Sterling area

As shown in Table 2, the physical volume of U.S. imports from the sterling area as a whole is expected to be some 44 per cent higher in 1975 than in 1950. The increase for the United Kingdom and its dependent overseas territories—perhaps a more useful index of the increase in dollar earnings that will be available to meet the United Kingdom’s own needs—is estimated at 36 per cent, while the rise for the independent members of the sterling area is calculated at 54 per cent.⁵ The latter figure is, however, deceptive, for it is dominated by an expected threefold increase in crude petroleum imports from Kuwait and to a similar, but smaller, increase in imports from Iraq. The predicted increase for U.S. imports of all other products from the sterling area independent members is only 37 per cent.

The expected increase for the sterling area dependencies (5 per cent) is substantially smaller than that for the United Kingdom alone (85 per cent) and reflects an anticipated decline in rubber and tin imports from Malaya. Imports of other products from the dependent territories are likely to increase by 58 per cent—the biggest gains being in bauxite from Jamaica and British Guiana and in copper from Rhodesia.

The limited rise anticipated for imports other than petroleum from the independent countries of the overseas sterling area reflects the relatively poor long-term outlook for mica (India), jute and burlap (Pakistan and India), and wool (Australia and New Zealand). In 1950 imports of these commodities accounted for 46 per cent of U.S. imports from the independent sterling area countries. Because of technological developments, however, mica imports, according to the Paley Commission, are likely to disappear entirely by 1975, while burlap and jute imports may be expected to remain at about the 1950 level. Imports of wool, on the other hand, are not likely to increase by much more than the growth of population (estimated at 27 per cent by 1975), even if domestic production does not expand at all; no rise in U.S. per capita consumption of wool is anticipated, and many experts believe that some decline is inevitable.

Continental OEEC countries and dependencies

The outlook for imports from the continental OEEC countries and their dependencies closely resembles the outlook for imports from the United Kingdom and its colonies: the expected increase is larger for the mother countries than for the dependencies, and the apparent outlook for imports from the traditional large dollar earners among the dependencies is less favorable than for imports from other colonies. The total increase in imports anticipated by 1975, amounting to 68 per cent (Table 2), is considerably larger than that for either the United Kingdom and its overseas dependencies or for the sterling area as a whole. Most of the explanation of this higher rate of increase can be found in the more favorable outlook for imports from the continental OEEC dependencies: the estimated rise for the continental OEEC countries themselves (76 per cent) is somewhat smaller than that for the United Kingdom, but imports from the dependencies of this group of Western European countries are likely to increase by 42 per cent.

Among the continental OEEC dependencies, the Netherlands Antilles was the principal exporter to the United States in 1950, petroleum products from that dependency accounting for more than half of this group of imports.⁶ Since the existing refining capacity of the Netherlands Antilles is already fully utilized, and since Venezuela is apparently planning to expand its own refining capacity as its production of crude petroleum increases, petroleum imports from the Netherlands Antilles are expected to remain at about the 1950 level. However, imports of other products from the continental OEEC dependencies will probably increase by 104 per cent, with imports of seven commodities (bauxite, cobalt, copper, industrial diamonds, lead, nickel, and zinc) accounting for nearly four fifths of the rise. The increase will be focussed upon Africa, where the Belgian Congo (cobalt, copper, and industrial diamonds) and French Morocco (lead, zinc, and cobalt) should prove to be the largest gainers. Outside of Africa, significant rises can be anticipated for New Caledonia (nickel) and Surinam (bauxite).

Latin American Republics

The increase estimated for imports from the Latin American countries as a group (73 per cent) is approximately the same as the increase estimated for U.S. imports as a whole. Imports from Venezuela, Brazil, and (possibly) Cuba are likely to rise by more than the average for the 20 Latin American Republics, the estimate for Cuba being subject to un-certainties about the future of the U.S. sugar quota system.

The largest increase is likely to be in imports from Venezuela. That country’s petroleum exports to the United States should approximately double by 1975, partly as a result of diverting sales from other markets, while its iron ore sales to the United States should be about $150 million higher than in 1950. Brazil, which will benefit from a significant rise in manganese exports, should also participate in the large increase in U.S. iron ore imports; as a consequence, although the anticipated expansion in Brazilian coffee sales is only 60 per cent, imports from Brazil are likely to expand by more than the average for Latin America.

Both the rise in imports from the other coffee producing countries and the increase of imports from Chile, Mexico, and Peru will, on the other hand, probably be slightly less than the Latin American average. Ac-cording to the Paley Report, exports of copper, lead, and zinc from Chile can be expected to rise by 65 per cent by 1975; those from Mexico by 60 per cent; and those from Peru by 75 per cent. Imports from Argentina, Uruguay, and Bolivia are likely to increase comparatively little, owing to the relatively unfavorable outlook for wool and tin.

Canada and “other countries”

As pointed out above, the two broad regions which are expected to increase their relative shares in U.S. imports are Canada and “other countries”. Imports from Canada are likely to expand by 95 per cent by 1975, while those from “other countries” will probably increase by 102 per cent. The considerable rise in imports from Canada can be attributed largely to the proximity of that country to the United States, the close financial ties existing between concerns in the two countries, and the rapid rate of growth anticipated for the Canadian economy. The increase for “other countries” is primarily the result of an expected twentyfold expansion in crude petroleum imports, mainly from Saudi Arabia. Imports of all other products will probably increase by 43 per cent. The outlook for Finland (newsprint and woodpulp), Japan (various finished manufactures), and Liberia (iron ore) is more favorable than this average, while prospects for Indonesia (rubber) are less favorable.

Comparison with past trends in imports

The first important observation to be made about the anticipated rate of increase in merchandise imports is that the forecast apparently represents a continuation of the downward trend in the ratio of imports to U.S. gross national product that has been evident since the turn of the century. In terms of 1950 dollars, our estimates indicate that the 1975 level of imports may be equivalent to 2.7 per cent of the gross national product—compared with 3.1 per cent in 1950, 3.8 per cent in the years 1936-38, and 4.4 per cent in 1929. The basic explanation of this continuation of the downward trend appears to be as follows: in the United States, an important part of the process of economic growth takes the form of introducing successively higher stages of fabrication of raw materials, and this implies a decline in the combined amount of imported and domestic raw materials used per unit of output. Furthermore, U.S. consumers will probably tend to continue to devote an increasing proportion of their rising incomes to the purchase of services.

The rate at which the ratio of imports to gross national product can be expected to decline should, however, be smaller than in the past. Although there will be a tendency for the total amount of raw materials used per unit of output to decrease, the use of imported raw materials relative to domestic raw materials will probably expand, because rising levels of output and resource utilization in the United States will tend to place an increasing strain on the domestic sources of supply of many commodities. In terms of 1950 price levels, 1975 imports have been estimated in the present study as $6.6 billion larger than in 1950. However, if the ratio of imports to gross national product were to decline in the future at the same rate as between 1929 and 1950—a period in which the secular rise in gross national product was 2.8 per cent per year, the same rate anticipated for the period from 1950 to 1975—the 1975 level of imports could be expected to exceed that of 1950 by only $4 billion.

The anticipated slowing down of the rate of decline in the ratio of imports to gross national product in the period 1950-75 is especially significant because 1950 was, in two important respects, an unusual year with regard to the U.S. demand for imports. In the first place, U.S. output of durable goods was abnormally large in 1950, amounting to 27 per cent of the gross national product, compared with an average of 18 per cent in the 25 preceding years. The Paley Commission believes that there will be a definite tendency toward a restoration of the traditional relationship, with the 1975 durable goods component of the gross national product amounting to approximately 20 per cent. For this reason, durable goods production—the import content of which is relatively high—is expected to grow at an annual rate of 1.6 per cent, against the anticipated increase of 2.8 per cent in the over-all gross national product.

The second unusual aspect of the U.S. demand for imports in 1950 was, of course, the large volume of stockpiling and other inventory accumulation. The influence of this factor on the rate of change in imports to be anticipated between 1950 and 1975 may best be illustrated by the Paley Commission’s estimates for individual commodities. For example, although U.S. consumption of copper is expected to increase at an annual rate of 1.5 per cent, and domestic primary and secondary production at a rate of only 0.3 per cent, it will not be until 1954 or 1955 that the use of copper in production will be large enough to support the 1950 volume of net imports. The case of tin is even more striking: although the Paley Commission anticipated an increase of one per cent per year in U.S. consumption, it estimated 1975 U.S. imports at only 77 per cent of the abnormally high level of 1950.

The effects of durable goods production and of inventory accumulation in 1950 help to explain why U.S. imports are expected to increase more rapidly in the second half of the period under study (the years 1962-75) than in the first half (the years 1950-62). If imports were to increase throughout the entire period at the rate of the second half, the increase to be expected by 1975 would be $7.3 billion instead of the $6.6 billion actually predicted. According to either rate of increase, however, the ratio of imports to gross national product would be somewhat higher in 1975 than in the years 1947-49 when the particular abnormal conditions of 1950 were not present.

Of course, in view of the low level of Western European production in 1947 and of the recession in 1949, imports in those two years may have been somewhat below normal. Even so, the comparison of the estimate for 1975 with the figures for 1947-49 may offer some indication that in the very long run—after the effects of the abnormal durable goods production and inventory accumulation have been compensated for—the ratio of imports to gross national product will remain relatively constant and may actually cease to decline. The probability of this depends, of course, on the degree of confidence that can be placed in the Paley Commission’s estimates of future shortages of various domestic U.S. resources. In any event, an eventual secular rise in the ratio of imports to gross national product does not appear likely.

Comparison with present and future dollar needs

A comparison of the predicted increase in U.S. merchandise imports with the current and future dollar requirements of the rest of the world has a definite economic meaning. Admittedly, it is impossible to assign a quantitatively precise economic definition to the concept of “dollar requirements”, but a useful picture of the relationship between the projected rate of growth in U.S. imports and the rising dollar needs of the rest of the world can, nevertheless, be obtained by employing any un-ambiguous and relatively simple definition. For the purposes of the present paper, normal current dollar requirements are arbitrarily defined as the average physical volume of goods and services purchased by foreign countries from the United States in the years 1949-51, while the increase in the world dollar supply necessary to maintain the average 1949-51 level of per capita purchases of nonmilitary merchandise in the United States is taken as a rough index of future dollar requirements.⁷ The possible influence on the world dollar supply of changes in other items in the U.S. balance of payments can be largely disregarded because merchandise imports have accounted historically for about four fifths of the dollars earned by other countries.

Our estimates indicate that merchandise imports into the United States from foreign countries as a whole can be expected to rise at an annual rate of 2 per cent between 1949-51 and 1962 (Table 4). Because of an initial dollar gap, however, the rest of the world would be unable to increase the physical volume of its nonmilitary merchandise imports from the United States during this period if net dollar receipts from other sources did not increase or if there were no assistance in the form of grants or loans. By 1962, merchandise exports to the United States should have increased enough to support the 1949-51 level of nonmilitary merchandise imports from the United States without economic aid from that country, or without undue pressure upon the foreign exchange reserves of other countries.⁸ Furthermore, since merchandise imports into the United States will then be rising at the higher rate of 2.6 per cent per year, foreign countries as a whole should be able to increase their nonmilitary merchandise imports from the United States at an annual rate of about 2.5 per cent between the years 1962 and 1975.

Table 4.

Possible Impact of Projected Changes in Other Regions’ Merchandise Exports to the United States on Their Nonmilitary Merchandise Imports from the United States, 1949-51 to 1975¹

(In percentage rates of growth)

¹Based on data in Table 12 of the Statistical Appendix.

²It is assumed that all of the increase in each region’s merchandise exports to the United States is available to that region for nonmilitary purchases in the United States, and any possible changes in U. S. private foreign investment and in net dollar earnings from nonmerchandise transactions with the United States are neglected.

Table 4.

Possible Impact of Projected Changes in Other Regions’ Merchandise Exports to the United States on Their Nonmilitary Merchandise Imports from the United States, 1949-51 to 1975¹

(In percentage rates of growth)

			Estimated Annual Rate of Growth in Physical Volume of Merchandise Exports to United States	Resulting Possible Rate of Growth in Physical Volume of Nonmilitary Purchases in United States2
1949-51 to 1962
	All areas		2.0	0.0
	Sterling area		1.0	0.6
		United Kingdom and dependencies	0.7	1.1
		Other sterling countries	1.2	-0.1
	Continental OEEC countries and dependencies		2.0	-3.2
	Latin American Republics		1.9	1.0
	Canada		2.7	2.2
	Other countries		2.1	0.2
1962 to 1975
	All areas		2.6	2.5
	Sterling area		1.9	1.8
		United Kingdom and dependencies	1.7	1.6
		Other sterling countries	2.2	2.1
	Continental OEEC countries and dependencies		2.2	2.0
	Latin American Republics		2.5	2.7
	Canada		2.7	2.2
	Other countries		3.5	3.3
1949-51 to 1975
	All areas		2.3	1.3
	Sterling area		1.5	1.2
		United Kingdom and dependencies	1.2	1.4
		Other sterling countries	1.7	1.1
	Continental OEEC countries and dependencies		2.1	-0.8
	Latin American Republics		2.2	1.9
	Canada		2.7	2.2
	Other countries		2.8	1.8

¹Based on data in Table 12 of the Statistical Appendix.

²It is assumed that all of the increase in each region’s merchandise exports to the United States is available to that region for nonmilitary purchases in the United States, and any possible changes in U. S. private foreign investment and in net dollar earnings from nonmerchandise transactions with the United States are neglected.

View Table

Table 4.

Possible Impact of Projected Changes in Other Regions’ Merchandise Exports to the United States on Their Nonmilitary Merchandise Imports from the United States, 1949-51 to 1975¹

(In percentage rates of growth)

			Estimated Annual Rate of Growth in Physical Volume of Merchandise Exports to United States	Resulting Possible Rate of Growth in Physical Volume of Nonmilitary Purchases in United States2
1949-51 to 1962
	All areas		2.0	0.0
	Sterling area		1.0	0.6
		United Kingdom and dependencies	0.7	1.1
		Other sterling countries	1.2	-0.1
	Continental OEEC countries and dependencies		2.0	-3.2
	Latin American Republics		1.9	1.0
	Canada		2.7	2.2
	Other countries		2.1	0.2
1962 to 1975
	All areas		2.6	2.5
	Sterling area		1.9	1.8
		United Kingdom and dependencies	1.7	1.6
		Other sterling countries	2.2	2.1
	Continental OEEC countries and dependencies		2.2	2.0
	Latin American Republics		2.5	2.7
	Canada		2.7	2.2
	Other countries		3.5	3.3
1949-51 to 1975
	All areas		2.3	1.3
	Sterling area		1.5	1.2
		United Kingdom and dependencies	1.2	1.4
		Other sterling countries	1.7	1.1
	Continental OEEC countries and dependencies		2.1	-0.8
	Latin American Republics		2.2	1.9
	Canada		2.7	2.2
	Other countries		2.8	1.8

¹Based on data in Table 12 of the Statistical Appendix.

²It is assumed that all of the increase in each region’s merchandise exports to the United States is available to that region for nonmilitary purchases in the United States, and any possible changes in U. S. private foreign investment and in net dollar earnings from nonmerchandise transactions with the United States are neglected.

For the 25-year period as a whole, therefore, the rest of the world will probably be able to increase its nonmilitary merchandise imports from the United States to a volume 38 per cent greater than the 1949-51 average, or at an annual rate of 1.3 per cent. During the same period, the approximate rate of population growth in the rest of the world, weighted in accordance with the current shares of individual foreign regions in U.S. merchandise exports, is estimated at 1.2 per cent per year. Thus, even if net earnings from “invisible” transactions with the United States do not increase and there is no rise in U.S. private foreign investment, the additional dollars that the United States is likely to make available to the rest of the world through larger imports should be sufficient to achieve dollar balance—provided that the allocation of this increased supply of dollars among individual countries is satisfactory. This will depend, of course, on (1) the relationship between the anticipated increase in U.S. imports from each region and the magnitude of the existing dollar problem of that region, (2) the pattern of net interregional dollar payments, and (3) the size and direction of official loans and private foreign investment.

It is not, of course, strictly correct to speak only in terms of the physical volumes of exports and imports, for changes in the terms of trade, i.e., in the ratio between the prices of exports and imports, should not be neglected. Nevertheless, the conclusion reached above should hold true irrespective of any foreseeable changes in the terms of trade of the rest of the world with the United States. If these should show a long-run improvement from the point of view of the rest of the world, it would be correspondingly easier to achieve dollar balance, and, even if they should deteriorate by as much as 7 per cent, foreign countries as a group should still be able to increase the physical volume of their nonmilitary merchandise imports from the United States to the same extent that their populations increase.

Because of the varied nature of the U.S. economy, primary and manufactured products form a significant part of both U.S. exports and imports, and long-run changes in the U.S. terms of trade—contrasted with short-run changes reflecting temporary divergencies between world production and demand—tend to be quite small. Between 1929 and 1948-49, for example, there was no significant change in this important economic variable. Furthermore, the present paper’s projections of the physical volume of U.S. imports are based on the explicit assumption that world production will increase sufficiently to satisfy world demand. A significant improvement in the terms of trade of the rest of the world with the United States will probably occur only if this assumption should prove to be unfounded; in that event, the betterment of foreign dollar positions resulting from the improved terms of trade would tend merely to compensate roughly for the smaller physical volume of the rest of the world’s exports to the United States.

Primary impact on bilateral dollar relationships with the United States

Table 4 provides a tentative answer to the following question: Given the foregoing projections of the merchandise exports of the rest of the world to the United States and neglecting all other possible changes in the dollar receipts of the rest of the world as a whole and in interarea dollar transfers, at what rate could individual foreign regions afford to increase the physical volume of their nonmilitary merchandise imports from the United States over the 1949-51 level during the next 25 years? Clearly, these estimates are not projections of the actual changes in U.S. merchandise exports to be expected during the period or of the extent to which these exports may fall short of the level of dollar imports that individual regions think they may need. Rather, they should be considered as a useful device for indicating the approximate bilateral impact of the projected changes in U.S. imports on foreign dollar positions and for showing the relative magnitudes of the adjustment problems that foreign countries have to face.

An examination of the bilateral relationships of Canada and of “other countries” with the United States indicates that these two areas should be able to afford to increase their purchases in the United States at a fairly rapid rate (2.2 per cent and 1.8 per cent per year, respectively). For this reason, Canada and “other countries” could probably meet any reasonable future increases in their dollar needs without having to supplement the additional dollars earned from expanded levels of merchandise exports to the United States with increases in net dollar receipts from other regions. The indicated possible rate of increase for “other countries” must be interpreted with particular caution, however, because of the heterogeneous nature of the countries falling within this group. For those countries for which the outlook for merchandise exports to the United States is not especially favorable, the achievement of dollar balance will depend on the extent to which their imports of finished goods from Japan and Western Europe are increased.

For the Latin American countries there is an additional complicating factor. Although the indicated possible rate of increase in the physical volume of merchandise imports from the United States (1.9 per cent per year) is higher than for “other countries”, the dollar needs of the Latin American countries may also be expected to increase at a significantly higher rate than those of “other countries”. United Nations experts have estimated that the population of Latin America will rise at the very high annual rate of 2.25 per cent. Limited substitution of nondollar for dollar imports in a few Latin American countries could, however, easily prevent the emergence of any serious long-run dollar problem.

The outlook for the sterling area is more difficult to evaluate on the basis of bilateral figures alone, for the sterling area dollar crisis of 1951-52 was caused, to a very large extent, by gold and dollar payments to areas other than the United States. If these payments to other areas could be eliminated, however, the indicated possible rate of increase (1.2 per cent per year) in the physical volume of merchandise imports from the United States appears more than sufficient to cover any rise in the dollar requirements of the sterling area that may result from population growth.

Some interesting developments can be anticipated in connection with the sources and disposition of funds in the sterling area dollar pool. During the period 1949-51 to 1962, the United Kingdom and its dependencies should, from a strictly bilateral point of view, be able to increase their nonmilitary merchandise imports from the United States by about 15 per cent. The independent sterling area countries, however, are likely to be unable to increase directly financed imports of this type over this period unless net dollar receipts from foreign investments or invisible transactions with the United States rise. At the same time, the increase in the dollar needs of the independent sterling area countries can be expected to be relatively rapid, since the Paley Commission estimated that the rate of population growth in Australia and New Zealand will exceed 1.9 per cent. After 1962, however, a greater degree of dollar balance will tend to be established within the sterling area: the United Kingdom and its dependencies ought to be able to increase the physical volume of their nonmilitary imports from the United States at an annual rate of 1.6 per cent between 1962 and 1975, while the independent countries of the sterling area should be able to raise theirs at an annual rate of 2.1 per cent.

The one group of nations for which the computations in Table 4 appear very unfavorable are the continental OEEC countries and their dependencies. This result is primarily a reflection of the large dollar gap which currently exists for this region. In spite of the indicated increase of 2.1 per cent per year in the physical volume of their merchandise exports to the United States, the continental OEEC countries and their dependencies will apparently be able to finance directly in 1975 only four fifths of the 1949-51 average physical volume of nonmilitary merchandise imports from the United States, unless net dollar earnings from other sources also increase. If the 1949-51 volume of imports from the United States were to be maintained, however, the 1975 dollar gap would amount to only one quarter of the 1949-51 average.

Feasibility and magnitude of necessary secondary adjustments

In interpreting the figures for the continental OEEC countries and their dependencies, it should be recognized that, although it was assumed that the Western European countries would take certain steps to improve their dollar positions, the degree of domestic and external adjustment actually implied in the figures of Table 4 is quite moderate. It was assumed, for example, that fiscal and monetary policies which would ensure that their competitive position in the U.S. market did not worsen would be undertaken by the Western European countries, but no provision was made in the calculations for any fall in the relative prices of their products in the U.S. market as a result of more decisive fiscal and monetary action or of U.S. tariff reductions. Similarly, although it was assumed that the continental OEEC countries and their dependencies would act to prevent imports from the United States from rising above the 1949-51 average level, the possibility of a reduction in imports of grains and coal was not taken into account.⁹

Accordingly, it seems advisable to offer some quantitative indication of the bilateral dollar outlook for the continental OEEC countries and their dependencies in the event of more determined policies being pursued. Under this alternative formulation, the prices of Western European manufactured products in the U.S. market are assumed to fall at an annual rate of 0.5 per cent relative to competing U.S. goods; such a rate of decline is not altogether unlikely, given a favorable U.S. tariff policy. It is also assumed that the continental OEEC countries will be able to eliminate all imports of grain and coal from the United States during the period under review. The physical volume of merchandise exports to the United States would then grow at the higher rate of 2.5 per cent per year; and even if net dollar earnings from other sources did not rise and U.S. foreign aid was eliminated, the possible 1975 physical volume of merchandise imports from the United States would be about 10 percent larger than in 1949-51—implying an annual rate of growth of 0.4 per cent over the period.¹⁰

Turning now to the possibility that the Western European countries might increase their net dollar earnings through trade with other areas, it should be pointed out that the same policies of self-help, which will improve the competitive position of the Western European countries in the U.S. market, will also tend to make their products more attractive to buyers in other countries. Given the expected rates of increase in the exports of other regions to the United States, however, and taking into account foreseeable rates of growth in the dollar import requirements of these regions, the chances of the continental OEEC countries significantly increasing their net indirect dollar earnings through trade with the sterling area and the majority of the Latin American countries appear rather limited. But larger sales in these areas could enable Western European countries to substitute purchases of non-dollar merchandise for dollar imports, thereby improving their dollar positions indirectly. Increased net indirect dollar earnings appear quite possible from Western European trade with Canada and, to a less extent, from trade with Venezuela, Cuba, and certain Middle Eastern countries. A pattern of trade in which the Western European countries earned U.S. dollars from Canada would, however, mark a radical reversal of past patterns; traditionally, Canada has earned U.S. dollars from her trade with Western Europe. In addition, Canada’s relative share in the European market has increased considerably during the last two years.