United States money for 4 marks; it is expressed thus: 95 A, indicating that this is the number of cents allowed for 4 marks. 226 FOREIGN TRADE OF UNITED STATES The method used in making quotations will be made clearer by considering the following, as published in New York papers on the dates indicated. It is interesting to note the fluctuations, due to abnormal conditions brought about by the war. The depreciation of the foreign cur- rency unit is apparent. Demand or check July I, 1914 July I, 191 5 December 9. 1916 London $4-87K -95'A $4 7^H 5.70 .81^ ^4-72^ 5.85 .66X Paris Berlin Advantages of Dollar Exchange. — The larger part of our imports and exports has been bought and sold in terms of foreign currency. When we buy from England, the price is quoted in pounds sterling; when we buy from Ger- many, the price is quoted in marks; when we buy from France, the price is quoted in francs. Again, when we sell to Germany, we find it necessary to quote prices in marks; when we sell to France, we must quote prices in francs, etc. In trading with smaller countries prices are quoted in pounds sterling; the result is that the pound sterHng has for a century been the basis of international exchange. Two conversions have thus resulted in many transactions; from the money of the first country into sterling and then into the money of the second country involved. This has been a great advantage to English banks and com- mercial houses, which charge a commission for every con- version or exchange made. The disadvantage the United States has suffered in having to buy and sell in other cur- rency than our own is this: in the first place, we have had to pay tribute to England or to other foreign bankers in the form of commission for conversion; in the second place, in credit transactions involving time drafts there FOREIGN EXCHANGE 227 are often serious losses due to fluctuations in the commer- cial par of exchange. The establishment of dollar exchange will, in the words of an officer of the National Shawmut Bank of Boston, ''do much to help our foreign trade. In its essence it will guaranty to the exporter that he will receive the actual amount which he has reckoned on as his seUing price, and that the importer will pay to the foreign seller the exact amount in terms which he has reckoned on as his cost, both of these being accom- plished by eliminating the necessity on the part of our mer- chants of converting into dollars through the varying media of sterHng, marks, or francs." An excellent illustrarion of this was given by John E. Rovensky, vice-president of the National Bank of Com- merce of New York, in a speech made at the International Trade Conference held in New York City in December, 191 5. Mr. Rovensky said: Let us take as an instance the importation of coffee from Brazil, as the business was conducted prior to the outbreak of the war. The American importer desiring to purchase the coffee was compelled by custom to make his bid in sterHng and pay the coffee merchant by means of a sterling commercial letter of credit on a London bank. Under the terms of this letter of credit, the Brazil- ian coffee merchant drew his drafts in pounds sterling for the value of his shipments at ninety days sight on a London bank. He was willing to accept reimbursement in this form because the ninety- days London draft was readily taken by BraziUan banks as cash, and he could calculate at the time he sold his coffee the value of a sterling draft so drawn within a very narrow margin. The Brazilian banks were willing to cash such drafts for their customers because by discounting them immediately in the London open discount market they could quickly convert them into cash and consequently the transaction involved no tie-up of funds or risk of loss on ex- change. The Brazilian merchant, however, was not wilHng prior to the passage of the Federal Reserve Act to accept a payment in the form of a three-months draft drawn in dollars. Why? Because there being no open discount market in the United States, either the Brazihan merchant or his banker would have been compelled to 2 28 FOREIGN TRADE OF UNITED STATES carry the bill in his portfolio until maturity, and this, involving the risk of exchange fluctuations and a lock-up of cash, was of course impracticable. Now let us see what effect this had on the American importer's business. When cabling his bid for coffee to the Brazilian merchant, the American merchant was compelled to estimate what sterling ex- change would cost him, approximately four months from the date of his cablegram. This period was consumed by the time required for the Brazilian draft to reach London and the three-months tenor of the bill. Therefore, if the American importer sent a quotation to Brazil for a consignment of coffee valued at £10,000, he did not know whether at the maturity of the 90 days draft drawn against such shipment he would be called upon to pay $48,500 or $48,900. He was thus compelled to gamble on the course of the exchange market, and if he overestimated the danger of exchange fluctuations, his bid was not as good as that of his foreign competitor, and he frequently lost the business, while if he underestimated the ex- change fluctuation he lost money. Our exports and imports to numerous other countries suffered under the same disadvantage. Importers of hides from India, silk from Spain, wool from Australia, etc., did not know what their consignments would finally cost them when the time for payment arrived. Need of Reciprocal Trade Relations. — Unless we buy from as well as sell to other countries, it will be difficult to carry on transactions in dollar exchange. For instance, if we sell goods to Latin America and demand payment in dollar exchange, this will create a demand in Latin America for New York (dollar) exchange. If we fail to buy Latin American exports, these must and will be sold to other countries. Supposing England takes the bulk of these ex- ports. Then this condition is created in Latin America. There is a demand there for dollar exchange to pay for goods imported from the United States; there is a supply of ster- ling exchange received in payment of goods sold to Great Britain and other countries using sterling exchange. The result is that dollar exchange, which is scarce, is at a pre- mium, and sterling exchange, which is plentiful, is at a dis- count. FOREIGN EXCHANGE 229 The Latin American merchant will, therefore, prefer to pay for his imports in sterling, and in placing his next orders he wall naturally buy in England or stipulate that goods bought from the United States are to be paid for in sterHng and not in dollar exchange. If dollar exchange is to prevail, there must be a supply of it in Latin America. This can be created in several ways, of which the follow- ing are the most obvious: 1. By bu>ing Latin American exports, and paying for them in dollar exchange. 2. By American capitalists making loans to Latin Ameri- can financiers. 3. By American capitalists investing in Latin American securities or in Latin American plantations or other prop- erty. Each one of the transactions indicated involves the sending of money in the form of dollar exchange from the United States to Latin America. Dollar exchange, then, Vidll be offered for sale there, and the Latin American im- porter will find it to his advantage to buy this to remit to the United States in payment of goods purchased here. Exactly the same principles apply in regard to our trade with other countries. Arbitrated Exchange. — Arbitrated exchange is often used in business and financial transactions. This is ex- change between any two countries through the medium of a third country. By its use money may be remitted from one country to another by means of a bill of exchange drawn on a third country. For instance, a St. Louis im- porter of goods from Japan, instead of paying in dollar or Japanese exchange, may remit sterHng exchange. The use of sterling exchange in arbitrage transactions has been one of the chief factors in making London the financial centre of the world. The importance of such transactions is clearly set forth by David H. G. Penny, vice-president of the Irving National Bank of New York, as follows: 230 FOREIGN TRADE OF UNITED STATES London is the financial centre of the world only because she has been financing so much more trade between other countries and England. New York can only acquire that distinction when this country actually finances trade between other countries and when Americans participate in foreign enterprises and buy foreign se- curities to create a demand for bills of exchange on New York to liquidate indebtedness and pay interest on those foreign invest- ments. BIBLIOGRAPHY Brooks, H. R. Textbook on Foreign Exchange. Chicago, 1908. Brown, Harry Gunnison. Foreign Exchange ; a Study of the Ex- change Mechanism of Commerce. New York, 1915. Brown, Harry Gunnison. International Trade and Exchange ; a Study of the Mechanism and Advantages of Commerce. New York, 1914. Brown, Harry Gunnison. Principles of Commerce : a Study of the Mechanism, the Advantages, and the Transportation Costs of Foreign and Domestic Trade. New York, 191 7. Clare, George. The A B C of the Foreign Exchanges : a Practical Guide. London, New York, 1893. E ASTON, Harry Tucker. Tate^s Modern Cambist : a Manual of Foreign Exchanges and Bullion, with the Monetary Systems of the World and Foreign Weights and Measures ; with Chapters on Exchange and Bullion Operations. 25th edition. 191 2. Easton, Harry Tucker. Money, Exchange, and Banking in Their Practical, Theoretical, and Legal Aspects, a Complete Manual for Bank Officials, Business Men, and Students of Commerce. London, 1907. EscHER, Franklin. Elements of Foreign Exchange, a Foreign Ex- change Primer. New York, 191 6. Escher, Franklin. Foreign Exchange Explained. New York, 1917. Gardin, J. E. Finances of Nations as Reflected in International Exchange. In The Americas, v. 3, pp. 1-3, May, 191 7. Same, Economic World, n. s., vol. 13, pp. 762-4, June 2, 191 7. Gardin, J. E. Foreign Exchange Problems. National City Bank of New York. 1913. Gardner, James Peter. The Moneys of the World ; a Guide to the Foreign Moneys Current Throughout the World, with the Average Rate at Which Such Moneys May Be Exchanged in New York City. New York, 1909. FOREIGN EXCHANGE 231 Gonzales, V. Modern Foreign Exchange. Monetary Systems, In- trinsic Equivalents, and Commercial Rates of Exchange of All Foreign Countries and Their Relation to United States Money. 1914. Hepburn, Alonzo Barton. History of Currency in the Umted States, with a Brief Description of the Currency Systems of All Commercial Nations, with Bibliography. New York, 191 7. RovENSKY, J. E. Development of Dollar Exchange. In National Association of Credit Men. Bulletin 17, pp. 997-iooi» October, South American View of Credit Exchange Arrangements. In Ameri- cas, vol. 4, PP- 8-10, July, 1918- Spalding, William Frederick. Eastern Exchange, Currency, and Finance. London, 191 7. Spalding, William Frederick. Foreign Exchange and Foreign Bills in Theory and in Practice. London, New York, 191 5. Study of the Trade Balance and Foreign Exchange Situation. In Economic World, n. s., vol. 15, PP- 115-118, July 27, 1918. Tate, William. Tate's Modern Cambist : a Manual of Foreign Ex- changes and Bullion, with the Monetary Systems of the World and Foreign Weights and Measures. 25th edition. London, 1912. Taussig, F. W. I jiter national Trade Voider Depreciated Paper ; a Contribution to Theory. In Quarterly Journal of Economics, vol. 31, pp. 380-403, May, 1917- U. S. Bureau of Foreign and Domestic Commerce. Factors tn Foreign Trade. In Miscellaneous series no. 7, 191 2. U. S. Federal Reserve Board. Foreign Exchange and Other Re- lated Transactions, Executive Order of the President Dated Jan- uary 26, 1918 . . . With Certain Forms Approved hy the Federal Reserve Board. 191 8. Withers, Hartley. International Finance. New York, 1916. Zimmer, George. Foreign Exchange During the War. In Annals of the American Academy, vol. 68, pp. 1 51-160, November, 1916. CHAPTER XVIII THE BALANCE OF TRADE The Mercantile Theory. — The difference between the value of the exports and the imports of a country is re- ferred to as ^'the balance of trade." By long-estabhshed usage, such a balance is said to be ^'favorable'' when the value of the exports exceeds the value of the imports, and ''unfavorable" when the value of the imports exceeds the value of the exports. This use of the words favorable and unfavorable arose during the period when the economic theory known as the mercantile theory prevailed. The fundamental tenet of mercantihsm was that the principal benefit to be derived by a nation through foreign trade was the possible addition to its stock of precious metals. Therefore, it was considered that the one aim of govern- ments in regard to foreign trade should be to restrict im- ports and stimulate exports, for by so doing it was thought the '^ favorable" balance thus estabHshed must result in the importation of gold and silver. Thomas Mun, an early English writer, thus elucidates the mercantile theory: The ordinary means to increase our wealth and treasure is by Foreign Trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value. By such a course the balance must be paid in coin, and the country enriched, while a contrary course would deplete its stock of the precious metals. It has long been established that the theory propounded by the mercantile school of economists is at variance with the facts. Examples innumerable may be cited wherein an excess of exports has not resulted in the importation of 232 THE BALANCE OF TRADE 233 the precious metals, and where an excess of imports has not drawn gold or silver out of the country. As explained in the chapter on Foreign Exchange, there are factors af- fecting the balance between nations other than the exchange of commodities. One country puts others into its debt not only by the exportation of commodities, but also by loaning or investing money, by rendering services of vari- ous kinds, and by attracting foreign visitors, who may be passing tourists or more or less permanent residents, draw- ing their income in either case from their native land. Thus the international flow of the precious metals is de- termined by many conditions, and does not follow either an excess of exports nor an excess of imports. Barter in International Trade. — It is clear that a foreign trade of tremendous volume can be carried on with little or no exchange of gold between the nations involved. In- ternational trade thus partakes of the nature of barter, commodities being exchanged for commodities, and not for money. The commodities need not be equal in value, be- cause services may be given or received in exchange for commodities, but this does not alter the fact that a con- dition of barter largely maintains. As between individ- ual merchants and manufacturers this does not seem to be the case. An American exporter sells manufactured goods to a Brazilian importer and receives in payment cash against dociunents in New York; he, therefore, may insist that he has sold his products for gold and has not exchanged them for other products. But, as the study of the methods employed in foreign exchange has made clear, the gold he received may have been paid by an American importer of BraziHan coffee, who purchased with it a bill of exchange or a commercial letter of credit from his New York bank, which was duly forwarded to the Brazilian coffee merchant. In essence, then, American manufac- tures were exchanged for BraziHan coffee. Or a cotton ex- porter may ship a cargo from Galveston to a French cotton 234 FOREIGN TRADE OF UNITED STATES merchant, and receive in payment a commercial letter of credit on a New York bank. He cashes this and receives money for his shipment, but there is not one chance in a million that this money or an equivalent sum of money was actually shipped from France. That very sum may have been deposited in the New York bank by a merchant in payment of a letter of credit in favor of a Parisian ex- porter of millinery and laces. The money received by the American cotton exporter did not come from France, and the money paid by the New York importing merchant did not go to France. If exports are not thus balanced by commodities or by services, the final balance of a nation's credits over its debits, as between other nations, is settled by the transfer of securities, and only in times of temporary stress or under abnormal conditions created by war or panic is gold shipped in great quantities. Since international trade is thus car- ried on by a species of barter, it is often stated that, in the long run, the imports of a country must balance its exports. A more exact statement of the law is that exports and ser- vices rendered eventually balance imports and services received. The Transfer of Gold and the Balance of Trade. — It has been shown that an enormous favorable balance of trade may be piled up by a nation without causing an influx of gold. It may now be of interest to consider the position of a country that maintains a favorable balance of trade throughout a long period of years, without incurring other Uabihties than those resulting from the importation of commodities. Supposing the United States continues to export each year merchandise greatly exceeding in value the commodities imported, and that our citizens cease to travel or live abroad, that our merchant marine is so increased as to carry all of our imports and possibly a goodly share of those of other nations, that our foreign investments exceed the sum total of American securities held abroad, and that THE BALANCE OF TRADE 235 our foreign-born citizens no longer send millions of dollars abroad. We would then be in every sense a creditor na- tion, and would thus fulfil the ideal consciously or un- consciously cherished by many patriotic citizens. Other nations would then be obliged to settle the balance due us by the shipment of gold, unless our capitalists elected to accept foreign securities. If we insisted upon payment in gold, and the other nations acquiesced, it would not take us long to drain all the gold from all the world, while our vaults and coffers fairly bulged with the precious metals. Even if other nations did not take governmental action to keep out, through tariff and other discriminations, our ex- ports, such a result would be brought about automatically in this way. The excess of gold would result in higher prices — the relative value of dollars and commodities would undergo a change whereby it would require mxore dollars to buy a given quantity of merchandise. The home market, then, would be superior to the foreign, and domestic rather than foreign trade would be sought by merchants and manufacturers, resulting in a decrease of exports. At the same time, the higher prices would prove an attraction to foreign traders, w^ho would flood our markets with im- ports. On the one hand, then, exports would be decreased; on the other, imports would be increased. This would continue until the unfavorable balance of trade created had caused a sufficient outflow of the precious metals to reduce their supply to normal and likewise to restore prices to normal. It has been shown that a continuous favorable balance of trade of any magnitude, which is not offset by other lia- bilities, cannot be paid by the transfer of gold— that such a transfer would inevitably result in creating such a change in prices as to cause the imported gold to leave the country. There is another proof that brooks no argument, and that is that there is not a sufficient quantity of gold in circula- tion in the world to offset great trade balances. Such bal- 236 FOREIGN TRADE OF UNITED STATES ances are never paid in silver. The stock of gold in circu- lation in all countries in 1896 was authoritatively estimated at $4,144,000,000; in 1 91 6 it had risen, owing to the un- precedented increase in the production of gold, to $8,000,- 000,000. Now, the excess of exports over imports of the United States alone for the thirteen years between 1904 and 1 91 6, inclusive, exceeded this amount. There was not enough gold in circulation in the entire world to pay this entire balance. If such payment had been attempted, the United States would now possess all the gold money in the world. It is interesting to note the total stocks of gold money in the leading countries of the world for two dates for which careful estimates have been made by financiers and statis- ticians: 1896 and 191 6. The amounts are as follows: 1916 1806 United States $2,230,000,000 1,384,000,000 1,058,000,000 714,000,000 662,000,000 336,000,000 296,000,000 $672,000,000 778,000,000 489,000,000 675,000,000 504,000,000 100,000,000 167,000,000 France Russia Germany United Kingdom Italy Austria- Hungary The United Kingdom's unfavorable balance of trade — the excess of her imports over exports — in the single year of 1916 amounted to $1,679,000,000. Even after her credits for services were deducted her balance of indebtedness w^as enormous. But even this abnormal balance was not liqui- dated in gold; it is evident that such liquidation could not be accomplished. While the gold shipments of that year were unprecedented, the greater part of the debt was offset by the transfer of securities. The part securities play in international trade is touched upon in Henry Parker Willis's work on the Federal Reserve in the following pas- sage: THE BALANCE OF TRADE 237 International trade is not carried on upon a money basis, but in many countries payment for large quantities of staple purchases is made in the form of securities based on the enterprises in which the goods thus bought are employed. For example, shipments of steel rails to China for the construction of the railways of that country have been paid for in bonds which have been taken by banking concerns in the coimtry which sold the rails, and then have been transferred to the investors, who, in the last analysis, supply the money. Similar methods of financing have been adopted in dealing with Brazil, and with other South American countries where trade grew up on a basis of borrowed capital. While trade between older nations, as, for example, France and Germany, is not necessarily founded upon international loans of this kind, they nevertheless figure to a considerable extent. Analysis of Otir Trade Balance. — That an excess of ex- ports does not necessarily result in an influx of the precious metals is clearly demonstrated by a brief review of the for- eign trade of the United States for the decade from 1900 to 1909, inclusive. In each year of that decade our ex- ports of merchandise exceeded our unports, and yet in the ten years we parted with more of the precious metals than we received, as is shown by the following summary: Excess of exports of merchandise over imports. . Excess of exports of precious metals over imports Total excess $4,934,000,000 44,000,000 $4,978,000,000 In the ten years under consideration, then, our exports exceeded our imports by nearly $5,000,000,000, and yet, instead of this resulting in an inflow of the precious metals, we find that our net exports of the latter exceeded the im- ports by some $44,000,000. We thus parted with merchan- dise and precious metals to the value of nearly $5,000,- 000,000 for which we received no compensating imports. That this huge sum was not a gift made by Americans to foreigners is clear. As a matter of fact it was necessitated 22,^ FOREIGN TRADE OF UNITED STATES by our obligations to other nations. It has been shown that even this enormous balance fell short of the liabilities incurred abroad, and that American securities valued at many millions of dollars were transferred to foreigners to liquidate the balance still due. The eminent statistician Sir George Paish made in 1909 an exhaustive analysis of the trade balance of the United States, in which he estimated the obligations for interest, tourist expenditures, remittances by foreigners to relatives and friends, and freight charges paid foreign carriers for the fiscal year 1909, as follows: Interest on American securities held abroad Tourist expenditures $250,000,000 170,000,000 150,000,000 25,000,000 Remittances to relatives, etc Freight on imports Total obligations other than for imports . . . $595,000,000 The excess of our exports of merchandise over our im- ports in that year was $410,347,000. This fell $184,000,000 short of meeting the obligations set forth above. It was taken up by the transfer of American securities. Let us consider now a decade belonging to the period when our imports uniformly exceeded our exports in value. Our imports showed a surplus over our exports in the period between 1831 and 1840 of nearly $160,000,000, but this was not accompanied by an outflow of specie. On the contrary, the imports of the precious metals likewise exceeded the exports, so that an addition to our stock of specie aggre- gating over $50,600,000 resulted. This inflow of specie was directly due to the sale of state securities in foreign countries; that the inflow did not result from our trade balance is evident, for that was decidedly against us. If an excess of imports inevitably caused an outflow of gold and silver, it can be readily seen that our stock of specie THE BALANCE OF TRADE 239 would have been decreased in the period instead of being increased. Equilibrium in Foreign Trade. — The fact becomes clear, then, that imports may or may not balance exports, de- pending entirely upon other factors entering into interna- tional transactions, and that an excess of either imports or of exports does not necessarily cause any change in the supply of specie. When the precious metals possessed by a country, or that portion of them used as money, remains practically stationary, the foreign trade is said to be in a state of equilibrium. The economist Cairnes thus explains the conditions necessary to the maintenance of interna- tional equilibrium : The state of international demand which results in commercial equilibrium is realized when the reciprocal demand of trading countries produces such a relation of imports and exports among them as enables each country by means of her exports to discharge all her foreign liabiHties— a position from which the following corol- lary may be deduced, that all payments, due from one country to another or to other countries on other accounts than that of im- ports, of a permanent character — for example, an annual tribute, interest on borrowed capital, dividends on stock, and so forth — and in excess of similar payments due from these latter to the former, will be represented in the foreign trade of that country by an ex- cess of exports over imports; while, conversely, an excess of pay- ments to be received over payments due will find its commercial expression in an excess of imports over exports. ... If a country has been a large borrower of foreign capital, and so is indebted to foreign nations in annual interest, or if, again, her people are much given to travelling in foreign countries, and so have occasion to remit annually large sums abroad for which no return is required, under such circumstances her exports will tend to exceed her im- ports; while, under an opposite state of things, that is to say, if a country has been a large foreign lender, or if it be the scene of travel for the inhabitants of other countries— the imports will tend to exceed the exports. Two Classes of Nations in International Trade. — It is clear that there are two distinct classes of nations in rela- 240 FOREIGN TRADE OF UNITED STATES tion to the balance of trade. The first includes those na- tions whose imports, throughout long periods, exceed their exports; the second is made up of nations whose exports regularly exceed their imports in value. Countries whose imports are in excess of their exports fall into two divisions : (i) creditor or capitalistic countries, and (2) borrowing or developing countries. It happens that creditor countries usually have great merchant marines and so have large sums to their credit earned in the carrying trade, and that, being old countries rich in historic associations, they almost invariably attract many tourists, which fact adds to their ability to discharge their debts without parting with an excess of commodities. Thus, the interest on foreign in- vestments, combined with services of various kinds, serve in lieu of exported commodities for the payment of a share of their imports. Consequently, such nations can each year obtain imports exceeding in value their total exports. Surely such a condition is far from unfavorable, though the balance of trade is so designated. Borrowing or developing countries resemble creditor or capitalistic countries in having an excess of imports dur- ing the period in which the borrowing is in progress. A large part of the capital borrowed by such countries is for the purpose of making internal improvements, such as railroads, harbors, power-plants; another large share of it goes to developing farms, mines, and other natural re- sources. Material needed for such work is imported, a large part of it from the lending country, and it is the im- portation of this material that causes the excess of im- ports. It is to be noted that while the loans are being made and the material purchased thereby is being forwarded, the exports of the lending countries are enhanced, but just as soon as interest is collected the opposite is the case. Countries v/hose exports exceed their imports likewise fall into two divisions: (i) lending countries that are en- gaged in financing the operations of other countries, and (2) THE BALANCE OF TRADE 241 debtor countries that are repaying loans previously se- cured. Countries possessing such an abundance of wealth that their exports consistently exceed not only their im- ports, but also their total Habilities of all kinds to other nations, customarily receive for the net balance due them either foreign securities or the title to foreign properties. Such lending countries loan their capital not in the form of money, but in the form of commodities; only rarely do foreign loans actually leave a country in the form of specie. Our surplus exports to the United Kingdom during the World War enabled us to obtain valuable securities, which may be considered as promises of future payment. WTiile many of these were our own securities which had been owned by EngHshmen, those of other nations were also obtained. The period during which a country's ex- ports exceeds its imports because of its activity in financing foreign enterprises is usually brief. Unless the resources of such a country are practically unlimited, the time will soon come when the interest on foreign investments ex- ceeds the amount of outside loans made each year. As soon as this condition maintains, the lending country be- comes a creditor or capitaHstic country, w^hich obtains a surplus of imports annually from the countries paying inter- est or refunding loans. Thus we see that there is a process of evolution continually going on among nations, whereby each "country passes through four stages, as follows: 1. The borrowing period, with imports exceeding exports. 2. The interest-paying period, with excess of exports. 3. The loaning period, with excess of exports. 4. The interest-drawing period, with imports exceeding exports. Present Position of the United States.— The United States remained in the borrowing stage until the late seventies, the amount of capital imported annually exceed- 242 FOREIGN TRADE OF UNITED STATES ing the interest on capital previously borrowed, thus caus- ing an excess of imports. Then our productivity became so great that we were enabled to send out such vast quanti- ties of foodstuffs and raw materials, as well as of manu- factures, as to create an excess of exports so large as to pay all interest charges and other obligations, and even, in some years, to cancel a part of our debtsr abroad. At the outbreak of the World War in 19 14, it is estimated that our securities to the value of $4,000,000,000 were held in the United Kingdom, Germany, France, and i«n other European countries. Our position was such that we were enabled to so increase our exports as to purchase back all of our securities held abroad that we could obtain, and also to invest heavily in foreign securities. The stoppage of our tourists' expenditures and of a large part of the commis- sions we had formerly been in the habit of paying to Lon- don and other bankers for financing our foreign trade were other factors that combined to convert us in a few months from a debtor to a creditor nation. Our interest and debt- paying period was thus of much shorter duration than it w^ould have been under normal conditions. The tremendous volume of exports in 191 5 and 1916, coupled with the unprecedented rise in prices, affecting practically every commodity entering international trade, created such an astounding balance in our favor — our total credits enormously exceeding our liabilities — that the im- portation of gold in great quantities followed. The condi- tions prevailing in 191 6 were thus summarized in a publica- tion of the National City Bank in February, 1917: The balance in favor of the United States in foreign trade, in- cluding exports and imports of silver, for the calendar year 1916, was $3,127,516,344. Merchandise imports increased $620,000,- 000 and merchandise exports $1,939,000,000 over the calendar year 191 5, when the balance was $1,795,189,082. . . . Foreign loans excluding renewals were placed in this country during the year to the amount of $1,217,464,764. The net importation of THE BALANCE OF TRADE 243 gold was $529,951,671. According to the definite records, there remained about $1,380,099,909 to be settled otherwise. The in- terest and dividend payments upon American securities held abroad are a smaller factor than formerly, and offset more or less completely by similar items coming to us on account of foreign se- curities now held in this country. The earnings of foreign shipping have been very large during the past year, and we have had to settle for the freights on imports. Remittances to friends have probably amounted to an important sum, but there is Httle available basis for an estimate, American banks have probably increased their balances or loans in London during the year, but the chief element in balancing the account has undoubtedly been the sale in this market of American securities for foreign owners. The United States, then, in 1916 became a loaning nation. For the first time in our history our excess of exports more than offset our HabiHties, and created for us a credit which v/as embodied in foreign securities. The still larger credit balances of 191 7 and 1918 and 191 9 definitely established the United States as a creditor nation. An article pub- lished in November, 1918, thus sums up the situation: The war has turned the United States from a debtor to a creditor nation. Formerly we owed abroad something Hke $4,000,000,000, about three-fourths of which sum we have bought back. Moreover, Europe now owes us about $9,000,000,000 — on private account about $2,000,000,000 in securities, in United States Government obligations over $7,000,000,000. The world is under obligations to us in interest alone of between $400,000,000 and $500,000,000 a year. We must add to this not only our usual credit balance in world trade, but the fact that for several years our manufacturers and exports will be stimulated by the demand for goods in the re- habilitation of Europe. For years to come we will be able to count on an annual credit balance of from $1,500,000,000 to $2,000,000,000. That annual indebtedness Europe cannot possibly settle, so that we shall have to leave our money abroad, invested in foreign se- curities or otherwise participating in foreign industries, all of which will continue to build up our credit position in world finance. The war has placed us in the same position England was in, an excep- tional credit position which gave her control of world finance."^ * Literary Digest, November 23, 1918. Summary of article in Wall Street Journal. 244 FOREIGN TRADE OF UNITED STATES It is thus clear why bankers and others interested in the financing of foreign trade are recommending foreign invest- ments to the American public. It is upon the response to this appeal that the continued excess of our exports over imports depends. The only alternative is for the United States to cease to reach out for foreign trade, being content to sell abroad those raw materials and foodstuffs the world must obtain from us, and only such manufactures as find a ready market with little competition. BIBLIOGRAPHY Atwood, a. W. Paying Of the Mortgage on the United States ; How We Got Five Billions Deep into Europe's Debt. World's Work, vol. 33, pp. 243-250, June, 1917. Berglund, a. Our Trade Balance and Our Foreign Loans. Jour- nal of Political Economy, vol. 26, pp. 732-743^ July, 1918. Brooks, S. What the War Has Done for America. Fortnightly Review, vol. no, pp. 700-714, November, 1918. Clausen, John. New Era of American International Trade and Finance. Bulletin Pan-American Union, vol. 46, pp. 74-78, January, 1918. GiBBiNS, H. DE B. The Economics of Commerce. London, 1894. Gilchrist, C. A. 75 a Balance of Trade in Favor of Exports Favor- able? Scientific Monthly, vol. 3, pp. 66-76, July, 1916. HoBSON, C. K. The Export of Capital. Chap. 7. London, 1914. NoTZ, William. Export Trade Problems and an American For- eign Trade Policy. Journal Political Economy, vol. 26, pp. 105-124, February, 191 8. Paish, George. The Trade Balance of the United States. In U. S. Congress, 6ist Congress, 2d session, Senate document no. 579. 1910. Peddie, J. T. On the Relation of Imports to Exports. New York, 1916. CHAPTER XIX GOVERNMENT AID TO FOREIGN TRADE Natiire of Assistance. — Every nation that has built up an extensive foreign trade has developed a more or less thoroughgoing system of government assistance for its merchants and manufacturers who are engaged either in exporting or importing. In the United States, two depart- ments of the federal government co-operate in foreign trade promotion. These are the Department of State and the Department of Commerce. The Department of State works through its diplomatic representatives and through its consular officers, who are stationed in every country of the world. It also makes every effort to secure advantageous commercial treaties with other countries, which enable Americans to trade on favorable terms with other nations. The Department of Conamerce, through the Bureau of Foreign and Domestic Commerce, and in co-operation with the Department of State, gathers information in regard to trade conditions, trade opportunities, and kindred sub- jects. This trade information is collected and forwarded by United States consuls, commercial agents, and commer- cial attaches. It is then edited and pubHshed by the Bureau of Foreign and Domestic Commerce, and dis- seminated to those interested. The Consular Service of the United States.— Prior to 1906 the appointments to the consular service were governed largely by the political influence of the candidates, the fit- ness and training of the applicant being secondary con- siderations. The result was that very little effort was made 24s 246 FOREIGN TRADE OF UNITED STATES by members of the semce to gather trade data or otherwise promote the foreign trade of the nation in any systematic way. As our foreign trade increased in volume and im- portance, the business organizations of the country began to demand improvements in the consular service which would place it on an equaUty with that of other progressive commercial nations. An act passed in 1906, followed by an executive order of the President, provided that con- suls-general and consuls of the first seven classes were to be drawn from persons already in the consular service or already in the employment of the State Departlment, and that appointments to the two lower grades (eight and nine) were to be made from those appHcants who had passed an examination to be provided, preference being given to consular assistants and others already in the service. This at once placed the corps of consular officers on a merit basis and made the tenure of office no longer dependent upon the poUtical affiliation or influence of the occupant. The consular examination provided for the two lower classes of the consular service consists of two parts, the oral and the written. There is also a physical examination. The oral examination has for its purpose the determining of the personal qualifications of the candidate. The writ- ten examination includes one modern language other than EngHsh; international, maritime, and commercial law; political and commercial geography; arithmetic; natural, industrial, and commercial resources and commerce of the United States; American history, government, and insti- tutions; modern European, South American, and Far Eastern history; and political economy. Candidates who pass this examination creditably are entitled to have their names certified by the board of examiners to the secretary of state as eUgible for appointment. The names of candidates remain on the eligible Hst for two years, unless they are withdrawn or appointment to the service is made before the expiration of that period. These ex- GOVERNMENT AID TO FOREIGN TRADE 247 aminations, it is to be noted, are open only to such can- didates as the President shall have designated for ex- amination. The consular service in 191 9 included 4 consuls-general at large, 57 consuls-general, and 241 consuls. The ser- vice is divided into 9 classes, with salaries ranging from $2,000 to $8,000 per year. The general super\ision of the consular service is under a director, who acts subject to the secretary of state. Assistant consuls and interpreters are also provided. Consuls-general have supervisory pow- ers over the other consuls located in their districts. Consuls are business or commercial agents of the govern- ment, and not political agents as are diplomatic representa- tives. While their most important function has come to be the promotion of trade, this is not their only duty. They must certify to the correctness of invoices of goods exported to the United States, and are expected to make themselves so famiHar with prices and products that they can detect any undervaluation that may be attempted; they are re- quired to attend to the issuance of bills of health, stating that vessels leaving for United States ports have compUed with the quarantine and other health regulations and that there is no plague or epidemic at the port of departure. Inspection of vessels and other investigations are some- times necessary on the part of the consul before he can as- certain the facts that he must know before he can issue such a bill of health. Consuls are also charged wdth numerous special duties in regard to American vessels and American seamen that may come within their jurisdiction; they like- wise are intrusted with the task of aiding in the enforcement of the immigration laws of the United States by endeavor- ing to prevent the departure for the United States of im- migrants classed as undesirable and of those excluded by law. They also have many duties to perform in regard to the registration and protection of American citizens resid- ing or travelling in their districts, and are required to 248 FOREIGN TRADE OF UNITED STATES administer the estates, under certain conditions, of Ameri- can citizens dying abroad. Despite the multiplicity of duties devolving upon con- suls, they, nevertheless, are able to perform a vast amount of valuable services for the commercial interests of the country. Van Dyne, in his work entitled Our Consular Service, says: "By far the most important function of our consuls at the present time is the promotion of our for- eign trade. This branch of the work has been so greatly developed that our consular service to-day constitutes a vast reporting system covering the entire world, with a central bureau of information at Washington. The con- suls are the news-gatherers and reporters, ever on the look- out for information of interest to the American business public. The editors and publishers are the Departments of State and Commerce. . . ." That the principal business of American consuls is to take care of the commercial interests of their countr3anen is well understood, but the exact nature of their work is not so easily grasped. In the words of Foreign Trade Adviser William B. Fleming of the Department of State, "they make careful studies and critical analyses of our im- port and export trade in their several districts. They search out the resources, industries, and commerce in their several fields. They report the possibilities of business and trade opportunities and obstacles in the way of the expan- sion of American trade, and suggest the means of over- coming these obstacles. They make a study of the cus- toms tariffs and customs regulations of the country in which they are stationed and the effect of these on American trade, and transmit copies of these laws and regulations and the amendments thereto. They report all cases of dis- crimination against American interests, how tliis discrimina- tion is effected and the policies upon which the discrimina- tion is based. They also study and report on freight rates, of railways, canals, and oceans, also on the bounties given GOVERNMENT AID TO FOREIGN TRADE 249 by foreign nations. They also report on wages of labor and other items of the cost of manufacture of products, and the prices at which manufactured products are sold for domestic use. They work in co-operation with the American ministers and ambassadors and assist these officers of the government in commercial matters and in the effort to cor- rect erroneous customs charges and to prevent imdue de- tention of goods and ships. Tradition has long given to the consuls a certain prestige which affords them an open door to the sources of information — doors which are not accessible to purely commercial agents." This service ''affords information, offers advice, broadens opportunity, secures equality of treatment, suggests in- itiative, and inspires confidence in multifarious enterprises in foreign countries that would not and could not be undertaken by our citizens if such governmental service did not exist. It points the way of opportunity, but leaves the detail of execution to the ability and willingness of the beneficiary private interests." The efficiency of our con- sular service is now recognized as being equal or superior to that of any other nation. Consular Reports. — The trade information obtained by consuls is forwarded to Washington, where it is edited and published under the direction of the Bureau of Foreign and Domestic Commerce. The consular reports thus pub- lished are the following: 1. Commercial Relations. Annual. 2. Monthly Consular Reports. 3. Daily Consular Reports. 4. Confidential Trade Opportunities Reports, 5. Reports on Foreign Trade Restrictions. 6. Special Consular Reports. I. The annual publication known as Commercial Rela- tions contains a somewhat detailed description of the im- ports and exports, improvements in transportation facili- 2 50 FOREIGN TRADE OF UNITED STATES tics, development of new industries and growth in old ones in the country in which the consul is stationed, with def- inite suggestions for the extension of the trade of United States exporters in specific lines. 2. Monthly Consular Reports. — The nature of these reports is indicated in the directions issued to consuls when the pubHcation was begun in 1880. They were in- structed ''to prepare reports on all subjects which may be calculated to advance the commercial and industrial in- terest of the United States" and to make the information given ''expHcit and comprehensive, so that our merchants, manufacturers, agriculturalists, exporters, and importers shall fully understand the pecuHarities, wants, and require- ments of the several markets, as well as the best methods of reaching the same." 3. Daily Consular Reports. — Since 1898 those portions of the reports of consuls containing information that re- quires quick action has been issued daily. Whenever some important trade development is to be reported, the consuls are instructed to make use of the cable to inform the State Department. If this is of interest to a large body of those engaged in foreign trade, it is published in the Daily Re- ports. If it concerns only a few interests, it is privately transmitted to them. Daily Reports are distributed free to firms and associations interested. 4. Confidential Trade Opportunities Reports. — These, as just explained, contain information in regard to trade oppor- tunities that are of interest only to a few firms or to a re- stricted number of firms; hence, they are conveyed directly to them, instead of being published in the Daily Reports. 5. Reports on Foreign Trade Restrictions. — These are issued as the information is obtained from time to time. They contain specific information on foreign customs reg- ulations and tariff laws, foreign laws in regard to the im- portation of foods affected by pure food laws, etc., and for- eign patent and trademark laws. GOVERNMENT AID TO FOREIGN TRADE 251 6. Special Consular Reports. — These embrace a wide range of subjects. ''Some present a survey of the entire world's markets for certain lines of goods; others contain an intensive study of particular fields and particular lines; still others furnish a general study of some country or groups of countries." They are usually made up of re- ports on the subject in hand from many consuls, though this is not always the case. An excellent example is the book- let entitled Export Trade Suggestions, which contains ex- tracts from the reports of various consuls and data from other sources. Other Consular Aid to Exporters. — While the aid af- forded American exporters by the comprehensive reports concerning foreign markets and foreign business conditions is of the greatest importance, it is not the only assistance consuls furnish. They are always ready to answer per- sonal letters in regard to the best methods of introducing an article into their district, to give specific information as to the tastes, buying power, customs, and usages of the peo- ple where they are living, to make suggestions as to pack- ing of goods, the extension of credit, the collection of ac- counts, and scores of other subjects, though it is urged that those seeking specific information upon any such subject for a particular district first write to the Bureau of Foreign and Domestic Commerce to ascertain if it is already on file, thus avoiding unnecessary duplication of reports on the part of consuls. American commercial travellers invaria- bly receive valuable assistance from the consular officers. They are, when properly accredited, given introductions to leading business men and firms, informed as to trade conditions in their particular lines, and given pointers as to local idiosyncrasies that often result in success where otherwise no headway could have been made. The information that consuls make it their business to obtain and pass on, either in the reports mentioned or to indi\ddual exporters making inquiry, includes such details 252 FOREIGN TRADE OF UNITED STATES as local customs as to the widths of fabrics demanded or preferred by the buying public, the colors and patterns most in favor, the popular grades and brands of various articles, the wrappings that please, the trade-marks that have the strongest appeal, the trend of styles in clothing, fabrics, house furnishings, and many other articles, the climatic eflfect on certain foodstuffs and on colors and materials, and a thousand other details. The exporter entering a new field thus finds available a vast fund of information that he could obtain otherwise only by long and costly investigation and experience. Consular Aid to Importers. — While the assistance given by the consular service is more varied in the case of ex- porters than of importers, there are certain ways in which consular aid is extended to importers. In the first place, the consular reports keep the American importer in con- stant touch with conditions in foreign markets, so that he is enabled to buy in the most favorable market, and to take advantage of every fluctuation in exchange or other con- dition that may work to his advantage. Secondly, con- suls co-operate with buyers for American importing houses sent to purchase goods in foreign markets. The consul's intimate knowledge of the market conditions of his dis- trict often results in the American buyer securing goods on a more favorable basis than would otherwise be the case. Third, consuls endeavor to prevent customs frauds through undervaluations placed on goods shipped to America. At first, this seems to be a disadvantage to the importer, but it often works to his advantage. This is because great quantities of merchandise are exported to the United States by foreign firms, who either send it to their branch estabhsh- ments in America or consign it to a commission house. In either case, by undervaluing the goods and thus reducing the tariff charges, such firms would be enabled to place their wares on the American market at a lower price than those imported direct by an American firm. In the past this has GOVERNMENT AID TO FOREIGN TRADE 253 been done quite extensively, but consuls are now exercising great care to see that all goods destined for the United States are correctly valued. The requirement as to the tak- ing out of a consular invoice for all goods exceeding $100 in value to be imported into the United States is an effec- tive means for preventing undervaluations and other cus- toms frauds, though these have not as yet been entirely stamped out. Publications of the Bureau of Foreign and Domestic Commerce. — In addition to the editing and publishing of the consular reports, the Bureau of Foreign and Domestic Commerce publishes a Statistical Abstract of the United States, which contains valuable statistics of the commerce, production, industries, population, finance, currency, and wealth of the nation, as well as a summary of the commerce of principal foreign countries. Another pubhcation is known as Commerce and Navigation, which gives a de- tailed statement of the quantity and value of the exports and imports with the countries to which each article or class of articles was exported and the countries from which each article or class of articles was imported during a five- year period. Trade directories are also pubHshed from time to time. The World Trade Directory issued in 191 1 gave a complete list of importers in all parts of the world; it is now out of print, but may be consulted at the district ofl&ces of the bureau. Other trade directories are now in course of preparation. The district offices of the bureau referred to are at present located in New York, Boston, Chicago, St. Louis, Atlanta, New Orleans, San Francisco, and Seattle. They distribute the pubHcations of the bureau and co-operate with it in the promotion of foreign trade. Special Agents of the Department of Commerce. — The Bureau of Foreign and Domestic Commerce maintains a staff of commercial attaches, now ten in nmnber, who are stationed in the principal commercial countries, and de- 254 FOREIGN TRADE OF UNITED STATES vote their entire time to tlie study of commercial and in- dustrial conditions as they affect the trade relations of the United States. These attaches observe the organization of commerce and industry in the respective countries in which they are stationed, and make suggestions and recommendations looking to the adoption of improved methods by American finns that will enable them to com- pete more successfully with foreign firms. They devote their entire time to the promotion of commerce, having no other duties to perform. There is also a corps of commercial agents, referred to as "travelling field agents," attached to the bureau. The commercial agent visits certain foreign markets and makes an intensive study of certain conditions along specific lines, such as the requirements of the shoe and leather trade of Brazil or of the cotton-goods market of Latin America. The commercial agent is an expert in some one line, and, confining his investigation to the marketing of that line, he is able to giVe valuable help to American manufacturers and exporters interested. The ''Special Agents" reports form an important series in the publications of the bureau. Foreign Trade Advisers. — That branch of the work of the State Department concerned with the promotion of for- eign trade is carried on through a bureau known as the Foreign Trade Advisers' Bureau or Office. Concessions that are desired from foreign governments by business men or corporations, complaints in regard to tariff discrimina- tions or overcharges, and other matters concerning the in- terests of Americans in foreign fields, are considered here. The effect of our laws, especially our tariff laws, on the at- titude and policy of other governments is studied by the officers of this bureau, which aims to assemble and organize all material available on this and other subjects affecting our foreign trade relations. Diplomatic Aids to Foreign Trade. — Our ambassadors and ministers to foreign countries frequently, under instruc- GOVERNMENT AID TO FOREIGN TRADE 255 tions from the State Department, make representations, complaints, or protests to foreign governments in regard to the rights and privileges of Americans carrying on business with foreigners, and often obtain valuable concessions or modifications of obnoxious regulations that are of the utmost benefit to our exporters or importers. The negotiation of commercial treaties with other na- tions, carried on through diplomatic representatives, has become of the greatest importance to modern commerce. While these may apply to a wide variety of subjects, the effort to obtain mutual tariff concessions bet\yeen the coun- tries concerned is the sphere of widest appHcation. Such treaties are usually entered into for a period of years, there- by stabilizing conditions, to the benefit of commerce. As an example of trade benefits secured through commercial treaties the preferential tariff agreement now in force be- tween the United States and Brazil may be cited. Through this a 30 per cent reduction from the regular duties is granted by Brazil on flour imported from the United States, and a 20 per cent reduction on pianos, condensed milk, clocks and watches, paints and inks, refrigerators, rubber manufactures, scales, typewriters, varnishes, windmills, corsets, cement, dried fruit, and school and office furni- ture. These reductions were granted in consideration of the fact that the two principal exports of Brazil, rubber and coffee, found their readiest market in the United States, where they are admitted duty free. As has been pointed out, Germany has made a wide use of such commercial treaties. The next few years will without doubt be marked by a great extension of this principle between trading na- tions having reciprocal commercial relations. 2S6 FOREIGN TRADE OF UNITED STATES BIBLIOGRAPHY American Consular Service. Bookman, vol. 44 : 186-197, Oc- tober, 1916. Business Proposition: the American Consular Service. Indepen- dent, vol. 75 : 737-740, September 25, 1913. Cutler, B. S. American and Foreign Government Trade En- couragement Agencies. National Foreign Trade Convention, Official Report of the Fifth Foreign Trade Convention, 191 8, pp. 67-75- Donaldson, C. S. Government Assistance to Export Trade. Phila- delphia, 1909. Fairlie, J. A. The Department of State. (In his National Ad- ministration of the United States.) New York, Macmillan, 1905. Hunt, Gaillard. The Diplomatic and Consular Service. (In his The Department of State of the United States: Its History and Functions) New Haven. Yale University Press, 1914. Jones, C. L. The Consular Service of the United States : Its His- tory and Activities. Philadelphia, University of Pennsylvania, 1906. More Businesslike Consular Service. Outlook, vol. 109 : 250-1. February 3, 191 5. National Foreign Trade Council. Urgent Needs of the Dip- lomatic and Constdar Services. New York, National Foreign Trade Council, 1916. Totten, R. J. The American Consular Service. (In National For- eign Trade Council. Official Report of the Fifth National For- eign Trade Convention, 191 8, pp. 75-82.) U. S. Bureau of Education. Conference on Training for Foreign Service. Bulletin 37. Washington, 191 7. U. S. Bureau of Foreign and Domestic Commerce. Are You Interested in Latin American Trade ? How the Bureau . . . Can Help You to Establish or Expand Your Trade with Latin America. Washington, 1918. U. S. Bureau of Foreign and Domestic Commerce. Export Trade Suggestions. Washington, Government Printing-Office, 1916. (Miscellaneous series no. 35.) U. S. Bureau of Foreign and Domestic Commerce. Govern- ment Assistance to American Exporters. Washington, 1916. U. S. Bureau of Foreign a»nd Domestic Commerce. Imports and Exports. Services to Exporters Rendered by the Bureau. . . . 1918. GOVERNMENT AID TO FOREIGN TRADE 257 U. S. Bureau of Foreign and Domestic Commerce. Promotion of Commerce. Outline of the Service Maintained by the Bureau of Foreign and Domestic Commerce and Other Bureaus and Offices of the Governme7it of the United States. Washington, Govern- ment Printing-Ofl&ce, 1914. (Miscellaneous series no. 6E.) U. S. Bureau of Foreign and Domestic Commerce. Trade In- formation on Far East Available in Bureau of Foreign and Domestic Commerce. 191 8. U. S. Congress. Senate. American Consular Service. 63d Con- gress, 2d session, Senate document no. 541, serial no. 6595. Washington, 1914. U. S. Department of State. Digest of Circular Instructions to Consuls, 1897-1915. Washington, 191 5. U. S. Department of State. Bureau of Appointments. Informa- tion Regarding Appointments and Promotions in the Consular Service of the United States. Washington, 191 7. U. S. Federal Trade Commission. Report on Co-operation in American Export Trade. Washington, Government Printing- Office. 1916. Van Dyne, Frederick. Our Foreign Service : the 'M B C" oj American Diplomacy. Rochester, N. Y., 1909. CHAPTER XX THE VALUE OF FOREIGN INVESTMENTS AND OF A MERCHANT MARINE AS EXEMPLIFIED BY THE COMMERCE OF THE UNITED KINGDOM Position of the United Kingdom in International Trade. — For over a century the United Kingdom, popularly referred to as England, has stood head and shoulders above all other nations in the volume and value of her international trade. In the last normal year before the World War, 19 13, her total trade with other nations exceeded $6,800,000,000. This was nearly one-sixth of the entire trade of the world for that year. It exceeded the trade of her nearest com- petitor, Germany, by nearly $2,000,000,000. It is only since the rise of Germany and the United States to eminence in world trade that the position of England has been seriously threatened. The beHef is now somewhat prevalent that the United Kingdom cannot hope to retain much longer the position she has held so successfully for so many decades. The facts upon which this belief is based are that her trade is not increasing proportionally as fast as that of her great commercial rivals, that her imports are increasing faster than her exports, that her pre-eminence in the manufacturing industry is gradually slipping away, and that her dependence upon other countries for the raw materials essential to her manufactures and for the food- stuffs requisite for her population is becoming greater year by year. While there is food for thought in this view of England's condition, the fact remains that in 1914 England claimed one-sixth of the world's commerce, owned about one-half of the ocean tonnage of the world, was second only to the 258 COMMERCE OF THE UNITED KINGDOM 259 United States in the output of her manufacturing industry, underwrote about two-thirds of the marine insurance taken out on ships and cargoes, led all other nations in the ship- building industry, had the largest investment of capital in foreign enterprises, supplied nearly one-fourth of the coal production of the world, and was the undisputed leader in banking and finance. Causes of Commercial Supremacy. — In seeking an ex- planation of the supremacy of the United Kingdom in international trade, four great fundamental factors are readily recognized. These are the early development of her merchant marine, which, coupled with her navy, won her a great colonial empire; her leadership in the indus- try of manufacturing, won in the industrial revolution of the early nineteenth century and retained until nearly the end of that century; her adoption of the free-trade policy at a time when that policy unquestionably fostered the upbuilding of her manufactures and of her commerce; and, lastly, her policy of developing new countries and new markets through the investment of capital in public and private overseas enterprises. Of these, the naval and tariff policy are poHtical, while the building up of a great manufacturing industry and the securing of the capitalistic leadership of the world have been largely the result of in- dividual effort. We find in England no such organization of industry and commerce as exists in Germany; British trade is free, not only in regard to tariffs, but also in regard to govern- ment direction or control. Outside the kingdom the government zealously guards the rights and interests of her citizens, using diplomacy or force, as may be necessary, to secure every protection and every advantage for her traders and her capitalists the world over. Within the kingdom the policy of laissez-faire prevails to such an ex- tent that the EngHsh system has been characterized as ''individuahsm gone mad." In late years, however, under 2 6o FOREIGN TRADE OF UNITED STATES the leadership of David Lloyd George, there has been a movement to bring industry under close government su- pervision, with the object of improving the conditions of labor and of remedying some of the evils resulting from the industrial system. The Merchant Marine. — The first factor in England's commercial success is her merchant marine. Her early leadership in the carrying trade of the world, which she won from the Dutch in the second half of the seventeenth century, gave her a tremendous advantage in the quest for world markets that has played such an important part in the history of every modern nation. The methods used in fostering the growth of her merchant marine and the commerce depending upon that marine are thus summarized by Adams in his European History: It is from the time of Cromwell's rule that we may date the be- ginning of a continuous commercial and colonial policy on the part of the English Government. . . . With him began the measures which long characterized English policy, to defend and develop commerce and the colonies, not as colonies mainly but as feeders of commerce, by acts of Parliament and whenever necessary by war. In 1651 was passed the first Navigation Act, which forbade the importation of goods into any English possession except in English vessels or in the vessels of the country producing the goods. This was aimed directly at the great carrying trade of the Dutch, and was intended to transfer this to English ships. Laws of this kind, successively passed, remained in force until into the nineteenth century. Such a policy undoubtedly had its effect, but a far more potent influence was the love of the English for the sea. From earhest times they had been a seafaring people, ready enough to follow any enterprise holding out the promise of reward or adventure. Hardly had the discov- ery of the New World opened up new vistas for commer- cial conquest before the daring British sea-captains went boldly adventuring into uncharted seas in quest of trade, COMMERCE OF THE UNITED KINGDOM 261 and so established regular trade routes and trading-sta- tions before other nations had fully awakened to the possi- bilities of establishing a permanent and profitable overseas commerce. No seaport was too far distant to be reached by British merchant vessels, no passage was too hazardous to be undertaken by her mariners, who were equalled in modern times only by those of the American colonies, them- selves British subjects. Every advantage that can come to a nation from the possession of a great merchant marine has been England's for over three centuries. These in brief are as follows: The maintaining of direct trade routes and direct trade relations '\;\'ith all parts of the world, with the consequent stimulation of foreign trade and foreign financing; the earning of great sums of money for performing the carrying ser\ice for other nations, and the strengthening of the naval power of the nation by the control of a powerful fleet that may be converted into a naval auxiliary as required. In the case of England, her merchant marine has been a necessary adjunct in securing and maintaining her great colonial empire. While the attempts made by the mother country to control the commerce of her colonies proved ineft'ective, and threatened to break up the empire, the possession of colonies did, nevertheless, both directly and indirectly help to build up a great overseas commerce. The promotion of trade betw^een people speaking the same language, having the same traditions, tastes, and customs is easier than between people of great differences in lan- guage, tastes, characteristics, and customs. Other things being equal, English emigrants prefer English wares to those of other countries. Then, too, the colonies found it to their advantage to trade with England, because that country offered the best market for the raw materials and foodstuffs they produced in superabundance and supplied those finished manufactures that every new country must inaport. 262 FOREIGN TRADE OF UNITED STATES The British merchant marine was at all times ready to serve the colonies and all other nations in this exchange of wares. Regular and rapid service has long been maintained between English ports and those of every other nation. England first adopted steam navigation in overseas com- merce and established a network of steamship lines that bound the world to her with invisible threads. She thus was able to carry not only her own exports and imports but also a large part of those of other nations. The direct exchange of the surplus products of England for those of other nations has thus been supplemented by a trade of immense volume in the products of other countries. Eng- land thus became the great distributing centre for the wares of the nations, which found it convenient to send their surplus products in British ships to London and to take in exchange those other products, be they British or Continental, African or Asiatic, American or Oceanic, which were offered in this great world mart in quantity and variety almost unlimited. It is this that made Lon- don for over a century the commercial and financial centre of the world. Manufacturing. — English commerce has developed side by side with the industry of manufacturing. For over a century England led the world in that industry, finally being overtaken and passed by the United States in the last quarter of the nineteenth century. The tremendous manufacturing industry of the United Kingdom owes its success largely to the fact that this nation was the first to develop the factory system, which resulted from the use of machinery driven by the power of steam. An abundance of coal and iron conveniently placed near the sea greatly aided England in taking the leadership in the industrial revolution resulting from the introduction of steam-power in the early nineteenth century. The position as the great- est manufacturing nation in the world won at that time was retained unchallenged until the greater efficiency of COMMERCE OF THE UNITED KINGDOM 263 electric power, combined with new and improved methods of production, worked another industrial revolution. That England has not lost her skill in manufacturing is shown by the fact that in 19 14 the output of her manufacturing plants was equalled by that of only two nations, the United States and Germany, and surpassed only by that of the United States. English exports of manufactures exceeded those of any other nation. This has greater significance when it is remembered that the population of the United Kingdom in 1914 was only 45,000,000, w^hile that of Ger- many was 66,000,000 and that of the United States 98,- 000,000. It is estimated that the per capita production of manufactures in the United Kingdom was S200 in that year, that of Germany $138, and of the Urn* ted States $210. The manufactures in which England has excelled are textiles, especially those of cotton; machinery, including that used in the textile industry; locomotives, iron and steel rails; cutlery; pottery; and leather manufactures. The building of ships has been an industry of prime im- portance in England from earKest times; since the in- troduction of ships built of iron and sted England has been able to turn them out more cheaply than they can be built in the United States, though this is probably no longer the case. The value of English manufactures exported in 191 2 was about $2,000,000,000; that of all other nations was about $6,000,000,000. That England had not lost all claim to the title of ''the workshop of the world" is evidenced by these figures. It is generally agreed, however, that Eng- lish manufacturing methods have not kept pace with the latest improvements and that there has been greater efii- ciency, in large-scale production, in both Germany and the United States. Since this is recognized in England itself, and measures are being taken to introduce the improve- ments necessary, a great decline in English industrial pres- tige is not probable. 264 FOREIGN TRADE OF UNITED STATES England^s Free-Trade Policy. — In analyzing the causes of England's commercial supremacy, due consideration must be given to the effect of her free-trade policy. The repeal of the corn laws, which was the name applied to the tariff laws of the time, was accomplished in 1849. ^ writer on the subject says: *'It was a momentous act in English history. It marks the formal and final recogni- tion that England had grown from an agricultural to an industrial and commercial state. It threw England, as an English economist said, frorn corn to coal as the staple product of the country. Manufactures and trade thence- forth developed freely. Even the agricultural interest gained in ways which it had not foreseen: the consuming population increased rapidly both in numbers and in pur- chasing power, and demanded increasing quantities of meat, dairy produce, vegetables, and fruit." Under free trade the manufacturer has been able to secure the raw materials needed, such as cotton, wool, iron, hides, and lumber, at the lowest possible prices. At the same time foodstuffs to supply the needs of the com- munity have been imported duty free. Since England's home supply of foodstuffs is entirely inadequate, the im- position of duties would impose a burden on the consuming population. The effect of free trade on the English farmer is a mooted question. The adoption of the free-trade policy had a wonderful influence upon the re-export trade of England. Professor Webster thus describes the effect of free trade upon Eng- land's commerce: By this step also she became the great dock, as it were, where were unloaded, free of charge, the products of all countries, thus leaving her a share of the profits of the world's trade. Not only did foreign merchandise come there for redistribution, but foreign mer- chants, after unloading there, replenished their cargoes in her markets. She profited also from the sojourn of foreign ships in her ports by supplying them with coal and provisions and by COMMERCE OF THE UNITED KINGDOM 265 charges for their repairs. Her banks profited enormously by con- ducting the financial operations of these foreign merchants. Wliile there is general agreement as to tlie beneficial effects of free trade on English commerce and industry in the past, there has been for a number of years a strong feeling in England that changed conditions make a reversal or modification of that policy advisable. While the United Kingdom, pre-eminent in manufacturing, could disregard the competition of the newer manufacturing nations, she had Kttle need of a tariff wall to shut out the manufactures of other nations from competing in her home market. But now that other nations have become active and ag- gressive competitors of England in the sale of manufac- tured products and have even invaded England itself with their wares, which they not infrequently sell for less than the cost of production, in order to secure the market, it is argued that England must resort to a protective policy. The practice just referred to of one country ''dumping" its surplus products into another country at prices below cost is made possible by the protective system, which main- tains prices at home and makes it possible for the manu- facturer to sell his surplus product abroad at an absurdly low fiigure, while his domestic customers make up the deficit. He argues that by so doing he is enabled to carry on production on a large scale and at the same tune to get a foothold in the foreign market. Those who favor the abandonment of the free-trade policy in England have another argument besides the one that a protective tariff is necessary to prevent the ruin of the home market by the practice of dumping. They main- tain that since England's great commercial rivals, the United States, Germany, and France, all have protective tariffs, which mxake it difficult or impossible for English manufacturers to compete in the markets of those nations, the only way in which she can retahate against discrimina- 266 FOREIGN TRADE OF UNITED STATES tion is to herself adopt that system. Such a trading tariff as Germany has had is the one most favored. Under that tariff, reciprocal trade concessions may be made between nations to the advantage of both. An extension of this idea is the advocacy of an imperial customs' union similar to the German Zollverein, with free trade existing only within the empire, a trading tariff being erected against other countries. Such a system might aid in strengthen- ing English industry, but the effect upon her commercial supremacy would be unfavorable. Economists agree that a nation that counts its international trade as of paramount importance jeopardizes that trade when it deviates from the principle of free trade. Foreign Investments. — A factor of incalculable influence in England's prestige in international trade has been the readiness of her people, from the capitaHst with millions at his command to the humble citizen with the merest mite for investment, to loan their money in foreign lands. It is the newer countries possessing great undeveloped re- sources that have always been most in need of foreign capital to enable the pioneers of industry to wrest from nature the v/ealth she has stored up in forest and jungle, mine and plain. This capital England has supplied with lavish hand, and it has seldom failed to yield good returns as an investment. But the direct stimulation to English commerce has been of far greater value than the dividend or interest return. The first need of such undeveloped regions as now exist in Argentina and other Latin American countries; in Can- ada, Australia, and South Africa; in Russia and in China, is railroads, which afford the necessary transportation facili- ties to carry in the machinery and supplies essential to the development of the country and to carry out the products resulting from that development, whether they be the prod- ucts of the mine, the forest, or the farm. Those invest- ments which have greatly stimulated the sale of English COMMERCE OF THE UNITED KINGDOM 267 products have been concerned with the promotion of great public and private development enterprises, such as rail- roads, power-plants, street-car lines, irrigation systems, harbor improvements, and mining and agricultural activi- ties. In each instance the work of development has created an enormous demand for the construction material essential to the carrying out of the project. In placing the orders it has been quite natural to give preference to English firms. This has in many instances been pro- vided for in the negotiations preceding the loan or invest- ment. A prominent American banker analyzes the situation thus: ''English investments in South American railroads means that English-made cars, pulled by EngHsh-built locomotives, \\dll run over English- rolled rails; that all purchases of supplies will be made in London; that the roads will be managed by EngHshmen, and that the in- fluence of the roads in the country through which they run will be exerted in favor of the advancement of EngHsh interests. A permanent market is thus made for English goods which is quite safe from attack." It is clear that such investments do not take English money out of the country. EngHsh capitaHsts loan for- eign industrial leaders the money with which they purchase EngHsh goods from EngHsh manufacturers. The money remains in the country and the goods go out. It is not the manufacturer but the capitaHst who extends the credit to the promoter of new enterprises in foreign lands. The advantage to EngHsh industry of such loans is therefore apparent. It must be borne in mind, however, that all loans are not made under such favorable conditions. In- stances are not rare in which capital secured in England to promote industry in another countr>^ ultimately found its way to a third nation in pa\'ment for suppHes purchased in the latter country. The total overseas investments of EngHshmen in 1913, according to estimates made by Sir George Paish, the emi- 268 FOREIGN TRADE OF UNITED STATES nent statistician, aggregated £3,715,000,000, or approxi- mately $18,000,000,000. The investments in the British possessions were estimated at £1,780,000,000, while those in foreign countries approximated £ i ,93 5 ,000,000. English investments in the United States in that year were esti- mated at £755,000,000 and those in Latin America at £724,000,000. It is estimated that the investments made by English- men in overseas enterprises in the decade between 1900 and 1910 totalled £901,000,000, or about $4,500,000,000. In the single year of 1913 over £196,000,000 went overseas from England for investment purposes. It is interesting to note the distribution of investments in securities in the United Kingdom in that year. The following tabulation shows the amount of capital, expressed in million pounds, invested by Englishmen in securities in 19 13: United Kingdom 49.2 98.7 98.0 British possessions Foreign countries Total 245 -9 This table reveals the fact that only 20 per cent of the total was retained in the United Kingdom; 80 per cent went overseas, where 5 and 6 per cent could be realized instead of the 3 and 4 per cent prevaiHng in England. The income the English people derived from overseas investments each year, before the war brought about the liquidation of a large part of these investments, approxi- mated $900,000,000, which paid for over one-fourth of the imports of the United Kingdom. This is one of the reasons why the annual imports of the United Kingdom have exceeded the exports. British overseas investments yielded annually enough to more than pay for surplus imports; English ships engaged in the carrying trade piled up im- COMMERCE OF THE UNITED KINGDOM 269 mense earnings, which greatly added to England's position as a creditor nation. The chapter devoted to the subject of the balance of trade goes further into this subject. Professor WilHam Clarence Webster thus graphically describes the effect of British overseas investments as they existed prior to the World War: While England has been losing her position as the world's work- shop, she has been building up her capitalistic supremacy. Her capital has flowed into her colonies and nearly every country in the world. Consequently, she has become the world's creditor, and wields the power that accompanies capitalistic supremacy. Her capitalists own vast tracts of land and work farms in nearly every country of the world; they also control railroads, manufacturing plants, and mines in many of the most strategic places on every continent. In this way England keeps her cows in Australia, Canada, and Argentina; cultivates her wheat in Manitoba, the United States, and India; grows her cotton in the United States, India, and Egypt; spins it not only at home, but even in India, China, Egypt, and Mexico; makes her machinery in Germany and the United States. Thus, not only her many colonies, but the whole world, has become a part of her domain through the power of her capital. This is a striking description of England's capitahstic supremacy, but it suggests the other side — the unfavorable side — of foreign investments. The EngHsh dairyman nat- urally objects to England ''keeping her cows in Australia, Canada, and Argentina"; he would prefer to have her make it possible for him to keep a larger number at home. The Enghsh farmer, while recognizing that part of England's wheat must be cultivated in Manitoba, the United States, and India, knows that much more of it could be cultivated in England if the large estates were broken up and more favorable terms and conditions given the rural worker; the British textile worker who has found employment increas- ingly scarce in England and wages shamefully low feels that he will soon have to follow British capital to the new countries if much more of England's cotton is to be spun 2 70 FOREIGN TRADE OF UNITED STATES in other countries; and the worker in iron and steel objects to being thrown out of work because British capitalists prefer to invest their money in industrial plants in other countries rather than in England. It is generally agreed that England's high position in manufacturing can be retained only by an extensive and thorough reorganization of that industry, beginning with tlie installation of new machinery and equipment that will enable her plants to compete with those of Germany and the United States. Such a programme involves the invest- ment of vast amounts of capital. The Enghsh capitaHst must cease to send 80 per cent of his yearly investment out of the kingdom, even if by so doing his income is diminished. England without a great manufacturing industry would lose a large part of its population, of its productive power, of its foreign trade, of its capitalistic and commerical su- premacy. This does not signify that foreign investments are either unwise or unpatriotic; they are, on the contrary, essential to an ordered world development; it simply means that the policy of preferring foreign to home investments, when the latter are sadly needed, is bound to have more or less disastrous effects. The feeling of a portion of the British public is well expressed in this passage, taken from an article pubHshed in the Fortnightly Review for July, 19 14— the month before the war put a sudden quietus on the exodus of English capital: ''Overseas in South America and else- where magnificent cities are being built up with British capital, even while many of our towns remain a disgrace to civilization. ... It is a pregnant thought that one year's foreign investing, applied to the power resources of this country, could transfer the whole of our industrial and social life and give such a stimulus to British industry as it has never before received." Progress in Foreign Trade.— The progress made by the United Kingdom in foreign trade since 1880 is shown in the COMMERCE OF THE UNITED KINGDOM 271 follo^ving table, which gives the imports and exports in millions of pounds sterling, with approximate equivalents in millions of dollars. The figures are for the general trade, which includes the transit or re-export trade. Year Imports Exports Total 1880. . . 1900. . . I9IO. . . 1913. • £411.2 523-0 678.2 768.7 $2,001 .2 2,545-5 3,300.7 3,751-0 £286.4 354-3 534-1 634.8 $1,393-8 1,724-5 2,599-2 3,089-3 £ 697.6 877-3 1,212.3 1,403-5 $3,395 4,270.0 5,899-9 6,840.3 Between 1880 and 1913 the total trade more than doubled, by far the greatest gain occurring after 1900. The im- ports were uniformly greater than the exports, though the difference between them tended to become less. This dif- ference, as has been explained, was more than offset by the earnings of British ships engaged in the carrying trade and by the interest on foreign investments. The imports show an increase during the entire period of 87 per cent, but it is to be noted that the increase between 1900 and 191 3 was only 47 per cent. The exports during this period in- creased faster than the imports; the percentage increase in exports is nearly 122 per cent. The exports nearly doubled between 1900 and 1913; as a matter of fact they quite doubled between 1899 and 1913. It is thus clear that the progress of England in her gen- eral foreign trade has been tremendous. Let us now con- sider her special trade, which includes only imports for English consumption and exports of English merchandise. In the following table the imports and exports are given in milHons of dollars. In noting the growth of this trade, we will not consider, for the present, the year 19 14, as the commerce for the latter half of that year was thrown out of normal by the outbreak of the World War; neither will we consider the commerce of the war years following. Throughout 2 72 FOREIGN TRADE OF UNITED STATES Year 1880 1890 1900 I9IO I913 I9I4 I915 I916 Imports ^1,692.9 1,732.3 2,238.0 2,795-7 3,207.8 3,386.1 4,154.8 4,619.0 Exports ^1,085.5 1,282.4 1,417.0 2,094.4 2,556.1 2,096. I 1,871.9 2,940.0 Total $2,778.4 3,014.7 3,655-0 4,890.1 5,763 -9 5,482.1 6,026 . 7 7,559 o the period the changes are striking; between 1880 and 19 13 imports nearly doubled in value, while exports increased even greater proportionally, those of 19 13 having a value nearly two and one-half times as great as those of 1880. The development on the export side was greater than on the import side. The growth for the period, then, shows that England's sales were increasing faster than her pur- chases, a condition considered an indication of industrial progress. The period between 1890 and 1900 was marked by a relative decline of exports; as this was the period in which the United Kingdom was using her resources in carry- ing on the Boer War, the decline is easily accounted for. The condition just noted was reversed in the next decade, when the expansion in imports approximated 25 per cent, while that in exports reached nearly 50 per cent. Again, we see the exports increasing at a more rapid rate than the imports in the years between 1910 and 19 13. The fact that England's capitalistic and shipping supremacy has enabled her to buy more than she sells has created the erroneous impression that her imports are increasing faster than her exports, while just the opposite is the case. Finally, it is unportant to note that the value of British ex- ports in 1 9 13 exceeded the value of commodities exported in 1900 by over $1,139,000,000, and that the increase in the value of her special trade in that period was $2,108,000,000, a sum nearly equalling the value of the exports of Germany for the year 191 2. While her relative progress has not been COMMERCE OF THE UNITED KINGDOM 273 so rapid since 1880 as that of the United States and Ger- many, her progress has been steady and normal. The United Kingdom had a well-developed and strongly in- trenched foreign trade of enormous proportions before either of her pre-war great commercial rivals had secured a foothold in the world's trade, and she has not only held that immense trade, but has steadily increased it as the volume of the world's commerce increased, despite the keenest commercial rivalry on the part of the newer and more aggressive countries. Imports. — Over one- third of the articles imported by the United Kingdom is foodstuffs; nearly one- third is raw ma- terials for her factories and workshops; the balance in- cludes manufactured articles, notably silks, leather manu- factures, woollens, hardware, utensils, machinery, and even cutlery, for which Sheffield has long been noted as lead- ing the world, though that city no longer monopolizes the home market. The leading foodstuffs imported are grain, dairy products, meat, tropical fruits and nuts, sugar, tea, coffee, canned goods, and cocoa. The raw materials im- ported include raw cotton, iron ore, wool, hides and skins, and lumber. Exports. — Five items comprise nearly three-quarters of the exports. These are, in the order of their importance, manufactures of cotton, iron and steel manufactures, wool- lens, coal, and chemicals. The one raw material exported in great quantities is coal, which serves admirably as a return cargo for the many ships bringing raw materials to England. As English imports are much greater in bulk and volume than the exports, coal is an important factor in balancing her carrying trade. In the manufactured articles exported there is a wonderful variety: all kinds of cutlery, hardware, utensils, machinery, crockery, textiles, embroideries, laces, thread, needles, pins, thimbles, and a great multiplicity of other articles for which there is use or desire in any part of the globe. 274 FOREIGN TRADE OF UNITED STATES Direction of Trade. — As the United Kingdom blazed the trail to the most remote regions of the earth in the period of trade expansion following that of exploration and dis- covery, so she has retained those trade connections es- tablished by her merchant pioneers. There are mercan- tile houses in England that have been for generation after generation controlled and managed by the same family and have carried on a business of great volume with other old-established firms in all parts of the world. Such trade rests on the solid foundation of business integrity, mutual confidence and understanding, and a basic knowledge of the requirements and conditions of foreign markets difficult for a firm fresh in the field to acquire. It is this impregnable position of the British export merchant that has proved the despair of rival merchants of other nations, who are not in- frequently astonished to find that even the most convinc- ing of all sales arguments — superior quality at lower price — has failed to budge a customer from his allegiance to the old firm. Undoubtedly, the credit arrangements that have become established between merchant and customer are a factor in the maintenance of business relations. Open accounts are not infrequent, and the extension of credit over a bad season or in case of temporary depression is taken ahnost as a matter of course. So it is that British trade extends to all nations, even to those of remotest re- gions where the volume of trade is necessarily limited. About one-third of the trade of the United Kingdom is with Europe, one-fourth with the colonies, and one-fifth with the United States. The imports and exports of the colonies about balance; from Europe and America England buys in excess of her sales. She was Germany's best cus- tomer before the war, just as Germany afforded the best market for England's wares. The value of goods imported into Germany from the United Kingdom in 19 12 and also in 19 1 3 was about $200,000,000; conversely, the value of German goods sold in the United Kingdom. Germany's sales to the British Isles in 1913 practically COMMERCE OF THE UNITED KINGDOM 275 equalled her total sales to all the countries of both North and South America in that year. The United States was second only to Germany in the imports from the United Kingdom; France was the next best customer for British wares. In 19 13 merchandise valued at over $634,300,000 was imported from the United States; in 191 5 the value of such imports was $914,100,000, and this was more than doubled in 19 16. Calendar years are here considered, and not our fiscal year ending June 30. The amazing sales made by the United States to England in 191 5 and later are of interest, but cannot be used as a basis of comparison because they were so greatly augmented by the war. Eng- land normally takes about 20 per cent of her imports from the United States, which constitutes a trade in itself of no mean proportions. Less than 10 per cent of her exports find a market in the United States. In 1913 the value of such exports was $289,000,000. There was thus a balance in favor of the United States of $344,700,000. Normally, one-fourth of the exports of the United States are sent to the United Kingdom. The best customers of the United King- dom have been, in the order named, Germany, the United States, France, British India, Australia, Canada, Argen- tina, the Netherlands, Russia, Belgium, and New Zealand. The countries from which she buys in greatest quantity have been the United States, Germany, France, British India, Argentina, Russia, Canada, AustraHa, Belgium, the Netherlands, Denmark, and New Zealand. She buys wheat and raw cotton from the United States, beet-sugar from Germany, tea and wheat and jute from British India, wheat and lumber from Canada, gold from British South Africa and from India, wine and silk from France. Of course these are only the principal foodstuffs and raw ma- terials that have found a market in the United Kingdom from the countries mentioned. Trade from 1915 to 1920.— While the outbreak of the war occasioned a shock to industry and commerce through- out the world, and caused England and the other nations 276 FOREIGN TRADE OF UNITED STATES engaged to divert their energy and productive power to the one all-important task of perfecting and maintaining the machinery of destruction, even in 191 5 and 19 16 the com- merce of the United Kingdom was not far from normal in volume, though its character was changed, especially in regard to the articles imported. The importation of food- stuffs and war supplies was so enormous as to dwarf that of raw materials for the manufacture of the commodities of peace and also of staple manufactures. Home manu- factures did not languish greatly during those years. Eng- land had the coal to furnish the power, the ships to bring the raw material from overseas, and the navy to keep open the channels of trade. Even the supply of labor was not inadequate. In 191 5 the exports were valued at $700,- 000,000 less than those of 191 3, notwithstanding the in- crease in prices, which averaged fully 20 per cent, but in the year 191 6 both sales and purchases abroad were in- creased, the volume of exports being surprisingly near normal. In the next three years enormous totals were rolled up. The figures for that trade are given herewith, expressed in millions of pounds sterling. The exports include both foreign and domestic products. Year Imports Exports Total iqi-i £ 768 1,065 1,319 1,632 £634 525 529 962 £1,403 1,590 1,848 2,594 IQ17 I918 I919 The outstanding fact in the recent trade is the over- whelming excess of imports. It was this excess that caused the pound sterling to decline until it was worth at times between $3 and $3.50 in American money, instead of its par value of $4.86. Before the war English imports exceeded exports each COMMERCE OF THE UNITED KINGDOM 277 year by about £150,000,000. Interest on foreign invest- ments, shipping credits, and bank commissions more than offset this. But the United Kingdom came out of the war in an entirely different position from that held in 1914. David Lloyd George stated in 1919 that foreign invest- ments aggregating £1,000,000,000 had been sold by Eng- lishmen during the war, while government securities ex- ceeding that sum in value had been placed in foreign hands. While the last item was more than offset by loans made to allied nations, including Russia, neither the principal nor interest on such loans were available. Consequently, the United Kingdom could no longer depend upon invisible exports to balance a huge excess of imports. Reduction of imports and increase of exports became an imperative necessity, just as in the case of Germany. Hence, there has arisen a new interest in the promotion of British ex- ports, an interest manifested by the government as well as by private indi\'iduals. Various government commis- sions are working on the problem, while such associations as the Federation of British Industries, organized in 19 16, with a membership of 15,000 manufacturers and exporters representing a capital of $2,000,000 or more, have entered upon a new and determined campaign to promote the sale of British products abroad. Another effect of the war has been a drawing together of the British Empire. As an indication of this the Finance Act of 19 19 is of the highest importance. This act adopted a preferential reduction of duties in favor of certain em- pire products, including tea, coffee, sugar, dried fruits, cinema films, clocks, watches, motor-cars, and cycles. It is to be noted that duties placed on many of these articles during the war were retained. 278 FOREIGN TRADE OF UNITED STATES BIBLIOGRAPHY BowLEY, Arthur L. A Short Account of England's Foreign Trade in the Nineteenth Century ; Its Economic and Social Results. New York, 1905. Byers, Norman R. World Commerce in Its Relation to the British Empire. London, 191 6. Cox, Harold. The United Kingdom and Its Trade. London, 1902. Cress, Edward. A71 Outline of Industrial History. London, 1915. Cunningham, W. The Growth of English Industry and Commerce in Modern Times, 2 vols. Cambridge, England, 1907. Great Britain. Board of Trade. British and Foreign Trade and Industry. London, 1903. Great Britain. Statistical Abstract. Annual. London. Perris, G. H. Industrial History of Modern England. New York, 1914. Porter, G. R. The Progress of the Nation. A new edition edited by F. W. Hirst. London, 191 2. Pulsford, Edward. Commerce and the Empire : 1914 and After. London, 191 7. CHAPTER XXI ORGANIZATION AND CO-OPERATION IN FOREIGN TRADE AS EXEMPLIFIED BY GERMANY Foreign Trade Essential to Germany. — The pressure of population has long been felt in Germany. With an area considerably less than that of Texas, the population in 19 14 was about 70,000,000. The land is not particularly pro- ductive, and the major part of it has been held in large estates and worked by agricultural laborers, thus furnish- ing subsistence to many less people than would be the case under a system of small indi\idual holdings. In normal times the production of foodstuffs falls far short of the con- sumption, necessitating a large importation of grain, flour, meat, and other food products. Under these conditions foreign trade became a vital necessity for the people of Germany. It was only by sell- ing the products of their labor in foreign markets that the requisite foodstuffs could be obtained. It is estimated that less than 25 per cent of the population is engaged in agriculture, and the movement from the rural districts to the urban industrial centres has been increasing year by year. Over two-thirds of the exports of Germany have consisted of manufactured articles, many of them highly wrought, in which the labor involved constituted a large part of their value. Fully one-half of the imports has consisted of raw materials for use in manufacturing, while about one- third of the commodities imported has been food products. It is the facts just set forth that explain why Germany made such a supreme effort to develop foreign markets. Stubborn persistence, indefatigable energy, stern deter- mination, and concentrated effort marked every step of the 279 28o FOREIGN TRADE OF UNITED STATES progress Germany made in developing her foreign trade. Her unwavering policy of trade extension at all costs re- sulted from the conviction that the very existence of Ger- many as a world power depended upon creating an outlet for her labor through the sale of manufactured goods in the markets of other countries. The only alternative was the division of her large estates into small holdings intensively cultivated, or in a great emigration to other countries offering better opportunities. Both of these were opposed to the imperial poHcy, which, on the one hand, catered to the agrarian and capi- talistic classes, and, on the other, desired to maintain Ger- many's position and prestige by means of a rapidly growing population of high efficiency. Hence the abounding energy of the nation, its genius for organization, its devotion to scientific research, and its willingness to subordinate the individual to the general welfare were used to so co-ordinate and unify industry that it might support the largest possible population by means of manufacturing, and extend its foreign trade to the uttermost limits. The German System. — The system by which Germany succeeded in building up her foreign trade was as thor- oughgoing as it was unique. It was the result of a far- seeing, carefully worked out national plan, in which the strong arm of the government was ever ready to give the needed aid and direction. There was co-operation and co- ordination in German industry and in German foreign trade that existed in no other nation. The government- owned railways and waterways, the government banks, the syndicates or organizations of merchants and manufacturers under government supervision, the thoroughly correlated educational system extending from the elementary grades through the universities — these all worked together to achieve one end, the pre-eminence of Germany in power, position, industry, commerce, and wealth. FOREIGN TRADE OF GERMANY 281 The German Government was called paternalistic, be- cause it aimed to influence or control, directly or indirectly, many activities that in this and other nations are left wholly or partly to the individual. This paternalistic character was clearly indicated in the aid the government gave industry and conmierce. Vast internal improvements ; a great system of state-owned railways and waterways; the best harbor and terminal faciHties in the world; a close supervision over manufacturing, commerce, and banking; a government poHcy of zealously guarding the interests of its manufacturers, merchants, and ship-owners who were competing with those of other nations; a well-defined policy of negotiating commercial treaties with other na- tions to foster German trade; the maintenance of a great staff of government workers whose function it was to keep in close touch with every foreign market in the world and with every development influencing trade, and to give valu- able and specific trade information to business men and corporations; the closest co-operation between government bureaus and chambers of commerce — these are only a few of the methods taken by the imperial government to ad- vance German industry and commerce. Five Factors in German Organization. — The unification of Germany as it affected the foreign trade of the nation may be understood by considering in some detail the forces that were co-ordinated to produce the results achieved. These may be grouped under the following heads: 1. Education. 2. Government control of railways and waterways. 3. The work of syndicates. 4. The co-operation of banks in industry. 5. The tariff poHcy. I. Education. — Education in Germany was compul- sory, every child being required to attend the elementary 282 FOREIGN TRADE OF UNITED STATES schools for at least eight years. The schools gave practical training, the aim being to educate the child to j6l11 the niche he was designed for, so that he might do his part in serving the state to which he belonged. Obedience, patriotism, and industry were inculcated. Continuation schools were pro- vided for boys and girls who graduated from the elementary schools and went to work. In most of the cities of Germany attendance at these schools was compulsory for boys be- tween fourteen and seventeen. The effect upon industry of the training given in the con- tinuation schools was unquestionably very great. Greater skill, intelligence, and efficiency in the performance of their daily tasks and a better understanding of the work Germany required of her citizens are directly traceable to the instruction given in these trade schools. Students intending to study in the universities received their preparation in the gymnasiums. The German uni- versities are state institutions, and under the old regime they took a very definite and important part in the de- velopment of the empire. Their influence upon industry and commerce was great. They planned to train for the professions and for the higher class of commercial positions as well as for the civil service; they emphasized the natural sciences and encouraged the application of the knowledge gained through study and research to industry; thus scientific study was adapted to the economic needs of the nation and the universities served as laboratories in which scientific methods were worked out for the benefit of in- dustry. 2. Government Control of Railways and Waterways. — Fully 90 per cent of the railways of Germany were owned and controlled by the state. The one paramount idea in railroad administration in Germany was the promotion of industry and trade through service. The earning of divi- dends was entirely secondary, though the net income de- rived by the government from this source in 19 11 was $178,- FOREIGN TRADE OF GERMANY 283 000,000. This sum would have been greatly increased had not vast sums been spent in making improvements and ex- tensions. Wherever investigation showed that industry might be stimulated to an appreciable degree by railroad extension, by improved service, or by discrimination in rates, the required action was taken. There w^as no con- flict between the interests of the railroads and those of the shipper, for the very simple reason that the interests were identical. In the management of the railways every effort was made to provide adequate terminal facilities, that kept pace with the industrial needs of each comimunity; sectional favoritism was not apparent, for it w^as generally recognized that the railways must serve impartially and fairly the whole nation, if the nation was to prosper. The railways were operated in connection wath the splendid system of inland waterways that were well developed in Germany. The more bulky raw materials, such as coal, iron ore, lumber, and grain, were transported at very low rates over the inland waterways. Some of the definite ways in which the transportation facilities were used to aid the exporter were as follows: (a) Export shipments were accorded lower rates than domestic freight. These rates applied to both small and large shipments. Often an exporter who would otherwise have been unable to compete in foreign markets with the exporters of other nations w^as thus assisted to build up an extensive and profitable export trade. The authorities did not hesitate to reduce the rates on imported raw ma- terials as well as on manufactures for export when it ap- peared that the nation's trade could be so extended. (b) The railways were administered as one system, though they wxre owned by different states. Shipments were sent over the most direct route and were given ad- vantage of the cheapest rate. When there was congestion at one port, exports were diverted from it and thus delays were avoided. 284 FOREIGN TRADE OF UNITED STATES (c) Railway and waterway tariffs were published which gave the exact rate for transportation of every class of goods from German points to foreign cities. These rate books were made clear and simple so that the exporter had no difficulty in ascertaining the freight on any proposed shipment. (d) Arrangements were made whereby export shipments might be made from an inland point on a through bill of lading, which relieved the shipper of further trouble. Trans-shipments were made wherever necessary, and all details atteaided to by the railway officials. It mattered not to what far distant point in Asia or Africa or South America the shipment was destined, if it was sent from a German point by a German carrier, it would be delivered without further trouble to the shipper. 3. The Work of Syndicates. — Competing firms in the various manufacturing lines were organized in Germany into syndicates, which practically control production and distribution in their respective lines. Production was ap- portioned among the member firms by the syndicate; sales arrangements were made by the syndicate, which also fixed the scale of foreign and domestic prices, the rate of interest, the terms of credit, and the wage scale. Member firms were penalized severely for non-observance of the arrange- ments entered into with the syndicate, and failure to live up to the syndicate contracts would eventually mean the financial ruin of the firm following such a course. The syndicate was organized as an independent company, the members entering into agreements or contracts with it that were binding under the laws. The advantages claimed for the syndicates in the pro- motion of foreign trade are that they so organize and reg- ulate industry as to cheapen production, by the preven- tion of waste, undue competition in foreign fields, and the overlapping of industrial enterprises. FOREIGN TRADE OF GERMANY 285 4. The Co-Gperation of Banks in Industry. — The banks of Germany have been highly centralized. Elmer Roberts, in an article entitled " German Good- Will Towards Trusts," published in Scribner^s Magazine for March, 191 1, says in speaking of the German industrial system: Seven Bedin banks form the core of the system. They have shares usually amounting to a paramount interest in about fifty of the large provincial banks, and these in turn are part owners of the smaller institutions of their provinces, so that agreements among the larger banks in Berlin have the effect of decrees upon the twigs, as it were, of the financial tree, and upon the detached undergrowth. . . . The resources of the Berlin group and their dependencies exceed M. 8,000,000,000, or $2,000,000,000. These details appear necessary to an understanding of the economic uni- fication in Germany, for it is through the fibres of the banking network that the centralization is accomplished. German, unlike American, banks have direct participation in industrial enterprise. The bank that gives credit to a manufacturing company has shares in the company and is represented on the board. German banks were in the closest relation with the government; the foreign policy of the nation was assisted in every way possible by the banks, which made foreign loans to facilitate German diplomacy, established branch banks in countries with which the government was negotiat- ing commercial treaties designed to foster foreign trade, and in general regulated their policy in accordance with the plans of the government. They were always ready to assist in financing any project for internal improvements that promised to promote German trade, and to extend their aid in the development of colonies and of countries in which German traders were trying to get a foothold. The trade and credit information which they were able to supply their customers, the Kberal extension of credit which they made to exporters, the activity of their branches maintained in foreign countries, all had most beneficent in- fluence on the industrial and commercial growth of the na- tion. 286 FOREIGN TRADE OF UNITED STATES 5. Germany's Bargaining Tariff. — Germany adopted the protective tariff system in 1879 in response to the de- mand of her newly established manufacturing plants, which were unable to compete in the home market with the products of those nations, especially the United Kingdom, in which the industry of manufacturing was highly de- veloped. Raw materials for manufactures alone were exempted from the high duties imposed; foodstuffs were subjected to heavy import duties in order to protect the powerful agrarian interests, which included the members of the leading aristocratic families of the nation. In 1901 the duties on foodstuffs and manufactures were increased, so that meat, cereals, flour, machinery, petroleum, and to- bacco were all subjected to very high import duties. This increase in duties affected the United Kingdom and the United States more than it did other nations. Since the United States had previously imposed heavy duties on many of the manufactured articles imported from Germany, the retaliation was quite natural. Germany modified her high protective tariff by a system of commercial treaties with other nations, in which mutual concessions were made, Germany reducing the tariff on specified articles in exchange for reductions or trade con- cessions she desired. Germany's tariff laws have thus been framed so as to give every advantage possible under a pro- tective system to the industry of the nation. This is especially true of the tariff concessions made in commercial treaties with other nations; each concession has been made only after thorough investigation, and each has invariably resulted in gain to Germany. This trading feature of her tariff policy enabled Germany to secure valuable conces- sions in Russia and other countries that greatly increased her trade opportunities. Germany imported and must import enormous quantities of such raw materials as raw cotton, hides and skins, copper, iron ore, wool, and textile fibres; she exported millions of dollars worth of manu- FOREIGN TRADE OF GERMANY 287 factures. This trade was greatly facilitated by the system of granting reductions of the tariff on raw materials in re- turn for concessions in the duties placed on German manu- factures by other nations. It is this system that has con- vinced many EngHsh economists of the wisdom of England's abandoning her free-trade policy for a protective tariff under which reciprocal trade concessions between the United Kingdom and other nations maintaining a protective tariff could be made. The Growth of Germany's Foreign Trade. — Let us now see what the system, the general features of which have just been outlined, accomplished in the development of Gennany's trade with other nations. The value of the imports and exports at different periods is given in the fol- lowing table, which is based upon statistics compiled by the Bureau of Foreign and Domestic Commerce of the United States. The table is for the special trade, which includes only the imports for consumption and the exports of do- mestic products. The values are expressed in millions of dollars. Year Imports Exports Total 1872 1880 1890 1900 19IO 1913 775 670 986 1,372 2,126 2,563 551 688 792 1,097 1.778 2,403 1,326 1,358 1,777 2,469 3,904 4,966 Between 1880 and 19 13 the foreign trade of Germany increased nearly 266 per cent. As in the case of England, the imports exceeded the exports each year. This differ- ence was offset by the interest on German foreign invest- ments, which were estimated at $8,000,000,000 in 19 13, and by the earnings of her great merchant marine, second in 1 9 14 only to that of the United Kingdom. Changes in the methods of compiling statistics of commerce make an 288 FOREIGN TRADE OF UNITED STATES exact comparison impossible, but in general imports doubled between 1880 and 1900, while the increase in exports was only 60 per cent; between 1900 and 19 14 exports increased faster than imports, more than doubling in value. Imports. — Nearly one-half of the imports of Germany consisted of raw materials, the largest single item imported being raw cotton. Copper, certain grades of iron ore, wool, hides and skins, and textile fibres are other raw materials imported in great quantity. About one-third of the im- ports have been foodstuffs. Though Germany produces large quantities of wheat, rye, and barley, the production of cereals falls far short of the consumption, with the ex- ception of rye. In normal times one-third of the wheat consumed is imported. Barley, meats, dairy products, eggs, coffee, tea, cocoa, lard, and oleomargarine are other foodstuffs for which Germany has afforded a good market. Exports. — The greatest manufacturing plants in Germany have been those devoted to the output of iron and steel and their manufactures. Consequently, such products have held first place in her exports. Germany had an abundance of coal and iron ore, which are the basis of this industry. Her coal, however, is of a low grade, and its cost per ton at the mine is considerably greater than in England and about twice as great as in the United States, where the coal lies at or near the surface of the ground. Some of the German coal-mines are over 3,000 feet deep. Cheaper labor costs, cheaper transportation, and the ap- plication of scientific methods enabled her to compete in the iron and steel industry with England and the United States. In 1890 the output of pig iron in Germany was 4,500,000 tons; in 1913 it was 19,000,000 tons. This made Germany second of all the nations in the production of pig iron. This explains why her exportation of machin- ery increased from about $13,200,000 in 1887 to over $157,- 000,000 in 191 2. The manufacture of textiles was next in importance in FOREIGN TRADE OF GERMANY 289 Germany. Consequently, the importation of cotton, wool, and raw silk has been very large, and the exportation of the finished fabrics second only to that of the United King- dom. The value of the cotton, wool, and silk fabrics ex- ported increased from $65,000,000 in 1887 to $241,000,000 in 1912. Other exports of importance are aniline dyes, beet-sugar, copper wire, leather and leather manufactures, surgical instruments, paper manufactures, porcelain, pottery, glass- ware, hardware, chemical and pharmaceutical products, electrical appHances, coal-tar derivitives (dyes, perfumes, explosives, etc.), and clothing. These were the principal manufactures exported. Coal and coke were the raw ma- terials exported in greatest quantity. In addition to beet- sugar, in the production of which Germany leads the world, rye and potatoes are food products exported prior to 19 14. Direction of Trade. — In 191 2 and 1913 the United States was the largest exporter to Germany, while the United Kingdom was Germany's best customer. The British col- onies, Russia, Austria-Hungary, France, and Latin America are other countries that have had most extensive trade with Germany. The principal commodities Germany has drawn upon the United States for are such staple food products as wheat, meat, dried fruits, corn, lard, and oleomargarine, and such raw materials as cotton, copper, lumber, tobacco, and mineral oils. Machinery and other manufactures have also been imported from the United States. In exchange for these Germany has sent us aniline dyes, toys, earthen- ware, pottery, caoutchouc and gutta-percha, gloves and other articles of wearing apparel, wooden manufactures, pictures and picture postal cards. Germany exported over $100,000,000 worth of toys annually and over $60,- 000,000 worth of picture postal cards. We have bought from Germany for the most part highly wrought manu- factures in which the labor cost is the highest item, and have given in return raw materials and foodstuffs. In 19 13 Ger- 290 FOREIGN TRADE OF UNITED STATES man imports from the United States were valued at $331,- 684,000, while her exports to the United States were valued at only $188,963,000. Germany's trade has not been con- fined to a few countries. Her salesmen have invaded every market in the world; they invariably spoke the language of the country, were quick to adapt themselves to the con- ditions of each market, have had authority to grant liberal credit terms, were alw^ays prepared to quote c. i. f. prices (which include insurance and freight), and often were able to quote lower prices than those offered by their rivals from other countries. In many lines their manufactures have been of a lower and cheaper grade than those pro- duced by either the United Kingdom or the United States, which accounts for the lower prices quoted. They have taken an infinite amount of pains to supply the market with the land and quahty of goods in demand, have filled small orders with the same care given to large ones, and given expert attention to the packing of the goods. German salesmen and German mercantile establishments success- fully estabhshed themselves in Chile, Brazil, Argentina, and other Latin American countries, in Asia Minor, Tur- key, China, Japan, India, Syria, and in every one of the British colonies. Success of the German System. — So far as it affected the position of Germany in foreign trade, the commercial sys- tem outlined was a success. Its effect upon the political and industrial freedom of the masses, upon the distribution of wealth and privileges among its citizens, and upon the character and ideals of the nation is another question, which need not be considered here. It is generally agreed that such a centralized system is not practicable in the United States or in any country that seeks to develop the individual through democracy. There are, however, certain lessons we can learn from Germany. These, in brief, are as follows: I. Our educational system could be developed so as FOREIGN TRADE OF GERMANY 291 to provide practical and thorough vocational training for every student. 2. Better transportation and terminal facilities could be provided. While our railway mileage exceeds that of any other nation and our equipment is unequalled, the service rendered is still far from satisfactory, and co- operation between the railway and the shipper is little developed. Our inland waterways, with the exception of the Great Lakes, are sadly neglected, with the result that railroad traffic is often so badly congested as to cause long and expensive delays. 3. Our tariff might be so framed as to make the trading feature a powerful influence in trade promotion. Effects of the Reparation Payments. — The future of Germany's foreign trade is bound to be largely determined by the terms of the peace settlement. Heavy remittances to other countries as reparation payments are provided for in the treaty of peace. The provision requiring the payment of 20,000,000,000 marks by May, 1921, made it possible for Germany to count ships, railroad equip- ment, machinery, coal, securities, and other commodities on this payment. The balance is to be paid by means of bonds. Other bonds amounting to $10,000,000,000 figure in the reparation payment, these bonds to draw interest of 2]/i per cent up to 1926, the rate to be increased after that date. The interest on the total amount of bonds will exceed $300,000,000 annually for the years 1921 to 1926. With the increased rate of interest after 1926 and the other reparation payments provided for, the total payments re- quired of Germany each year will greatly exceed $500,- 000,000. Some estimates make the sum approach a billion dollars a year. The amount will depend upon the decision of the Reparation Commission. The method of payment is of highest importance. Pay- ment in gold is impossible. To attempt this would mean 292 FOREIGN TRADE OF UNITED STATES to drain all the gold out of the country long before the reparation claims were paid. Again we are faced with the fact that balances between nations are paid in goods, in services, or in securities, rather than in gold. In this particular case, it is goods that will settle the debts. No longer is Germany a leading nation in the carrying trade. Tourists there may and probably will be, but their ex- penditures will be insufficient to cover the amount payable each year to other nations. Securities will hardly prove attractive until such time as the great bonded debt is par- tially paid ofT. Even stocks and bonds of German busi- ness firms will not find any wide market for some time. Goods alone will pay the bill. This can be done only if German exports exceed Ger- man imports regularly throughout the period of reparation. As we have seen, German imports exceeded exports in value in the period preceding the war. A fundamental change is necessary if Germany is to pay the Allies the claims agreed upon. German exports must expand; Ger- man imports must contract. In other words, Germany must give to the rest of the world more goods than are received from the rest of the world. This means extended markets for German goods, with a restricted market in Germany for the goods of other na- tions. Nothing but a huge annual excess of exports over imports will enable the reparation claims to be met. In order that this may be accomplished, governmental ac- tion will be necessary. This action may take the form of a high tariff for the purpose of restricting certain classes of imports, of a system of bounties on exports, of preferen- tial railroad rates on exports more far-reaching than any- thing ever before attempted, and of a reduction of taxa- tion in the case of firms manufacturing for export. The restriction of imports can be only along certain lines. Raw materials for use in the manufacturing indus- tries of the nation and essential foodstuffs will be urgently FOREIGN T^ADE OF GERMANY 293 required. Luxuries are the most obvious articles to be subjected either to a total prohibition or to a duty so high as to practically amount to that. The stimulation of greater food production will be an economic necessity. The effect upon the trade of the world of the necessity of Germany's exports exceeding her imports is a question of the greatest importance. If the reparation claims are paid, as they must be, in goods, this means a great exten- sion of German markets and of German export trade. Un- less the nations of the world are wilUng to see such a situa- tion develop, they may as well give up a' 'bought of reparation from Germany. BIBLIOGRAPHY Dawson, William H. Industrial Germany. London, 1913. Dawson, William H. The Evolution of Modern Germany. New York, 1909. Graham, James. German Commercial Practice with the Export and Import Trade. London and New York, 1904-6. Herzog, Siegfried. The Future of German Industrial Exports. New York, 191 8. Howard, Earl D. The Cause atid Extent of the Recent Industrial Progress of Germany. Boston, 1907. Howe, Frederick C. Socialized Germany. New York, 191 5. MiLLiOND, Maurice. The Ruling Caste and Frenzied Trade in Germany. Boston, 1916. PoGSON, G. Ambrose. Germany and Its Trade. New York, 1903. Shadwell, Arthur. Industrial Efficiency ; a Comparative Study of the Industrial Life of England, Germany, and America. ^ew York, 1918. U. S. Bureau of Foreign and Domestic Commerce. German Trade and the War. Commercial and Industrial Condition in War Tune and the Future Outlook. (Miscellaneous series no. 65.) 1918. U. S. Bureau of Foreign and Domestic Commerce. Statistics of German Trade, 1909-1913. (Miscellaneous series no. 75.) 1918. CHAPTER XXII THE FOREIGN TRADE OF OTHER NATIONS France. — A brief review of the foreign trade of other na- tions, with special reference to their trade with the United States, is now in order. Next to the United Kingdom, the United States, and Germany, the nation having the largest foreign trade is France. Normally, France is our fourth best customer, ranking next to Canada in the value of the commodities obtained from us. In 191 5 and 191 6 the war imports of this nation rose so far above normal as to place her second only to the United Kingdom in our list of cus- tomers. Ordinarily, France buys about 11 per cent of her imports from us and sells 6.5 per cent of her exports to us. Our sales to France exceed our purchases by some $20,- 000,000 annually. The fact that France has been passed in recent times in foreign trade by both Germany and the United States does not mean that that nation is becoming either impoverished or decadent. France, keenly appraising the situation, finds it undesirable to make the strenuous efforts to promote foreign commerce that have placed Germany in the front rank in the trade of the world. France enjoys the position of being more nearly self-sufficient than any other European nation; consequently, foreign trade is of secondary and not primary importance to her. With an area considerably smaller than Texas, France produces nearly half as much wheat each year as the whole United States — enough to just about supply her needs. The land is held in small in- dividual holdings, and is cultivated with care by the owner and his family. The average farm comprises twenty acres. There is no firmly intrenched agrarian class, con- 294 FOREIGN TRADE OF OTHER NATIONS 295 trolling a large part of the agricultural area, as in Germany, and so agriculture is encouraged. Sugar-beets, potatoes, vegetables, olives, nuts, and fruits are other food products, in addition to the cereals, produced on the well-tilled acres of France. Sheep and cattle are also raised in large enough quantities to satisfy the home market. France ranks fourth in manufacturing as she does in commerce. But in the manufactures which predominate in the foreign trade of the era — those resulting from the large-scale production of enormous quantities of standard- ized goods — France is not a leader. Coal and iron, which are the basis of manufacture de- pendent upon high-power machinery, are found in northern and central France, but not in sufficient quantity to pre- vent the importation of both of these basic manufacturing commodities. With the reacquisition of Alsace-Lorraine, the coal and iron supply of France was greatly augmented. A great impetus was thus given to the manufacturer of iron and steel products. The two leading manufacturing industries are wine-making and silk manufacture, both of which depend upon home agriculture for their raw product. Excellent clay for the making of porcelain is available, and French porcelains form an important export item. French silks and velvets are the best in the world. French laces and embroideries, ribbons and veilings, gowns and milli- nery, lingerie and trimmings find a market in the fashion centres of the world. France not only manufactures the most beautiful materials for wearing apparel, but her artis- tic designers and dressmakers make these up into garments that sell at unbelievably high prices to the fashionable world that is captivated by their style and originality. Her skilled workers thus use the taste and artistic touch for which they have long been famous to create a commerce that is highly profitable and that is peculiarly their own. This is true in regard to works of art, porcelain, bric-a-brac, perfumery, and fine wines, as well as to wearing apparel. 296 FOREIGN TRADE OF UNITED STATES France thus supplies the luxuries rather than the utilities of commerce, and stands somewhat aloof from the indus- trial and commercial tendencies of the age. The United States imports from France all of the typical manufactures just enumerated. Our exports to her con- sist of raw cotton, copper, petroleum, machinery, tools, and hardware. While our sales exceed our purchases by about $20,000,000 annually, this is much more than ofifset by the expenditures in France of American tourists, art students, and others living there and dramng their income from the United States. It is estimated that in normal times over $100,000,000, in the form of letters of credit, checks, and other negotiable paper, passes from the United States each year in payment of these expenses. Again we see how France, by catering to the artistic side of hu- manity, adds to her wealth and prosperity. By fostering art and the refinements of Hfe she has made Paris the mecca of the lover of the beautiful; since Mahomet comes to the mountain, the mountain does not need to go to Mahomet. Italy. — Our imports from Italy amount to about $56,- 000,000 annually, our exports to $75,000,000. Raw cotton constitutes about one-half of our ItaKan exports. Grain, tobacco, lumber, naval stores, mineral and vegetable oils, copper, and machinery are other articles we send to Italy. Italy has sent us silks, tropical fruits, olives and olive-oil, perfumery and art works. Our exports to Italy were greatly augmented by the World War, amounting in 191 5 to $185,000,000, which made that nation our fifth best cus- tomer. It is thought that our permanent trade with that country will be of greater volume in the future, because trade connections have been estabUshed and American goods introduced to merchants and consmners who will demand them hereafter. Italy requires more of our raw materials than of our manufactures, for, though all of her coal and most of her iron have been imported (mostly from Eng- FOREIGN TRADE OF OTHER NATIONS 297 land), she has developed a manufacturing industry of im- portance. As this industry expands, it will create a greater demand for machinery and equipment and raw materials from the United States. Italy, like France, acquired by the terms of the peace settlement territory containing valuable coal and iron deposits. The Netherlands. — The Netherlands usually rank as our fifth best customer, which shows that this tiny nation has maintained in a high, degree the commercial importance it won in the seventeenth century. Without coal, iron, or water-power, large-scale manufacturing has been handi- capped; with a population of 466 persons to the square mile, commerce has been necessary. Therefore, it has de- veloped a transit trade of immense proportions, the value of the merchandise bought and re-exported approximating $1,000,000,000 each year. Its position combined with its splendid waterways affording cheap transportation facili- ties are factors of the greatest importance in the vast trade handled. Though it is a commercial rather than an indus- trial nation, its agricultural and manufacturing output is large. The exports are bulbs, nursery stock, seeds, dairy products, and linen and cotton manufactures. From the colonies in the East and West Indies and in South America, the Netherlands obtain great quantities of valuable com- modities, which are sent there to be marketed. These re-exports include spices, coffee, chocolate, and other tropical products. Our imports from the Netherlands amount to about $35,000,000 annually, while our exports are from three to four times as large as the imports. They include raw cotton, cereals, iron and steel manufactures, and petroleum, which are our staple articles finding a ready market in every European country. Belgium. — Before she was devastated by the hosts of war, Belgium held a high rank as an industrial and commercial nation. In the per capita output of her great manufactur- ing plants she ranked second only to the United Kingdom; 298 FOREIGN TRADE OF UNITED STATES in the value and volume of her commerce she stood sixth among the nations of the world. Added to the imports for consumption and the domestic exports was a tremendous transit trade, approximating $1,000,000,000 each year. This small country has the extensive coal and iron deposits essential to large-scale manufacturing; her capitalists are progressive, her workmen skilled and industrious, and her merchants clear-sighted and aggressive. These factors all combined to make Belgium successful in the markets of the w^orld, thus insuring her prosperity at home. Her man- ufactures that have entered international trade are iron and steel products, including machinery, hardware, struc- tural iron and steel; woollen and cotton textiles, yarns, car- pets, lace, and glass manufactures. In the low and fertile plains of the north and west the intensively cultivated farms produce wheat, rye, sugar- beets, beans, potatoes, flax, and hops. But over 40 per cent of the food comes from other countries. From the United States Belgium has imported grain, meat, and manu- factures. To us she has exported textiles, carpets and rugs, lace, and other manufactures. We have also purchased most of our diamonds from this Httle hive of industry, as her diamond merchants have long practically controlled that trade, and her diamond-cutters are the most skilled in the world. The skill, energy, industry, thrift, and cour- age of this nation alike insure her future in the markets of the world. Spain and Portugal. — The nations of the Iberian Penin- sula are unlike the other European countries considered, in that manufacturing is Httle developed, despite the fact that there is an abundance of coal and iron available. Their commerce is likewise small, though there are signs of a general industrial development for the future. The prod- ucts Spain sends us are cork, wines, raisins, nuts, and fruits. Our products finding a market are raw cotton for the factories of Barcelona, cereals, and manufactures. FOREIGN TRADE OF OTHER NATIONS 299 Russia.— This nation with its heterogeneous population and vast area stands next to Spain as a buyer of our goods, her direct purchases amounting ordinarily to about $30,- 000,000. Other of our products reach Russia through intermediaries, but it is impossible to estimate the amount of such re-export trade. Russia has rich undeveloped re- sources of incalculable value; she possesses all the minerals and basic materials necessary for the building up of an im- mense manufacturing industry, but as yet these lie dormant. Her trade has been dominated by Germany in the past, with the United Kingdom and France in active competition. She has imported many commodities from other countries that we may well supply in increasing quantities in the future. Some of these are pig-iron manufactures, metal- working machinery, dynamos and electric motors, electrical appliances, motor cars and trucks, musical instruments, paper manufactures and chemicals. The commodities we have sold to her have included raw cotton, agricultural machinery, sewing-machines, and paper manufactures. Russia exports many of the products that we seek in foreign markets, such as flax, hemp, hides, skins, and bristles. Other of her exports are wheat, petroleum, timber, and dairy products. Other European Countries. — We have considered in brief our trade with the principal European nations having extensive commercial relations with us. Of those remain- ing, the Scandina\aan peninsula may be briefly considered. Norway has large shipping interests and a profitable carry- ing trade. The trade of the peninsula is mostly with the United Kingdom and Germany. Both countries export wood-pulp, dairy products, and meats and fish. Denmark is similar to these countries in many respects. Dairy prod- ucts are exported in astonishing quantities, when the size of the country is considered. Our exports to these coun- tries are grain and grain products and manufactures. The trade of Austria-Hungary has been mostly with 300 FOREIGN TRADE OF UNITED STATES Gemiany and the Balkan states. Austrian manufactures are important, while Hungary is almost entirely given over to agriculture. Grain, meat, dairy products, and wine are exported to other European countries, while Bohemian glass, porcelains, and metal wares come to the United States. Our exports are raw cotton, machinery, hardware, and tools. Canada. — Our trade with both North and South America is developing rapidly, and is looked upon as holding won- derful possibilities for the future. Of all the countries of these two great continents, Canada has by far the largest foreign trade. Next to the United Kingdom, our northern neighbor has been our best customer, buying about as ex- tensively from us as has Germany. There are several dis- tinct advantages in our trade with Canada. In the first place, proximity simplifies the trade between the two coun- tries; it is not at all difficult for our exporters to ascertain the needs of the Canadian market and to cater to those needs; on the other hand, we can obtain from Canada without trouble or delay those commodities of which that country produces a surplus and of which we stand in need. Besides having the advantage of proximity, there is an- other that arises out of the difference in the industrial con- ditions of the two countries. In the United States manu- facturing is a highly developed industry; in Canada it is only in its infancy. Consequently, Canada imports the very articles that we are seeking a market for. These in- clude iron and steel products, such as machinery, tools, hard- ware, and structural iron and steel; textiles of cotton, wool, and silk; wearing apparel, such as clothing, hats, gloves, and knit goods; and house furnishings. The coarser textiles, much farm machinery, leather and w^ooden manufactures, are manufactured there, but it will be some years before Canada ceases to be an importer of great quantities of manufactured articles. Her exports are food products, such as grain, cattle, fish, and dairy products; FOREIGN TRADE OF OTHER NATIONS 301 raw materials, notably timber, wood-pulp, copper, nickel, asbestos, silver, and gold; and some manufactured articles. We take large quantities of timber, wood-pulp, and metals from Canada, and supply her with anthracite coal, cotton, and with the products of our semitropical States, including oranges, lemons, and walnuts. In the immense quantity of manufactured articles which we send to Canada are included all the manufactures mentioned among her im- ports. We are Canada's best customer, and she is one of our best markets. With reciprocity estabhshed between the two countries, the trade would increase to their mutual advantage. Mexico. — A country possessing both temperate and tropical regions of great productive possibilities, the richest silver-mines of any country in the world, with vast wealth in other minerals, wonderful forests of rare woods such as mahogany and rosewood, and broad plains pe- culiarly well adapted to stock-raising, holds great promise of future development, awaiting only the time when the people may become united in the establishment of a govern- ment founded on principles that mil insure its permanency and stability. Mexico's exports have greatly exceeded her imports in value, amounting in 19 13 to nearly $130,- 000,000. The amount of foreign capital invested there is very large, and in normal times the interest on this is so great as to draw freely on the products of the country in payment. Mexico needs more railways and more capital to develop its immense resources, but these cannot be sup- pHed until internal dissensions are finally and permanently settled. Very little machine manufacturing is carried on; hence, the market for such goods has possibilities. The purchasing power of most of the population is low, and can be increased only by the development of the country. At present, the greater part of the trade of the country is with the United States, which affords a market for nearly all of the exports and supplies over half of the imports. 302 FOREIGN TRADE OF UNITED STATES The exports are silver, gold, copper, lead, henequin fibres, hides, petroleum, cattle, tropical woods, coffee, vanilla beans, and tobacco. The imports are machinery, iron and steel, coal, cotton and woollen textiles, and some raw cotton. Mexico uses large quantities of cotton manu- factures, but has purchased most of these from the United Kingdom, because, it is claimed, the English manufac- turers take special pains to cater to the taste of their Mex- ican customers, supplying the gaudy colors and fantastic patterns desired. Central America. — Included in Central America are the repubHcs of Guatemala, Costa Rica, Nicaragua, Honduras, Salvador, and Panama, and the British possession known as British Honduras. The inhabited portion consists for the most part of a narrow strip of plain bordering the Pacific. All of these countries are rich in such tropical products as coffee, rubber, tobacco, indigo, sugar, rice, bananas, cocoa, mahogany and other cabinet woods. Many large banana plantations have been developed by American capital, and regular steamship service is afforded to Atlantic and Gulf ports, as well as to Pacific ports. The Panama Canal is being used to some extent for shipments from the west coast. As these countries develop they are bound to afford better and better markets for American manufactures. The greater papi. of their foreign trade is now with the United States. The West Indies.— Cuba and Porto Rico are the most important of these islands, and both trade extensively with the United States. Cuba produces more cane-sugar than any other country in the world, and most of it comes to the United States. Tqbacco, tropical fruits, and iron ore are also exported. Cuba impQrts iiieats, cereals, and manu- factures. Porto Rico belongs to the United States, and most of its trade is with the United States. It resembles Cuba in both imports and exports. FOREIGN TRADE OF OTHER NATIONS 303 South America. — More interest is being displayed in our trade with the South American republics than with any other countries in the world. This despite the fact that only about 12 per cent of our imports come from those republics and that less than 6 per cent of our exports find a market there. But our trade with these countries is peculiarly important, because they supply us with a large part of those tropical products that we must import, and because they afford a market for those manufactures that we are desirous of placing in increasing quantity in foreign countries. It is said that north and south trade, rather tlian east and west trade, is bound to prevail in the future, because countries differing greatly in latitude are naturally complementary in products — such trade is, therefore, based on natural laws. The United States Government and the Pan-American Union are constantly issuing valuable book- lets and other literature setting forth in detail the resources, industries, and trade possibilities of the different countries of South America. Consequently only a brief review of our trade with the more important republics will be given here. Argentina has the largest foreign trade of any of the republics. Its products include those of both temperate and tropical regions, though its exports are mostly from the temperate plains. It is first of all countries in the ex- portation of frozen meats and second in exports of wool. It also produces a surplus of wheat, corn, hides and skins, and sugar. The United Kingdom has taken about two- thirds of Argentina's exports, and has supplied nearly one- third of the imports. Germany, the United States, and France have also developed large trade with Argentina. Our trade has not been reciprocal, our exports greatly ex- ceeding our imports in value. This is due to the nature of Argentina's exports, which, with the exception of hides and skins and sugar, are similar to our own. Buenos Aires is the chief port. The imports are machinery and other manufactures. 304 FOREIGN TRADE OF UNITED STATES Brazil is the largest country of South America, but it has not developed as rapidly as Argentina. One-third of Brazil's exports consist of coffee; another third of rubber; tobacco, cotton, and sugar are also exported. The United States affords by far the best market for Brazilian products, but our exports to that country have been exceeded by the United Kingdom and Germany. Wheat, flour, machinery, textiles, petroleum, and a wide variety of manufactured articles are imported. Rio de Janeiro is the great seaport, though coffee is exported from Santos and rubber from Para. Chile owes a large share of its commercial importance to its seemingly inexhaustible supply of nitrate of soda, used as a fertilizer. Most of the nitrates are shipped from Iquique, though Valparaiso is the most important port. Copper, hides and skins, wool, and wheat are also exported. The imports are machinery, tools, structural iron and steel, textiles, and other manufactures — all articles that might be supplied in greater quantity by the United States. Venezuela exports coffee, cocoa, hides and skins, and cabinet woods, which find an excellent market in the United States. We find in her imports the same list re- peated as in the case of the other undeveloped countries — machinery, tools, textiles, and other manufactures. Colombia's exports resemble those of Venezuela. Pan- ama hats are also manufactured for foreign markets in great quantities. Gold is mined in great quantities and is sent to the United States and England. There is a good market for mining machinery, for silver, lead, and copper are also produced. Hides, bananas, coffee, vege- table ivory, and rubber are exported to the United States, and machinery, drugs, and medicines, textiles, various metals, and food products are imported. Over one-half of the entire trade is with the United States. Peru exports silver, copper, sugar, coffee, wool, hides, and cocoa. Wheat, petroleum, and manufactures are im- ports from the United States. FOREIGN TRADE OF OTHER NATIONS 305 Australia. — This great continent with an area nearly as large as that of continental United States and a popula- tion of less than 5,000^000, is in the first stages of what promises to be a rapid development. Its isolation has held it back, for it has been out of the stream of unmigration that usually pours into new countries offering opportunities for the laborer and small farmer. With improved ocean transportation, which it is now eagerly seeking, this richly endowed country may be expected to forge ahead at a wonderful rate. Its foreign trade at present aggregates about $750,000,000, with imports in excess of exports, due to the importation of machinery and equipment for development projects. Australia leads the world in the production of wool, which is its leading export. Other commodities produced there which we ffnd it profitable to import are hides and skins, tin ingots, pearl-shell, and gold and silver. Meats and dairy products, cocoanuts, and co- pra, which is the dried meat of the cocoanut >delding a vegetable oil, are other exports. Only about 3 per cent of Australia's exports have come to the United States, the United Kingdom and Gennany being her best markets. On the other hand, Austraha has been a good customer for our wares, fuUy 14 per cent of her imports ha\'ing been purchased here, at a total cost of between $40,000,000 and $50,000,000 annually. The nature of the goods purchased by Australia adds materially to the value of the trade with that country, as they consist almost entirely of the manu- factures which we, in common with other manufacturing nations, are seeking to market. The leading articles ex- ported to Australia are machinery, electrical appliances, surgical instruments, drugs, chemicals and medicines, cameras, magic lanterns, musical instruments, motor vehicles, rubber and leather manufactures, paints and varnishes, glassware, chinaware, clocks, jewelry-, clothing, textiles, and firearms. A hindrance to the development of reciprocal trade rela- 3o6 FOREIGN TRADE OF UNITED STATES tions with Australia has been that the ships leaving our Atlantic ports for that continent have not returned directly to the United States, but to Europe and then here. Con- sequently, we have not purchased as large a proportion of Australian products as we might if they were brought here directly. With direct lines plying to and from AustraHa and the Atlantic ports, by way of the Panama Canal, a permanent trade advantageous to both countries could be developed. The direct steamship service from the Pacific coast to Sydney has greatly stimulated our trade with Australia. New Zealand. — This country, with a population of only a million, has a foreign trade of $96 per capita, about equally divided between imports and exports. The products are similar to those of Australia, and her imports likewise con- sist largely of manufactures. Her imports from the United States amount to about $9,000,000 annually. As in the case of other new countries, this trade may be ex- pected to increase greatly as the country develops. Philippine Islands. — There are in all about 2,000 islands in the PhiHppine group. They are mostly undeveloped tropical forest regions, with promise for future develop- ment. At present the principal exports are manila hemp, copra and cocoanuts, tobacco, sugar, and coffee. We take about 37 per cent of the exports and supply 45 per cent of the imports of the islands. The latter consist of manu- factures in a wide variety. Our exports to the Philippines in 19 1 6 were nearly as valuable as those we sent to Japan; they were valued at about $50,000,000, or double those of the previous calendar year. Our trade with the islands has increased tenfold since 1900. Hawaiian Islands. — This small island group, with an area of only 6,449 miles, produces on its great plantations half a billion tons of cane-sugar each year, practically all of which is brought to the United States, duty free, and refined here. Rice, coffee, pineapples, and bananas are FOREIGN TRADE OF OTHER NATIONS 307 other products we obtain from Hawaii. In return we send lumber and manufactured articles of every description. Japan. — The rapid development of this country has been one of the marvels of the last fifty years. Without iron, coal, wool, leather, rubber, or cotton in any considerable quantity, Japan has succeeded in developing a great manufacturing industry and an extensive commerce. We obtain from Japan tea, camphor, silk, porcelain, lacquer- ware, earthenware, and various ornamental manufactures of brass and other metals. Japan takes from us considera- ble quantities of raw cotton, electric machinery and other equipment for her factories, tools, manufactured articles of various kinds, petroleum, and flour. We are Japan's best customer, but we supply her with only about one- sixth of her imports. Japan has developed in recent years a great ship-building industry and has built up a merchant marine as well as a na\y of importance. Over half of the foreign trade of the country passes through the port of Yokohama, which is on the direct route of all steamship- lines pl>ing from the west coast of North America to the Orient. The total foreign trade of Japan was in 19 13 about $678,000,000. In 1918 the exports alone exceeded $881,- 000,000. Of these, 30 per cent went to the United States and only 6 per cent to Europe. China. — China, with its enormous population of low- purchasing power, its meagre transportation facilities, its distinctive ci\ilization, and its great area stretching from the cold interior plateaus to the southern subtropical coastal regions, presents problems to the Western commer- cial world that only time can solve. The country is gradu- ally assimilating Western civilization and introducing mod- ern customs that may result in a complete industrial revolu- tion there. It has vast agricultural and mineral resources, possesses the coal and iron essential to modern industry, and its people have proved their abihty to imitate the methods of the newer nations. Manufacturing in a modern 3o8 FOREIGN TRADE OF UNITED STATES sense has gained a foothold in China recently, and it now seems probable that the people will gradually abandon their hard attempt to wrest a living from the soil and turn to manufacturing for other nations as a means of livelihood. If this should happen, the result of such competition from the low-paid labor of the Orient might prove disastrous to other nations maintaining a higher standard of living. At present the dense population is mostly engaged in agricul- ture, and silk, tea, beans and bean-cake, raw cotton, hides and skins (mostly of goats), straw braids and matting are exported, along with unique carvings and other distinctive manufactures. The imports are cotton goods, rice, sugar, petroleum, vegetable oils, machinery, and manufactured articles of different kinds. Japan is rapidly extending her trade and her influence in China, but as the country de- velops it will afford an excellent market for structural iron and steel, electrical machinery and appliances, and other development equipment. Blast-furnaces, cotton-mills, and silk-manufacturing plants have recently been established in China with the aid of American and British capital. BIBLIOGRAPHY American Industrial Commission to France. Report to the American Manufacturers^ Export Association, September, Octo- ber, 1916. New York, 191 7. Chambers, F. A. Holland and Its Trade. New York, 1902. CoLQUHOUN, Archibald R. China in Transformation. New York and London, 191 2. Commercial Relations Between the United States and Japan ; Ad- dresses by the Commissioners Representing the Chambers of Com- m^erce of Japan. Philadelphia, 19 10. Ensor, Robert C. K. Belgium. New York, 191 5. France in South America. Literary Digest, vol. 54, pp. 1052-3. April 14, 1 91 7. George, W. L. France in the Twentieth Century. New York, 1909. Graham, James, and Oliver, George A. S. French Commercial Practice Connected with the Export and Import Trade. New York and London, 1904-7. FOREIGN TRADE OF OTHER NATIONS 309 Griffis, William E. Belgium; the Land of Art; Its History, Legends, Industry, and Modern Expansion. Boston, 191 2. Japan. Department of Finance. Annual Return of the Foreign Trade of the Empire. Tokyo. Annual since 1882. Jernigan, Thomas R. China in Law and Commerce. New York, 1905. Morse, Hosea Ballou. The Trade and Administration of China. New York, 19 13. U. S. Bureau of Foreign and Domestic Commerce. Commercial Organizations in France. 191 5. U. S. Bureau of Manufactures. Trade with China. American Methods and Trade Opportunities in the Markets of the Orient. (Special agent series no. 7.) 1906. Whelpley. The Trade of the World. New York, 191 2. Latin America Cooper, Clayton S. Understanding South America. New York, 1918. Hale, A. The South Americans. New York, 1907. Kahler, H. M. Current Misconceptions of Trade with Latin America. Philadelphia, 1911. Koebel, W. H. South America : An Industrial and Commercial Field. London. Mechanics and Metals National Bank, New York. Export Trade to Central America. New York, 191 7. Porter, Robert P. The Ten Republics. Chicago, 1911. U. S. Bureau of Foreign and Domestic Commerce. Invest- ments in Latin America and British West Indies. (Special agent series no. 169.) 1918. Verrill, H. H. Getting Together with Latin America. New York, 1918. Wells, W. C. Soms Considerations Respecting Latin American Trade. Pan-American Union. Washington, 19x5. QUESTIONS THAT MAY BE ANSWERED FROM THIS TEXT CHAPTER I 1. What is meant by the statement, "Commerce is the hand- maiden of civiHzation " ? 2. What are some of the methods used to control and direct commerce ? 3. What great manufacturing nations are largely dependent upon imported raw materials? 4. What has been the effect of cheap transportation upon the character of the world's commerce? 5. What has steam done for the inland farmers of the United States ? 6. What are some of the causes of the stupendous expansion of international trade since the opening of the twentieth century? 7. What four countries led in foreign trade in 1913? Why is that date designated instead of a later one? 8. To what extent is it true that a large foreign trade is an in- dication of national prosperity? 9. Discuss the statement: "It may easily be shown that the gain to a country is in its imports." 10. Who was Adam Smith? What does he say of the value of foreign trade to a nation? 11. How is a territorial division of labor made possible by for- eign trade? 12. What is meant by the self-sufficiency of France in regard to foreign trade ? CHAPTER II 1. What were the principal products of the South during the colonial period and for what class of products were they traded ? 2. What Atlantic port developed an early commerce with Eng- land and the West Indies? 3. What part did New England take in colonial commerce? 4. To what influence is the revival of commerce after the Revo- lution attributed? 3" 312 QUESTIONS 5. What was the effect of the development of the Middle West on our foreign trade between 1850 and i860? 6. What was the outstanding economic characteristic of the development that followed the Civil War? 7. What two striking changes in our foreign trade took place between 1876 and 1900? 8. Why does the change to a favorable balance of trade mark a new era? 9. What class of products showed the most striking increase in our export trade in the first fourteen years of the twentieth century ? 10. What is meant by looking upon foreign markets as pri- mary markets? 11. What was the most significant change in our import trade in the period of 1 900-1 914? 12. What has been the comparative ratio of increase of our foreign trade to our population? 13. What great change has the increase of our export trade in manufactures brought about in our whole attitude toward foreign trade ? CHAPTER III 1. How did the foreign trade of the United States for the years 1917-1918 compare with that for the years 1913 and 1914? 2. What two factors are to be considered in estimating our war trade ? 3. Tabulate the value of our exports ini9i4 and 191 7 to Europe, to North American countries, to South America, and to Asia. 4. What were the principal articles of export and of import during the war period? 5. What countries are included under the general name of Latin America ? 6. Why is our interest in trade with Latin America much keener than the total value of that trade might seem to warrant? 7. What is meant by our re-export trade, and why is it im- portant ? 8. Discuss the ability of the manufacturers of the United States to compete under normal conditions with those of other nations. 9. What is meant by the balance of trade in our favor? Is a "favorable" balance of trade always of advantage to a country? 10. What is the condition of exchange between England and the United States at the present time? What are the quotations to be found? When the pound sterling is at a discount in New York how are our exports to England affected? QUESTIONS 313 11. What four ways are there by which nations buying of us may pay for their purchases ? What is the most important way ? 12. Discuss fully the four suggestions given on page 41 for maintaining our export trade with European countries. 13. Why is it highly important to keep in mind the fact that foreign trade means exchange of goods betwedn the nations par- ticipating? How does the total gold in circulation in the world compare with the international trade for a single year? CHAPTER IV 1. Name in the order of their importance our eight leading exports. 2. What four countries produce the bulk of the world's cotton? Name in the order of importance. 3. What relation to our balance of trade did cotton bear prior to the war? What imports may cotton be said to have paid for? 4. What tendency is noted in regard to cotton manufactures? How are raw cotton exports affected by this? 5. What relation to our expanding export trade does iron and steel manufactures bear ? Name some of these. 6. What change has taken place in the export of meat products ? 7. Discuss the subject of wheat production and exportation in the United States. 8. What influence has the improvement of the internal-com- bustion engine had upon our export trade in petroleum? 9. Name the five grand divisions in the order of importance as to the value of exports taken from the United States in 1914. 10. What is the value of our South American trade as com- pared to our trade with our North American customers, Canada and Mexico? 11. Name our twenty best customers in the order of their im- portance. 12. Name ten leading commodities of which the United States produces 20 per cent or more of the world supply. CHAPTER V 1. Name four classes of products imported by the United States. 2. What explanation can you give of the fact that certain articles appear in our lists of both exports and imports? 3. From what continent did we regularly buy about one-half of our imports between 1900 and 19 14? 314 QUESTIONS 4. Name the principal products usually supplied by Canada, Cuba, and Mexico. 5. Give sources of coffee, sugar, and rubber. 6. What are the principal products received from Asia and Oceania, including Australia? 7. How do our sales to South America compare with our pur- chases ? 8. Give three reasons for the condition of our South American trade. 9. Mention four steps that may be taken to increase our trade with Latin America. 10. Explain how Latin American trade was diverted to England before the war. 11. Explain fully why we are desirous of developing our trade with Latin-American countries. CHAPTER VI 1. Distinguish fully between direct and indirect exporting. 2. Outline in detail the sales organization of a typical large corporation. 3. Give steps in the conducting of a preliminary investigation of foreign markets. 4. What are some of the facts disclosed by a trade report? 5. Give the steps in developing an export sales organization. 6. Describe the export sales organization of the Standard Oil Company. 7. Show to what extent the United States Steel Corporation influenced the development of our foreign trade. 8. What five sales methods are employed in direct exporting? 9. Describe in detail the advantages of a branch office in a for- eign country as compared with a foreign agency. 10. What advertising methods have been found most effective in foreign trade? 11. Discuss the place occupied by International Parcel Post in foreign commerce. 12. What is the Webb-Pomerene Act, and how does it benefit American exporters? CHAPTER VII 1. What five classes of commission merchants in international trade were distinguished in the seventeenth century? 2. What are the functions of a commission house in foreign trade at the present time? QUESTIONS 315 3. Distinguish three types of commission houses now in opera- tion. Which one is not strictly a commission house? 4. What are the advantages and disadvantages of selling through an export house? 5. What are some of the ways in which a manufacturer may co-operate with a commission house in the promotion of sales? 6. What part have commission houses taken in the marketing abroad of staple products such as cotton and wheat? 7. Describe in detail the operation of the commission house in Latin American trade. Mention some of the methods used by commission houses to promote trade. CHAPTER VIII 1. In what ways do the methods used in exporting raw ma- terials and foodstuffs differ from those employed in the exporta- tion of manufactures? 2. Outline in detail the sale of cotton by each of the following producers: (a) By the small farmer who depends upon credit; (b) By the independent farmer; (c) By the corporations owning large plantations. 3. What two tendencies in the marketing of cotton promise better returns for the grower? 4. How does the actual business of a cotton exchange differ from the functions of such an exchange as outHned in its charter? Discuss the good and evil results of such exchanges. 5. Explain the meaning of "hedging" and its advantages to men actually engaged in the cotton trade. 6. Mention three methods by which the Western farmer may dispose of his wheat. 7. Through what three channels does export wheat flow? How does the handling of Pacific coast wheat differ from that used in connection with other wheat? 8. Describe in detail the methods of marketing cattle that pre- vail in the United States. In what form do we export most of our cattle ? 9. What three agencies are concerned in the exportation of our surplus tobacco? How large is this surplus? 10. Describe the sale of tobacco at a tobacco auction. What other farm products are largely sold through similar auctions? 3i6 QUESTIONS CHAPTER IX 1. What six documents are generally required in making an export shipment? Where may information be had as to the exact rules governing shipments to each foreign country? 2. Follow in exact detail the filling and shipment of an export order from the time it is received until it is on board ship. 3. What information is given on the heading of an export in- voice? in the body of the invoice? Why is it necessary to give specific information as to the exact nature of each article or pack- age? 4. Why is a knowledge of the customs regulations of the coun- try of destination a necessary equipment of an expert shipping- clerk ? 5. What is a shipping permit? How is it obtained? What information does it give in regard to the shipment? 6. What is a dock receipt? 7. What countries require a consular invoice? What informa- tion does such an invoice give? In what language is such an in- voice written ? 8. Where can specific information as to the exact requirements for a consular invoice to any specified country be obtained ? 9. What information is given on the shipper's export declara- tion? Why is it necessary to make such a declaration? Who certifies it? 10. What is a railroad bill of lading? What three distinct uses has a bill of lading? What information is given on it? 11. How does a steamship bill of lading differ from a railroad bill of lading? Explain precisely what steamship freight covers. What extra charges must be provided for ? 12. What provision is taken in order that the title to an export shipment may rest with the holder of the bill of lading? Why? Note exceptions. 13. How many indorsed copies of the bill of lading^ are made? Why is the number of such copies that have been made stated on the face of the document? 14. What shipping documents must be in the hands of the con- signee before he can gain possession of the goods ? Why is it highly important for the documents to arrive as early as the goods ? 15. What are the duties of the shipper's agent at the port of shipment ? 16. What services do freight-forwarding agencies render? QUESTIONS 317 17. Mention the three ways in which a bank may handle the documents of an export shipment. 18. What is the function of manufacturers' export agents? What other similar agencies can you mention? CHAPTER X 1 . What are the most important import regulations of the United States Government ? What is the purpose of these laws and regu- lations ? 2. What advantages are afforded importers by the government- bonded warehouses? What is a ''drawback "? 3. What are the three import documents? Describe each. 4. How may an American manufacturer convert his factory into a bonded warehouse? What is the advantage of this? 5. How are imports appraised? What method is used to facili- tate the removal of a large import order in case the importer has immediate need of the goods? 6. What percentage of our imports consists of wholly or partly manufactured articles? Name some of these. 7. Outline the commercial channels through which manufac- tured goods come into possession of the American importer. 8. What part do commission houses play in the importation of manufactured goods into the United States? 9. What great merchandise fairs held in other countries draw buyers from the United States? CHAPTER XI 1. What are the staple raw materials and food products that we import in large quantities ? 2. What proportion of wool consumed in the United States is imported? Explain how insufficient production is not the sole factor in this import. 3. What has long been the great wooi market of the world? What are the special advantages of such a world market for wool ? How is wool sold in all great markets? 4. What great wool markets are mentioned? Where is most of the wool imported into the United States purchased? 5. Describe an Australian wool auction. 6. Outline the methods by which wool merchants come into possession of this commodity, with special reference to Austraha. What is the function of the wool-buyer in international trade? 3i8 QUESTIONS 7. What part of our supply of hides and skins do we regularly import? What arc the principal hides and skins so imported? 8. What are some of the leading world markets for hides and skins ? 9. What proportion of the rubber of commerce is produced on plantations? Where are these plantations and who owns them? 10. Describe an importation of wild rubber from Brazil. 11. What are the sources of the sugar consumed in the United States? Who imports most of it? 12. What kind of tea is sold at auction in London? Who im- ports the Chinese and Japanese tea consumed here? 13. What proportion of raw silk that enters commerce does the United States import ? How is silk from China and Japan handled here? 14. Where do we obtain most of our coffee? How does the Brazilian broker dispose of his coffee? CHAPTER Xn 1. What is meant by the statement: "Inland transportation facilities are quite as important a factor in our foreign trade as are ocean carriers"? 2. What is the mileage of the railroads of the United States? What body has the power of general regulation of the railroads ? 3. How may the railroads of the United States be grouped as to territory served? 4. What suggestions are made as to a greater utilization of our inland waterways? What leading commodities largely make up the trafl&c on the Great Lakes? 5. What terminal facilities are found at most important ports? Who provides these? In what way are they important in foreign trade ? 6. What proportion of our foreign trade passes through the port of New York? What are the other important ports? 7. Review the position of the American merchant marine up to the period of the Civil War. 8. What factors combined to prevent our regaining the mari- time supremacy lost during the Civil War? 9. What measures have been taken since 1914 looking to the upbuilding of a merchant marine? With what results? 10. What is meant by a free port? What are its advantages? QUESTIONS 319 11. What is meant by the North Atlantic trade route? What ports does it serve on the western end? On the European end? What route takes up the threads of the North Atlantic route at European ports and extends to southwestern Asia? 12. What are the two main-travelled routes across the North Pacific? What trade is most affected by the Panama Canal? 13. What are some of the uses of aircraft in international trade ? CHAPTER XIII 1. What is the great international highway? What part of our foreign trade is carried over this highway? 2. How are the two types of ocean traffic distinguished ? What class of commodities does each embrace? 3. Why is water transportation cheaper than that by land? 4. What effect do the frequent fluctuations in ocean freight have upon c. i. f. quotations? 5. What two ways are used by ocean carriers in computing freight? What is meant by berth cargo? 6. What is a parcels receipt? When is it used to advantage? 7. What ocean freight agents are mentioned, and what are their functions? 8. What are fast freight lines? What is their purpose? 9. What is a c. i. f. quotation? What does it include and what does it not include? 10. What two distinct considerations are to be kept in mind when packing an export shipment? 11. Follow a shipment of household utensils from New York to an inland point in Chile. 12. How may freight and tariff charges be affected by packing? Give illustrations. CHAPTER XIV 1. In what way does marine insurance facilitate the financing of foreign shipments? 2. What is Lloyd's? How was it organized? How is marine insurance secured and placed through Lloyd's? 3. Define the following marine-insurance terms: policy, the as- sured, premium, the risk, broker. 4. Mention six classes of marine-insurance policies. What should a shipper ascertain in regard to every policy taken out by him? 320 QUESTIONS 5. What is meant by "perils of the sea"? In what way has the meaning of the various clauses in the standard marine-insurance policy been interpreted? 6. Discuss the meaning of partial loss. How may insurance be obtained against war risk ? To what extent is loss by fire cov- ered? 7. What is meant by general average? What is the scope of the statement: ''And all other perils, losses, or misfortunes"? 8. What are additional clauses? Why are they attached to a policy ? 9. What is an open policy ? What is meant by a certificate of insurance ? 10. To whom is the insurance policy made payable? What is covered in the amount of the policy? CHAPTER XV 1. On what credit terms has the bulk of the world's export business been carried on? 2. What countries are especially dependent upon credit? How do the seasonal fluctuations in exchange affect the demand for credit? 3. What precautions should be taken by an exporter before ex- tending credit? 4. What are the three usual methods of extending credit? 5. What is the basis on which the greater part of the world's trade is transacted ? Of what documents does a foreign commercial bill of exchange consist? 6. When a foreign bank receives a documentary draft drawn on a customer, how does it proceed ? What two courses are open to the customer? 7. How does a draft drawn on a customer at the expiration of a credit term differ from a documentary draft? What is such a draft called? 8. What is the concensus of opinion in regard to open credit? 9. What is the occasion for long-time credits? What is the usual term? 10. What four distinct phases of the credit manager's work may be mentioned? 11. Mention all the different methods of obtaining credit in- formation. 12. Give some suggestions for safeguarding foreign accounts. QUESTIONS 321 13. Suggest ways in which the credit department can keep in touch with foreign risks, 14. How may the collection of foreign accounts be facilitated by the credit department ? When payment is refused, what agen- cies may be resorted to? CHAPTER XVI 1. What handicaps have American merchants overcome in the conduct of our foreign trade? 2. How has the extension of our banking system through the establishing of branch banks in foreign countries aided our foreign commerce ? 3. Explain in detail how the Federal Reserve Act has materially assisted the development of our foreign trade. 4. Describe in detail a draft drawn by an exporter on a cus- tomer in a foreign country. 5. What is a banker's acceptance, and how does it differ from the usual form of draft ? _ 6. What is a documentary draft and what documents in addi- tion to the draft itself comprise this form of commercial paper ? 7. What is the method employed by the exporter in securing cash where goods are shipped on condition of ''cash against docu- ments"? 8. What is a Del Credere guaranty, and how does it affect the marketability of the exporter's draft? 9. Give the steps in a typical transaction involving the dis- counting of a documentary draft. 10. What is a commercial letter of credit? 11. What is meant by confirmed credit and how does it differ from credit arising under a letter of credit? CHAPTER XVII 1. Explain the working of domestic exchange, using an example similar to that given in the text. 2. How is the rate of exchange between two financial centres determined ? 3. Why is New York said to be the financial centre of the United States ? 4. What is foreign exchange? What is a bill of exchange? When does a bill of exchange become an acceptance? Are all bills of exchange drafts ? Is the converse true ? 322 QUESTIONS 5. What is the occasion for foreign exchange? What is the typical example of the working of foreign exchange? 6. What other factors besides the importation and exportation of goods give rise to transactions in foreign exchange? 7. Why are banks able to sell foreign exchange? 8. What is meant by the discount rate? 9. What is the mint par of exchange? How is it determined between any two countries? 10. What is the commercial par of exchange? Why does it fluctuate ? 11. What are the gold points? 12. What is the determining factor in fixing the rate of ex- change between two countries? 13. Outline the causes of the extreme fluctuations in exchange between England and the United States during the period of the World War. 14. What are some of the advantages of dollar exchange? 15. Explain the need of reciprocal trade relations if dollar ex- change is to take the place of sterling. 16. What is arbitrated exchange? CHAPTER XVIII 1. What is meant by the balance of trade, and when is such a balance said to be favorable? 2. What is the best proof of the unsoundness of the mercantile theory ? 3. Explain the statement: "Exports and services rendered eventually balance imports and services received." 4. Show the impossibility of paying great international balances in gold. How does an excess of gold in a country tend to decrease exports and stimulate imports? 5. What was the relation between the excess of exports over im- ports of the United States in the thirteen years between 1904 and 1 91 6 and the total supply of gold in circulation throughout the world ? 6. What is the part that securities play in international trade? 7. What was the total of our excess of exports over imports for the decade 1 900-1 909, inclusive? What did we receive for this immense sum ? 8. Mention a period in our history in which we had an unfa- vorable balance of trade, and at the same time added to our stock of the precious metals. What does this illustrate? QUESTIONS 323 9. When is the foreign trade of a country said to be in equilib- rium? 10. Into what two divisions do countries having an excess of imports throughout many years fall ? In what case is such a bal- ance of trade improperly designated as unfavorable ? 11. Into what two divisions do countries having an excess of exports throughout many years fall ? When does a lending nation become an creditor or capitalistic nation ? 12. Trace the process of evolution of a typical nation through the four trade periods. Which period is the most desirable one ? 13. What two alternatives now face the United States in regard to export trade? CHAPTER XIX 1. What government departments directly co-operate in the de- velopment of our foreign trade? 2. Give a brief history of the consular service of the United States. 3. Describe the consular service as organized in 1919. 4. What are some of the various duties of consuls of the United States ? 5. Name six publications classed under the general term of. con- sular reports. 6. State specifically just what aid American consuls give ex- porters and importers. 7. What are the two most important publications of the Bureau of Foreign and Domestic Commerce, and what information does each contain? 8. What is a special agent? Outline his duties. 9. What specific services are rendered by foreign-trade advisers ? 10. To what extent does the diplomatic service aid foreign ' trade ? 11. Discuss the value of commercial treaties. CHAPTER XX 1. What was the position of the United Kingdom in foreign trade in 1913? 2. What were the economic poHcies that contributed to the commercial supremacy of the United Kingdom? 3. What influence has the merchant marine exercised in the de- velopment of England's commercial life? 324 QUESTIONS 4. How did the rapid development of manufacturing influence the foreign trade of the United Kingdom? 5. What effect has England's free- trade policy had on her com- mercial position? 6. What arguments are now used in favor of a protective policy ? 7. How did her foreign investments help develop her foreign trade? Give examples, one or more. 8. What is notable about the foreign trade of the United King- dom between the years 1880 and 1913? During this period was the balance of trade favorable in fact or in name? 9. What part has the re-export trade played in the developing of British trade? 10. What percentage of British imports is made up of food- stuffs ? 11. What five items comprise three-fourths of the exports of the United Kingdom? 12. What policy, consistently followed, has made British mer- chants impregnable in their own field? 13. Discuss the direction of British trade. 14. How was the foreign-trade policy of the United Kingdom affected by the war? CHAPTER XXI 1. What peculiar conditions made foreign trade vitally essen- tial to Germany? 2. Describe in detail the system which Germany organized for the building up of her foreign commerce? 3. Name the five principal factors in this system. 4. How did government control of railways and waterv/ays con- tribute to the development of foreign trade in Germany? 5. Explain the operation of the syndicates. 6. To what extent did Germany's banking system co-operate for the general good? 7. What was the chief factor in Germany's bargaining tariff and how did this operate? 8. In what respect did Germany's foreign trade resemble that of England's? 9. What was the character of the bulk of Germany's imports? 10. What factor was influential in the development of German manufactures ? QUESTIONS 325 11. What nation was Germany's best customer, and from what nation did she purchase the bulk of her imports? 12. What effect will the reparation payments assessed against Germany have on her future in foreign trade ? How will she meet these payments? CHAPTER XXn 1. How does France differ from England and Germany in her attitude toward foreign trade? In what class of exports does she excel ? 2. What products do the United States and Italy interchange? 3. What is peculiar in regard to the foreign trade of the Nether- lands ? 4. What factors conspired to give Belgium an important posi- tion in foreign trade? 5. What products do we obtain from the Italian peninsula? 6. What trade probabilities does Russia offer? 7. What are some of the advantages of our close relations with Canada ? 8. What latent resources in Mexico await development? 9. Why is the development of trade with the South American countries important to the United States? 10. What are the leading exports and imports of Australia? 11. Speak of the commercial development of Japan. 12. What change in China's industrial life seems imminent? How may this affect the trade of nations? APPENDIX 'TARIFF RATES IN FOREIGN COUNTRIES BIBLIOGRAPHY Chu, Chin. The Tariff Problem in China. New York, 1916. (Studies in history, economics, and public law, ed. by the faculty of political science of Columbia University, vol. 72, no. 2.) CosTiGAN, E. P. Economic Alliances, Commercial Treaties, and Tariff AdjusUnents. In American Economic Review, vol. 8, March, 1918, sup., pp. 281-296. Emerson, G. Tariff in Relation to Foreign Trade. Academy of Political Science. Proceedings, vol. 6, pp. 168-173. October, 1915- FiSK, G. M. Internatioftal Commercial Policies, with Special Ref~ ereftce to the United States. New York, 191 1. Keliys Customs Tariffs of the World. 191 8. London, Kelly ^s Directories, Ltd. Reinoso, J. J. Is It Desirable and Possible to Establish Uniform Rates, Methods, and Classification in Port Changes, Custom Regulations, and Classifications Between the North, Central, and South American Countries? Pan-American Scientific Congress, Proceedings, 1915. Vol. II, pp. 36-56. 1917. U. S. Bureau of Foreign and Domestic Commerce. Consular Regulations of Foreign Countries. (Canada and Latin America.) (Revised ed., July, 191 5.) (Tariff series 24.) Supplements, May, 1916; April, 191 7. (Tariff series 24A, 24B.) U. S. Bureau of Foreign and Domestic Commerce. Customs Tariff of Australia. June, 1918, 104 pp. (Tariff series 37.) U. S. Bureau of Foreign and Domestic Commerce. Customs Tariff of Chile, October, 191 7. (Tariff series no. 36.) U. S. Bureau of Foreign and Domestic Commerce. Customs Tariff of Cuba. 1911. (Tariff series 27.) Supplement. (Tariff series 27B.) U. S. Bureau of Foreign and Domestic Commerce. Customs Tariff of France. (Law of January 11, 1892, revised to August, 1910, with supplement) (Tariff series no. 25, 25A.) 327 328 APPENDIX U. S. Bureau of Foreign and Domestic Commerce. Customs Tarif oj Venezuela. (Tariff series no. 33.) 191 6. U. S. Bureau of Foreign and Domestic Commerce. Foreign Tarif Notes from February, igii, to December, igiy. (Re- printed from Daily Consular and Trade Reports (later Commerce Reports)). U. S. Bureau of Foreign and Domestic Commerce. Tarif Systems of South American Countries. 1916. (Tariff series 34.) U. S. Department of Commerce and Labor. Bureau of Manu- factures. Customs Tarif of Italy. (Law of November 24, 1895, revised to July, 1908.) (Tariff series no. 15.) Italy. Changes in the Customs Tarif. 1909. (Tariff series no. isA.) -Italy. Tarif Changes in 1910. (Tarifif series no. 15B.) U. S. Department of Commerce and Labor. Bureau of Manu- factures. Customs Tarif of J'apan. (Revised to June, 191 2.) (Tariff series no. 28.) Supplement . . . Tarif Changes to July, 1913. (Tarifif series no. 28A.) -Suppkinent. October, 1914. (Tariff series No. 28B.) U. S. Department of Commerce and Labor. Bureau of Manu- factures. Customs Tarif of New Zealand. (Law of September 25, 1907.) (Tariff series no. 8.) U. S. Department of Commerce and Labor. Bureau of Manu- factures. Export Tarif s of Foreign Countries. 1909. (Tarifif series no. 20.) U. S. Federal Trade Commission. Report on Trade and Tarif s in Brazil, Uruguay, Argentina, Chile , Bolivia, and Peru, June 30, 1916. APPENDIX 329 IMPORTS AND EXPORTS OF PRINCIPAL COUNTRIES (Compiled by the Bureau of Foreign and Domestic Commerce, Department of Commerce, from the oflScial records of the various countries) (Years ending December 31, imless stated otherwise; imports for consumption and exports of domestic merchandise, gold and silver bullion and coin not included, unless stated otherwise.) Countries Argentina Australia, Commonwealth oi f a Austria-Hungary Belgium Brazil h Bulgaria/ Canada e Chile China a Cuba h Denmark Egypt a France Germany Greece India, British i a e Italy Japan k Mexico/ J Netherlands/ Norway Portugal Russia Spain / Sweden / Switzerland Union S. Africa d United Kingdom United States a g Uruguay he Venezuela g Years I913 I913 I913 I913 I913 I9II 1914 I913 I913 1914 1913 1913 1913 I912 I912 I914 I913 I913 I913 I913 I913 I912 I912 I913 I913 I913 1913 I913 I914 I913 I914 Imports $406,805,000 388,102,000 691,538,000 974,623,000 326,865,000 38,474,000 633,692,000 120,274,000 427,406,000 133.975,000 229,234,000 137,738,000 1,642,117,000 &2,544,557,ooo 30,428,000 594,521,000 702,090,000 363,257,000 93,020,000 1,574,990,000 148,022,000 80,585,000 603,463,000 238,635,000 226,872,000 370,525,000 187,489,000 3,207,801,000 1,893,926,000 50,666,000 17,005,000 Exports $466,582,000 365,426,000 562,247,000 717,152,000 315,586,000 34,634,000 431,590,000 144,653,000 294,010,000 170,776,000 170,812,000 156,506,000 1,326,950,000 t2, 131, 718,000 28,209,000 792,359,000 483,255,000 314,965,000 129,971,000 1,239,360,000 102,084,000 37,062,000 782,181,000 194,281,000 219,049,000 265,645,000 316,880,000 2,556,106,000 2,329,684,000 65,142,000 26,324,000 a Includes domestic produce, b Final data, c Postal figures are for 1912. d Including bullion and specie and articles for Governments, e Years ending March 31. / Includes bullion and specie, g Year ending June 30. h Not including specie, i Government stores not included, j Imports through post-ofi5ce not in- cluded, k Excluding Formosa and Sakhalin. 330 APPENDIX > H U C/3 Q < W in < P^ a: W Pi; Ok y w Q ^ O H < ID a w u ><^ CO (X] Pit H o a a o U z I Q W U Q O Pi Ph a a o a o p 3 . lU a o 3 u a O o 00 t^ OM^OO O lOvO ip ro n »OVO O O N H-" <0 On _ rO On -rl- »-< (S Q 00 o" rT cT cT t^'^ fO o" rf 00 cfiot~^'<^'«f>H^»0'^'^0"ON .2 rt 03 ct3 -C 55 S - ^ tfl C CO •»-> X2 -^J 3 S ^"-"^ -'^ N X! .2.2 c c t— ( t— t a o c 2 c C C dj ,. 03 OS _ w £ £ ^ ^2 u. >-. 03 a-7: w,3. rOMD vO r>. rO rO vO •rl- O) rOvO I n OiOThOOOO'^OOO O^f^'^rOONOvO O O O 00 "2 x^^ q_ o^ o_ On o_ HH_ tv. O vO fO i-i 00 lO ON^ iOnO »0 t^ fO »0 Ti-00 to lO rt- O OM-H rO CS ON "-I On ■^vO i-h ^« oo »0 fO <0 "^ OnOO cO ^^ Qv hH h-i fO 1-1 i-< ^— ' »OvO C4 CNJ W O t>. t^ ■^ ONM hh'^mO t>» ^0) CIM I *^ « ^-^ ^ ^ hh'^'^ o! 03 'S'S 03 ■ rt aj 03 "^ ^ C oJ o3 03 cfi >, 03 O <5a - - - -3 O' en en tn cfi 03 03 03 +J +J +J 4-> •»-> j^ *— ' ctf c3 rt rt rt , 03 iTt ■*-• -t-" -^ o^^.2 03 rS D flj Ur tn.^.3 C.£ S2.tl.ti-S... 3 CJ3 Sj3 2 O C C 343 C C3 C C C o) - - p^;DUOumop^ 4-> -M +J TJ ,„ C/5 CO C/) C/} C/5 -M •(-) 1> •3 '3 *3 'S'3 '3 "o OS 03 ;z: C/5 OS -M *£ en O tocncntn^f^cn,_,a3a)*Ot/3 "o) "aS "S "qj "T .."^ -« -TH .« J3J343J3 S 22 £ en (O en en O 3 3 3 3 3 3 O O O en en o S,o o n /s, W M . 3 ■q3 encjrl-nnenen* T^ ■^ |-|l-ll-ll-l| ||-|M|.HI-ONO\ONONONON ON ON "tl l-l a <^ « • r3 "-I rt S "" •55 =^ a 3 g a ^ o . '55 i-i tn mh"* o ° .^ :^^ ^ a-^ 2 S ■" r ■"-^•^ si I c; bo O 2 tog 3 w S b 3 »? Wot* APPENDIX 331 COMMERCE WITH CUBA, PORTO RICO, HAWAII, AND THE PHILIPPINES Fiscal year ended June 30 Exports from the United States to — Cuba Porto Rico Hawaii Philippines 1909 19IO I9II I912 1913 I9I4 I915 1916 I917 I918 $43,913,356 52,858,758 60,709,062 62,203,051 70,581,154 68,884,428 75,530,382 127,040,067 178,292,328 235,469,608 $23,272,170 26,478,100 34,671,958 38,470,963 33,155.005 32,568,368 30,149,764 34,927,311 49,539,249 58.945,758 $17,125,765 20,289,017 21,925,177 24,647,905 30,646,089 25,571,169 24,600,585 30,825,187 44,274,475 43,646,515 $11,182,175 16,768,909 19,723,113 23,736,133 25,384,793 27.304,587 24,691,611 23,365,899 27,217,831 48,425,088 Fiscal year ended June 30 Imports into the United States from — Cuba Porto Rico Hawaii Philippines 1909 I9IO I9II I912 I913 I9I4 I915 1916 I9I7....... 1918 $96,722,193 122,528,037 110,309,468 120,154,326 126,088,173 131,303,794 185,707,901 228,977,567 253.395.410 264,024,006 $26,391,338 32,095,788 34,765,409 42,873,401 40,529,665 34,423,180 41,950,419 60,906,453 73,062,221 65,054,503 $40,399,040 40,161,288 41,207,651 55,076,070 42,713,184 40,678,580 60,610,935 62,703,730 74.365,938 79,260,894 $9,433,986 17,317,897 17,400,398 23,257,199 21,010,248 18,162,312 24,020,169 28,232,249 42,436,247 78,101,412 The shipments of merchandise from the United States to Alaska ia 1916 were $26,502,311; to the United States from Alaska, $47,619,894. WORLD'S PRODUCTION OF RUBBER (Showing the great increase in plantation rubber, in tons) 1905 igio 191S Brazil 34,000 26,800 145 40,500 21,300 8,200 38,000 10,000 90,000 Other wild rubber Plantation 332 APPENDIX WORLD'S PRODUCTION OF COTTON (Bales of 500 lbs.) Countries 1915-16 1914-1S 1913-14 1912-13 United States India 12,633,960 3,490,000 910,000 220,000 14,766,000 3,337,000 1,235,000 240,000 14,494,000 4,592,000 1,439,000 387,000 13,943,000 3,468,000 1,416,000 370,000 Egypt Brazil and all others. WORLD'S CONSUMPTION OF COTTON (Bales of 500 lbs.) Countries 1915-16 1914-is 1913-14 1912-13 United States Great Britain Continental Europe. India 7,110,000 4,000,000 4,500,000 1 ,660,000 2,303,000 5,806,000 3,900,000 5,000,000 1,648,000 2,381,000 5,680,000 4,300,000 6,000,000 1,680,000 2,198,000 5,531,000 4,400,000 6,000,000 1,643,000 2,068,000 All others WORLD'S PRODUCTION OF WHEAT (In bushels) Countries 191S 1914 1913 United States Russia 1,011,500,000 891,017,000 776,960,000 312,032,000 319,667,000 161,280,000 105,237,000 113,904,000 169,442,000 116,089,000 145,944,000 49,270,000 59,217,000 55,000,000 106,600,000 29,654,000 30,000,000 2,205,000 32,831,000 763,380,000 959,818,000 362,693,000 321,000,000 231,717,000 151,348,000 187,391,000 214,405,000 112,401,000 171,075,000 83,236,000 British India France 333,376,000 258,102,000 336,258,000 152,934,000 178,221,000 170,541,000 139,298,000 160,000,000 89,241,000 68,652,000 60,000,000 25,626,000 46,212,000 34,654,000 11,023,000 39,148,000 Canada Hungary Argentina Italy Spain ([jermany Roumania England Austria Australia 94,880,000 40,000,000 36,848,000 5,511,000 38,426,000 Bulgaria Algeria Tunis Egypt APPENDIX 333 WORLD'S PRODUCTION AND CONSUMPTION OF COFFEE (In thousands of pounds) Country producing Country consuming Brazil 1,490,715 Central America 231,315 Venezuela 121,350 Colombia 136,500 Dutch East Indies.. . . 63,799 Haiti 57,594 United States 1,055,089 Germany 362,084 France 304,813 Austria-Hungary. . . 130,952 Netherlands 85,955 Beleium 93,250 Sweden 63,744 United States (Insular) 48,179 British India 39,973 Italy 88,102 United Kingdom 32,723 Denmark 31,967 All others 343,000 THE TWELVE GREATEST SEAPORTS The following table, prepared by the Bureau of Foreign and Domestic Com- merce, Department of Commerce, shows the relative rank in tonnage movement of the principal ports of the world. Figures of coastwise trade are not included. Port New York a London g Hamburg b Rotterdam Hongkong- Victoria c Shanghai d.^ Rio de Janeiro Marseilles Liverpool h Singapore e Colombo/ Cardiff Year 1915 1913 1913 I913 1912 I912 I913 I912 1913 1912 I912 I913 Entered tons 12,647,606 13,725,156 14,185,000 12,307,358 10,805,536 9,186,340 8,458,896 7,986,609 12,054,056 7,927,842 7,348,900 7,617,450 Cleared tons 12,162,374 11,403,908 14,440,000 12,200,906 10,809,459 9,456,463 8,459,451 8,076,767 11,209,415 7,955,305 7,347,144 10,447,151 a Fiscal year, b Includes only oversea navigation, c Exclusive of Chinese junks d Tonnage of vessels entered and cleared at the Maritime Customs, e Ex- clusive of native craft, warships, transports, yachts, and vessels under 50 tons. / Excluding the tonnage of vessels that called for the purpose of coahng and or orders only, g Includes Queensborough. h Includes Birkenhead. INDEX Aden, foreign trade of, 8 Africa, American war trade with, 31. 34 American Academy of Political and Social Science, 154 American Manufacturers* Export Association, 194 American Merchant Marine, need of, 66; early position of, 149 jf.; eflFect of steamships on, 150^.; effect of Civil War on, 151 ; de- cline of, 151 ffr, revival of, 152/. Amsterdam, wool marketed in, 130; an Atlantic port, 156 Antwerp, wool marketed in, 130; an Atlantic port, 156 Argentina, wool imported from, 3 ; products of, 303; British trade with, 303; German trade with, 303; French trade with, 303; American trade with, 303 Asia, American war trade with, 31. 34 Asia Banking Corporation, 203 Atchison, Topeka & Santa Fe Railroad, 145 Australia, wool imported from, 3; wool produced in, 128, 130; size of, 305; population of, 305; de- velopment of, 305; products of, 305; English trade with, 305; German trade with, 305; Amer- ican trade with, 30$ ff. Austria-Hungary, parcel-post in, 80; trade of, 299 Jf. Balance of trade, definition of, 232, 234; settlement of, 234/. Baltimore, an Atlantic port, 155 Belfast, an Atlantic port, 156 Belgium, re-export trade of, 50, 298; manufacturing In, 297; American trade with, 298; prod- ucts of, 298 Blessing of the Bay, 149 Borneo, gutta-percha produced in, 136 Boston, wool marketed in, 130; leather marketed in, 134; rail- road terminus, 144; value of trade of, 149; early trade of, 150; an Atlantic port, 155 Bradstreet, mercantile agency, 193 Brazil, commission houses in, 91; rubber yield of, 135 #.; coffee produced in, 139; American tariff agreement with, 255 ; prod- ucts of, 304; German trade with, 304; American trade with, 304; English trade with, 304 Bremen, cotton marketed in, 98; wool marketed in, 130; an Atlantic port, 156 Buffalo, commercial centre, 144, 147 Bureau of Foreign and Domestic Commerce, 6, 78, 108 Cairnes, 239 California, ports controlled by, 148 Central America, coffee produced in, 139; products of, 302; American trade with, 302 Ceylon, tea produced in, 137 ff. Charleston, a railroad terminus, 144 Chicago, wheat elevators in, 102; wheat marketed in, 103; a dis- tributing centre, 142, 144 ff.; a railroad centre, 147 335 33^ INDEX Chicago, Milwaukee & St. Paul Railroad, 145 Chile, products of, 304 China, American cotton used In, 45; tea produced in, 137 jf-; silk produced in, 139; condi- tions in, 307; resources of, 307; products of, 308 Christiania, an Atlantic port, 156 Cincinnati, a commercial centre, 144 Civil War, commerce afifected by, 17, 151 Clausen, John, 204 Cleveland, a commercial centre, 144 Coffee, American use of, 139; production of, 139; methods of growing, 139; methods of sell- ing, 140 Collins Line, founding of, 250 Colombia, coffee produced in, 139; products of, 304; English trade with, 304; American trade with, 304 Colon, an Atlantic port, 155 Commerce, origin of, i; control of, 2; transportation and, 4; effect of steam on, 5; growth of, 6; use of aircraft in, 158 See also United States, United Kingdom, etc. Consular service, requirements for, 246 ; duties of, 247 ff. ; reports of, 249; foreign trade aided by, 247 #• Copenhagen, an Atlantic port, 156 Copper, 32 ; export of, 50 Cotton, value of, 20, 29; Impor- tance of, 43 ff. ; methods of sell- ing, 94 Jf.; speculation in, 98^.; "future trading" In, 100 Cuba, sugar produced in, 137 Cunard Line, founding of, 250 Day, Prof. Clive, 84 Delaware, colonial industry in, 13 Denmark, trade of, 299 Department of Agriculture, 96 ff. Department of Commerce, for- eign trade aided by, 245, 254 Jf.; publications of, 253; agents of, 253/- Department of State, foreign trade aided by, 245 Detroit, a commercial centre, 144 "Dollar exchange," desirability of, 206; establishment of, 206; advantages of, 226 ff. Duluth, a distributing centre, 142, 145/. Dun, R. G., & Co., mercantile agency, 193 Dutch East Indies, rubber pro- duced in, 136 England, foreign trade built by, 3; American colonial trade with, 13; parcel-post in, 80; tobacco tariff in, 106; tea im- ported by, 138; shipbuilding in, 151; credit system of, 200. See also United Kingdom Federal Reserve Act, need for, 201 ; foreign trade provisions of, 202 ; result of, 203 Federation of British Industries, 277 Finance Act of 1919, 277 Fleming, William B., 248 Food-stuffs, exportation of, 20 ff. ; importation of, 22 ff. ; value of, 30 #. Fortnightly Review, 270 France, foreign trade of, 6; In- dustrial balance in, 10; Ameri- can war trade with, 32; use of cotton In, 43, 98; parcel post in, 80; silk produced in, 139; monetary system of, 220; Amer- ican securities in, 242; tariff policy of, 265; British trade with, 275; American trade with. INDEX 337 294, 296; trade situation in, 294; self-sufficiency of, 294; manufacturing in, 295; prod- ucts of, 295; Argentine trade with, 303 Frankfort, merchandise fair at, 126 Galveston, cotton shipped from, 98; export trade of, 149; an Atlantic port, 155 Germany, foreign trade built by, 3, 6, 279^., 287; cotton used in, 43, 98; re-export trade of, 50; parcel-post of, 80; commission houses in, 92; tobacco used in, 105; credit system of, 200; monetary system of, 220 ; Amer- ican securities in, 242; British trade relations with, 258, 274, 289; manufacturing output of, 263; population of, 263, 279; tariff policy of, 265 ff., 286 ff.\ organization of industry in, 280 f.', banks of, 285; imports of, 288; exports of, 288; American trade with, 298 ff.\ results of war in, 291 ff.\ Argentine trade with, 303; Brazilian trade with, 304. Glasgow, merchandise fair at, 126; an Atlantic port, 155 Gold, standard of value, 220; points, 221; shipment of, 224, 236; trade balance settled by, 234 ff.; amount of in circula- tion, 236; American importa- tion of, 242 Gow, William, 176, 178. Granger railroads, 144 #. Great Lakes, 145 #. Great Northern Railroad, 145 Great Western, 150 Guaranty Trust Company, 82, 192, 200; foreign branch of, 203 Gutta percha, production of, 136; use of, 137 Halifax, an Atlantic port, 155 Hamburg, cotton marketed in, 98; wool marketed in, 130; an Atlantic port, 156 Havana, an Atlantic port, 155 Havre, cotton marketed in, 98; an Atlantic port, 156 Hawaii, sugar produced in, 137; cofifee produced in, 139; size of, 306; products of, 306; American trade with, 306 ff. Hides, 18, 33; importation of, 133 Hong Kong, a Pacific port, 158 Honolulu, 156 jf. India, rubber produced in, 136; tea produced in, 137 ff.\ silk produced in, 139 Indianapolis, a commercial centre, 144 Inland waterways, neglect of, 145 #•; improvements of, 146; traffic on, 146^. International Banking Corpora- tion, branches of, 203 International Trade Conference, 227 Interstate Commerce Commission, 143 Iron, 20, 30; importance of, 45#.; French manufacture of, 295 Irving Trust Company, 192 Italy, American trade with, 32, 296; silk produced in, 139; monetary system of, 220; prod- ucts of, 296 Jacksonville, a railroad terminus, 144 Japan, American trade with, 31 ff., 307; cotton used in, 45; tea produced in, I37 #•; silk pro- duced In, 139; rate of exchange in, 224; development of, 307; products of, 307 Johnson, Prof. Emory R., 163 Jones, Chester Lloyd, 172 Joy, Benjamin, 201 338 INDEX Kansas City, meat-packing cen- tre, 104; a central distributing point, 142, 145 Kentucky, tobacco grown in, 105 Kr on Prinzes sin Cecilie, 223 Latin America, trade of United States with, 32, 34 ff., 52, 61, 63 J?".; European trade with, 63 jf.; commission houses in, 91; consular invoices in, 1 1 1 ; ex- change in, 185; interest charges in, 188; dollar exchange in, 228 Leather, export of, 50; manu- facture of, 133/-; sources of, 134 #•; control of, 134 Leipzig, merchandise fairs at, 126 Liverpool, cotton exchange in, 99; an Atlantic port, 156 Lloyd's Association, I74#. Lloyd, Edward, 174 Lloyd George, David, 277 London, merchandise fairs at, 126; wool marketed in, 129; hides marketed in, 135; tea marketed in, 137; an Atlantic port, finan- cial centre, 215, 230 Los Angeles, a Pacific port, 149, 156 Los Angeles and Salt Lake Rail- road, 145 Louisville, tobacco marketed in, Lyons, merchandise fairs at, 126 Manaos, rubber industry in, 135 Manila, a Pacific port, 156 Marseilles, leather marketed in, 135 Maryland, colonial commerce of, 15 Massachusetts Bay Colony, 150 Meat products, importance of, 46; war trade in, 47; methods of selling, 104; methods of ship- ping, 105 Melbourne, wool marketed in, 130 Mercantile Bank of the Americas, 192; branch of, 203 Mexico, coffee produced in, 139; resources of, 301; exports of, 301 ; American trade with, 301^. Middle West, development of, 16; wool grown in, 132 Milwaukee, Great Lakes shipping centre, 146 Minneapolis, wheat elevators in, 102 ff.] meat-packing in, 104 Mississippi Valley, development of, 16 Mobile, an Atlantic port, 155 Montreal, an Atlantic port, 155 Moody's Investors' Service, 225 National Association of Manu- facturers, 193 #., 198 National City Bank, 192, 203, 242 National Shawmut Bank, 227 Netherlands, re-export trade of, 50, 297: American trade with, 297; products of, 297 New England, colonial commerce of, 14/. New Jersey, colonial commerce of, New Orleans, commission houses in, 91 ; cotton shipped from, 98; cotton exchange in, 99; coflfee marketed in, 140; a railroad terminus, 144; trade of, 149; an Atlantic port, 155 New York, colonial industry in, 13, 15; commission houses in, 91; cotton exchange in, 99; wool exchange in, 130; belt- ing industry in, 134; silk mar- ket, 139; coffee market, 140; piers in, 148; foreign trade of, 149; an Atlantic port, 155; clearing house in, 214 New York Barge Canal, 146 New Zealand, population of, 306; wealth of, 306 Nizhi Novgorod, merchandise fairs at, 126 INDEX 339 Norfolk, a railroad terminus, 144 Northern Pacific Railroad, 145 Norway, trade of, 299 Ocean freight, types of, 160; tramp steamers, 161; cost of, 162/.; packing of, 168/. Oceania, American trade with, 31, 34 Omaha, meat packing centre, 104; central distributing point, 142 Oregon Short Line Railroad, 145 Palsh, Sir George, 238, 267 Panama Canal, 149, 156 ff. Pan-American Union, 303 Paterson, N. J., silk manufac- tured in, 139 Peck, William E., 189 Pennsylvania, colonial industry in, 13, 15 Penny, David H. G., 229 Pensacola, railroad terminus, 144; an Atlantic port, 155 Peru, products of, 304; American trade with, 304 Petrograd, an Atlantic port, 156 Petroleum, export of, 50; control of, 93 Philadelphia, colonial commerce of, 13; wool market in, 130; leather trade in, 134; ownership of wharves in, 148; an Atlantic port, 155 Philadelphia Commercial Mu- seum, 194 Philippines, gutta percha pro- duced in, 136; sugar produced in, 137; products of, 306; American trade with, 306 Pittsburg, a commercial centre, 144 Portland, a Pacific port, 156 Porto Rico, sugar produced in, 137; coffee produced in, 139 Portugal, commerce of N. E. colonies with, 14 Quebec, an iVtlantic port, 155 Railroads of the United States, mileage of, 143; growth of, 143; control of, 143; grouping of, 144 Jf. Rate of exchange, determination of, 214; fluctuations of, 221, 223; fixing of, 222^. Riga, an Atlantic port, 156 Roberts, Elmer, 285 Rotterdam, an Atlantic port, 156 Rovensky, John E., 227 Rubber, 18; source of, 135; American use of, 135; methods of selling, 136 Russia, American trade with, 32, 299; German domination of, 299; products of, 299 St. Louis, central shipping point, 142, 145; commercial centre, 144 Salem, early trade of, 150 Samoa, a Pacific port, 157 San Diego, a Pacific port, 144, 156 San Francisco, silk market in, 139; a Pacific port, 149, 156 Savannah, cotton shipped from, 98; a railroad terminus, 144 Seattle, a Pacific port, 156 Shanghai, silk market in, 139; Pacific port, 156 Silk, 32, 34; American production of, 138; importation of, 139; methods of handling, 139 Smith, Adam, 9 Smith, Henry B., 130 Smith, J. Russell, 161 Soo Canal, 146 South America, North American trade with, 31, 303 Southern Pacific Railroad, 145 Spain, American trade with, 14, 298; silk produced in, 139; prod- ucts of, 298 Standard Oil Company, 19; sell- 340 INDEX ing organization of, 71 Jf.; for- eign trade of, 72 Stockholm, an Atlantic port, 156 Suez Canal, I56jf. Sugar, 33, 35: American consump- tion of, 137; American importa- tion of, 137; control of, 137 Sumatra, gutta percha produced in, 136 Sydney, wool market in, 130 Tacoma, a Pacific port, 156 Tahiti, 157 Tampa, a railroad terminus, 144 Tea, production of, 137; methods of selling, 137 ff.\ methods of growing, 138 Tobacco, 17; amount grown, 105; exportation of, 105; methods of selling, 106 Toledo, a commercial centre, 144 Treaty of Ghent, 16 Union Pacific Railroad, 145 United Kingdom, foreign trade of, 6, 160, 258/., 270/.; American war trade with, 31 ff.\ cotton used in, 43 ff., 98; re-export trade of, 50 ff.\ commission houses in, 92 ; tobacco imported by, 105; monetary system of, 219; rate of exchange in, 223 Jf.; unfavorable balance of trade in, 236; American securi- ties in, 242; effect of war on, 241 Jf., 275 /.; free trade in, 259, 264; merchant marine of, 260 ff.; manufactures of, 262 ff.\ population of, 263; foreign investments of, 266 ff. ; imports of, 273; exports of, 273; dis- tribution of trade of, 274; Ar- gentine trade with, 303; Brazil- ian trade with, 304; Colombian trade with, 304 United States, growth of manu- factures in, 6, 8, 16, 19 ff., 263; products of, 8, 13 #., i9 ff., 42 ff.; commerce of: co" lonial, 13, 150; effect of Consti- tution on, 15; effect of Na- poleonic wars on, is ff-', effect of War of 1812 on, 16; effect of Western development on, 16; effect of Civil War on, 16 ff.; growth of, I9#., 25, 51 /.; ef- fect of World War on, 28^.; re- export trade in, 36 ff.; 1919 trade of, 38; favorable balance of trade in, 39 ff., 237 /. ; Euro- pean trade relations with, 51 ^., 275, 289 ff.; Canadian trade relations with, 52, 300 if.; Mexican trade relations with, 52, 301 ff.; South American trade relations with, 52, 303^.; Asiatic trade relations with, 53 ff.; Australian trade relations with, 54; African trade relations with, 54 ff. ; imports of, 58 ff. ; parcel post in, 80; commission houses in, 85, 89; customs regu- lations in, 120 ff.; wool pro- duced in, 128; wool sold in, 132 ff.; hides imported by, 133; leather industry in, 134; rub- ber imported by, 135 #.; rub- ber manufactured in, 135; sugar in, 137; tea imported by, 137 ff.; silk Imported by, 139; con- sumption of coffee in, 140; sale of coffee in, 140; railroads in, 143 ff.; inland waterways in, 145 #•; ports of, 147/.; mer- chant marine of, 149 Jf.; over- seas commerce of, 160; freight packing in, iSgff.; rates of ex- change in, 221 jf.; consular ser- vice of, 245 ff. ; population of, 263; tariff policy in, 255, 265; Central American trade with, 302; West Indian trade with, 302 United States Shipping Board, 152/. INDEX 341 United States Steel Corporation, 19; selling organization of, 73 #. Vancouver, a Pacific port, 156 Van Dyne, 248 Venezuela, coffee produced in, 139; products of, 304; Ameri- can trade with, 304 Vera Cruz, an Atlantic port, 155 Webb-Pomerene Act, 81 ^. Webster, Prof. William Clarence, 264, 269 West Indies, American trade with, i3#M 16; products of, 302 Westerfield, 85 Western Pacific Railroad, 145 Wheat, export of, 48; methods of selling, loi ff. Winthrop, Governor John, 149 Jf. Wilmington, a railroad terminus, 144 Wool, 18, 32; American production of, 128; markets of, 129 ff.\ methods of selling, 130 ff. World War, 6; internationalism affected by, 10; foreign trade stimulated by, 23, 28; prices affected by, 29; shipbuilding affected by, 102; rate of ex- change affected by, 222 ff.; financial position of United States affected by, 242; finan- cial position of England affected by, 276; financial position of Germany affected by, 291 ff. ^^ 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall. R^ICD L.O j\PR2 3'64-\0W A —. i LD 21A-40m-ll,'63 (E1602slO)476B General Library University of California Berkeley ^C 05615 M182341 THE UNIVERSITY OF CAUFORNIA UBRARY