ftl CM i> 5 GIFT fAN 26 IP? fjoreign Trade and the Interior Bank Guaranty Trust Company of New York Digitized by the Internet Archive in 2008 with funding from Microsoft Corporation http://www.archive.org/details/foreigntradeinteOOguarrich Foreign Trade and the Interior Bank By WILLIS H. BOOTH Vice President, Guaranty Trust Company of New York ' - * . a Guaranty Trust Company of New York 140 Broadway FIFTH AVENUE OFFICE MADISON AVENUE OFFICE Fifth Avenue and 44th Street Madison Avenue and 60th Street GRAND STREET OFFICE 268 Grand Street LONDON LIVERPOOL PARIS HAVRE BRUSSELS CONSTANTINOPLE COPYEIGHT, 1920 BY GUARANTY TRUST COMPANY OF NEW YORK ■ . - « - . Foreign Trade and the Interior Bank UP to the present time the banks in the in- terior of the United States have played a comparatively small part in the development of our foreign trade. As a result of the war, this country has been forced into many new industrial and financial activities that reach out into every foreign country, activities which affect the welfare of the smaller communities nearly as much as they do those of the larger cities. Manufacturers in small towns throughout the United States have become interested in the possibilities of foreign markets, and they naturally are looking to their local banks to advise them regarding their foreign trade problems, both actual and potential. We believe that the time has come for the interior bank to realize that its business is the same as all others— that the biggest thing it has to sell is service, and that at the present moment one of its greatest opportunities for service is to aid in the development of American foreign trade. To Keep Industries Busy We have learned by recent experience that the factories of America are today so huge and their [3] outpu* at full capacity is so great that the domes- tic market cannot regularly absorb it. It is only by a constant flow of overseas trade that we can run full time all the time. To do less than that means homes in America in which the bread- winner is out of work. It means "part time" in many factories, or mills that are entirely shut down. Additional orders from any source tend to reduce overhead expenses of production, and tend also to reduce the cost of raw materials by in- creasing the quantity bought. All the advantages of large scale production come into play when these export orders are received. Increased orders from foreign countries tend to change the seasonal demands to year round de- mands. The manufacturer who has a market for his goods in South America, for instance, possesses a great advantage, because the seasons there are exactly the reverse of our own. And so, because the markets of all the world are greater and stead- ier than the markets of any one country, the American manufacturer and merchant must culti- vate the foreign field, and the interior bank, in cooperation with the international bank, must be prepared to offer facilities necessary for the prompt and efficient handling of foreign trade transactions. The Stake of the Interior Bank That the interior bank is vitally interested in the development of foreign trade is evident from [4] the fact that a large proportion of the manufac- tured goods exported from the United States is produced in towns with a population of fifty thou- sand or less. There are two thousand one hundred and forty-nine towns of this size. As to our im- port trade, it is only necessary to point out, for instance, that Akron, Ohio, with a population of one hundred and fifty thousand, buys about one- fourth of all the crude rubber in the world. In four hundred and sixteen cities of ten thousand to twenty-five thousand, in 1914, the total value of manufactured products was $3,261,395,000. Unlimited Possibilities Cities of fifty thousand and under make up a large proportion of our manufacturing area and present almost unlimited possibilities from the foreign trade standpoint. There are one hundred and thirty-three towns of this size in Indiana, and the same number in Massachusetts. The most cursory examination of the manufacturing facili- ties of these hundreds of small towns reveals their possibilities from a foreign trade point of view. And the manufacturers in those towns are no longer groping in the dark in regard to foreign affairs. Practically all of them are members of powerful trade associations. They journey in large numbers from the small interior towns to New York or San Francisco to attend foreign trade conventions, and they are diligent readers of for- [51 eign trade publications. But, in far too many- cases, when they go back home they do not find in their own town the facilities for obtaining the information for transacting their foreign business. Export shipments are made constantly from all these small towns. Imports of raw materials needed in our industries are constantly flowing from the seaboard to the interior. All these trans- actions involve the services of banks. The interior bank may interpose itself as a useful link in the system of overseas trade. Increasing Interest in Foreign Trade How widely distributed is the interest in foreign trade is plainly shown by a study of the letters received by the International Trade Service of the Guaranty Trust Company of New York from the smaller towns throughout the United States, which indicate an increasing interest in foreign trade on the part not only of the interior banks but of the local manufacturers. Danville, Ya., is interested in sending tobacco to Venezuela; La Porte, Ind., wants to send farm tractors to Brazil; Austin, Texas, desires to im- port French novelties; St. Joseph, Mich., desires an agent for automobile accessories in India; Durgettstown, Pa., sends an inquiry regarding industrial enterprises in Jugoslavia; Parkersburg, W. Va., wants to sell oil well supplies to Mexico; Keokuk, Iowa, is interested in developing a mar- [6] ket for rolled oats in South America; Coshocton, Ohio, wants to appoint an agent in Spain for its glass bottles; Lompog, Cal., is interested in the importation of mustard seed from the Dutch East Indies; Cadillac, Mich., desires to ship veneer to New Zealand; Monessen, Pa., is interested in steel wire in South Africa; Charlotte, N. C, wants to send cotton to Finland; Norfolk Downs, Mass., has a customer for weighing machinery in For- mosa; Mount Pleasant, Mich., has a customer for trucks in Guatemala, and Valdosta, Ga., wants to export cotton linters to Czechoslovakia. World-wide Facilities Available It is obvious that the interior bank cannot set up elaborate machinery and an expensive per- sonnel equipped to answer specific inquiries re- garding foreign trade. The international bank has, however, built up a worldwide network of branches, affiliations and special correspondents, backed up by staffs of experts in the metropolis, which is freely offered to the interior banker in order to assist him to develop the foreign trade of his community. The international bank has, in fact, created facilities which make it possible for the exporting and importing clients of the inland bank to do business on a safe basis with the mer- chant in the interior of China, the ranchman in Australia, the miner in Africa, and the planter in Latin- America . [7] To illustrate concretely just what this means, let us examine the facilities which are offered to the interior bank by the large international financial institutions. First of all, they have direct banking connections with Great Britain and Continental Europe, the Near East, Latin-America, South Africa and Australasia, with China, Japan, British India, the Dutch East Indies, and with the Straits Settlements. They are in direct and constant com- munication with thousands of correspondents in every trade center of any importance throughout the world. Specific Information Obtainable In their foreign trade services these interna- tional banks have created departments to give specific commercial information, by interview or by mail, regarding the prospect for the sale of American goods abroad. They have immediate access to reports regarding the credit and com- mercial standing of hundreds of thousands of foreign firms and corporations, all of them care- fully revised to cover changes made during the war. These departments include in their personnel experts on tariffs, marine insurance, freights, for- warding, customs duties and shipping documents, and men who have traveled extensively in foreign countries. Supplementing their personal knowl- edge of foreign countries and of the manners and [8] customs of the peoples inhabiting them is a daily- service of information by mail, wire and cable from private and official sources and from their branches, subsidiaries and agents throughout the world regarding changing conditions, new demands for American products and movements of foreign buyers. Over the desks of these experts there passes each day a large quantity of written and printed material in all languages, and items of interest to American exporters and importers are sent out promptly to specially selected mailing lists. A Concrete Example Here is a concrete example of the kind of service which an interior bank should be able to render: In an Illinois town of about ten thousand inhabi- tants there is a small factory manufacturing a line of tools. As a result of advertising in export jour- nals, this manufacturer received an order from Buenos Aires for two thousand dollars' worth of goods. The buyer stipulated that the merchandise was to be sent forward with draft attached to documents, which were to be delivered against the acceptance of the draft at 60 days' sight. It was the manufacturer's first export order, and he went immediately to his local bank for advice as to how the goods should be packed for export to Argentina and what railroad and shipping docu- ments were needed, and above all how he was to [9] get his money. The interior bank was able, through cooperation with its banking correspond- ent in New York, to obtain a quick report on the credit standing of the Argentine customer, which showed that he was a perfectly good credit risk. Information was also supplied as to packing and shipping, and the interior bank was able to aid its customer in financing the transaction. Creating Local Interest There are a number of ways in which the in- terior banker can foster interest in foreign trade in his community. One of the most effective methods is to obtain the support of the leading local newspaper. The editors of the progressive newspapers of our inland cities fully recognize the importance of foreign trade, but are frequently at a loss to obtain a sufficient amount of material to run a regular foreign trade department. Ar- rangements can be made for supplying newspaper features, as well as a continuous supply of foreign trade news. The local public library is another institution which can be utilized most effectively in foreign trade promotion. It should be supplied with a good selection of books on foreign commerce, for- eign countries, and foreign travel, commercial geography, international law, tropical and sub- tropical and other imported commodities, atlases, books on shipping, on marine insurance and for- [101 eign exchange, international banking, and ports and harbors. The local schools can do similar work. Proper Organization Necessary Most important of all, however, is the proper organization of the business men of the commun- ity. The Chamber of Commerce, if it has not already done so, should form a foreign trade com- mittee to make a survey of the foreign trade activi- ties of its members. It should maintain an up-to- date list of all members doing an exporting or importing business, with full details of the com- modities handled and of the foreign countries in which the members are interested. A foreign trade reference library should be installed in the local Chamber of Commerce, which should contain directories of foreign markets and directories and lists of American exporters, exporting manufac- turers, dealers and commission houses. This refer- ence library should receive regularly all the publi- cations of the Bureau of Foreign and Domestic Commerce. Direct contact should be established with the American commercial attaches and trade commis- sioners maintained by that Bureau in foreign countries. Arrangements should be made to ob- tain regularly the foreign trade publications of the National Foreign Trade Council, the American Manufacturers Export Association, and of the in] large banks which specialize in foreign trade. Sub- scriptions should be made to the leading export trade journals. All this information can be ob- tained and classified for the use of local manu- facturers with very little trouble and expense. Foreign visitors to this country should be encour- aged to visit the local manufacturing plants. An- other effective method of obtaining information direct from foreign sources is for the local Cham- ber of Commerce to arrange for the exchange of membership and services with American Chambers of Commerce in foreign countries. The Importance of Import Trade It cannot be too strongly emphasized that the interior banker has an important part to play in the development of our import trade, as well as that of our exports. Our dependence upon other countries for foodstuffs and raw materials grows constantly greater with the increase in our popu- lation and the productive capacity of our industries. In order to provide a sustained market for our surplus manufactures, we must have a regular and increasing supply of many commodities which are not produced in the United States, or which are produced in such small volume as to be entirely inadequate for our requirements. We must obtain manganese for our steel mills from Russia and South America. Our tanneries must have que- bracho from Argentina; our automobile tire in- [12] dustry must obtain crude rubber from Brazil; our machine shops, rail mills, armored plate works, and wire rope factories must have nickel from Canada and New Caledonia; our tinplate manu- facturers must import their tin from the Malay Straits and from Bolivia; our silk factories must get their raw product from China and Japan; our clothing wools must be imported from Australia and Argentina; our manufacturers of twines, can- vas, linens and laces must get their flax from Russia and Belgium; our burlap makers must get their jute from India; the sisal which is used to make our binder twine, which is so essential in the harvesting of our crops, must come from Yuca- tan. We must also import large quantities of cocoanut oil and other vegetable oils from the Dutch East Indies and from the Pacific isles; coffee from Brazil, tea from China, India, Japan and Java; cocoa from Venezuela; sugar from Cuba; rice from the Far East; spices from the East Indies; platinum from Colombia; and vanadium from Peru. Must Assist Importer The list could be made very much longer, but the foregoing is sufficient to prove the dependence of many of our important industries on the raw products of other countries. The interior banker must be prepared to offer facilities to his import- ing clients who wish to buy these commodities in [13] distant lands. He must be able to help the local importer to locate sources of raw materials, advise him regarding reliable foreign exporters and mar- ket conditions, and on how he may establish the necessary import credits through his relations with the international banker. It cannot be too strongly emphasized that in the long run international trade must be to a large extent the exchange of goods for goods. In encouraging Europe and other countries to liqui- date their debt to us in goods — for they cannot send us gold without further depreciating their inflated currencies — it does not mean that this debt can be liquidated only in articles of European origin. For example, Great Britain might offset her adverse trade balance with us on direct inter- change of commodities by a debit balance owing by us on our imports of jute from India, wool from Australia, hides, skins and wool from South Africa, etc. A debit balance owing by the United States to Argentina for our imports of the raw products of that country could be offset against the balance due from Argentina to England, and in turn by England against the United States. How Exchange Works Against Us It is only by increasing their exports that Europe and Latin-America can overcome the exchange handicap which makes it so difficult for them to buy American products. To illustrate how the [14] exchange problem works to the disadvantage of the American exporter, take the case of an im- porter in Argentina who is in the market for American farming implements. The dollar is (at the end of 1920) at a premium in Argentina, as it is in all South American countries. The Argentine buyer, in converting his pesos into American dol- lars today, must pay a premium of about 25 per cent, over the normal rate of exchange. Under the circumstances it is quite likely that he will purchase British goods, because the exchange rate on the pound sterling is much more in his favor. This exchange handicap against American export- ers will increase, not only in Argentina but through- out the world, if we continue to export at the recent high price levels without a corresponding increase in imports. Importance of the Edge Law If our foreign trade is not to suffer through in- adequate financing, we must give thought to some form of long-term credits in order to supplement the operations of the international banks and to make liquid the frozen long-term credits in foreign markets. To meet this situation the Edge Law was recently passed. This law gives us, for the first time in our history, financial organizations for the express purpose of assisting foreign trade through long-term investments. The original Fed- eral Reserve Act authorized the establishment of [15] branches by our national banks in foreign coun- tries. The Edge Law goes one step further in providing for the formation of these foreign in- vestment banks under Federal charter. A most important provision of the Edge Law is that which permits corporations formed under its provisions to issue their own notes and debentures for sale to investors. How Interior Banker Can Help The interior banker has here a very definite part to play in educating his community in the relation which our overseas commerce bears to domestic prosperity and in pointing out the desir- ability of such securities in order to make possible a continuous and increasing flow of foreign orders. The interior banker should be the point from which should radiate the facts and figures to show that the local manufacturer, the farmer and all their employees have a direct personal interest in maintaining our export trade in order to avert the slowing up of production, reduction of wages, and unemployment. In order that the grain produced in the agri- cultural sections may be sold abroad and thus produce domestic prosperity, which in turn will increase local prosperity, the interior banker should spread far and wide the fact — supported by simple illustrations — that domestic prosperity is absolutely dependent upon the marketing abroad [16] of the surpluses of American products. The exten- sion of export credits by Edge Law corporations will enable Europe to buy American wheat, rye, corn, meats, pelts, and wool, as well as many classes of manufactured goods. Every Community Directly Interested A recent analysis of the cargo carried by a United Fruit liner sailing from New Orleans to South American ports showed that practically every community in the United States, manufac- turing or agricultural, had some part in the pro- duction of the cargo sent out in this steamer. Hardware factories in thousands of small towns are dependent upon our export trade. Agriculture is interested not only in the direct export of raw farm products, but it has a very great interest in the export of manufactures produced in America from farm products such as cotton goods and tobacco manufactures of all kinds. Breeders of pure bred stock are interested in the possibilities of South America. The fruit and vegetable grow- ers, the poultry trade producers, the honey and nut producers, the dairymen and canners are all alive to the possibilities and seek information and assistance in the development of new markets. The surplus of our Western agricultural prod- ucts is consumed by Europe, and thereby prices are sustained. Foreign trade is of great importance to the South because foreign countries consume [17] 65 or 70 per cent, of our cotton. The products of the factories of the North and East are sold throughout the world, thus furnishing work and wealth for millions of people. In 1919, we exported eighteen million cases of canned milk, thirty-four million pounds of butter, fourteen million pounds of cheese, six and a half million bales of cotton and six hundred and eighty million yards of cotton cloth. It need hardly be pointed out that the success of our foreign trade depends to a greater extent upon the bank than upon any other single agency at the command of business. It has been truth- fully said that the international bank of today is the outpost of business, and the role of the interior bank is certainly equally important. Between them — the interior bank and the international bank — they must translate our business ways to the foreign buyer and seller and translate the ways of the foreign buyer and seller to us. [18 Ciayiamu""* Pamphlet Binder Gaylord Bros., Inc. Stockton, Calif. T.M.Reg. U.S. Pat. Off. WM 1 M50101 THE UNIVERSITY OF CALIFORNIA LIBRARY