Mr. BUDD. Because we cannot stand alone here against the rest of the world. Our prosperity depends too much on world conditions. Senator JOHNSON. We may have to stand alone.

Senator LODGE. Don't you think it much better if our prosperity only depended on ourselves, and then we could control the situation? Mr. BUDD. It might be if it did, but I don't think it does.

Senator LODGE. Certainly a European who buys an American automobiles does not buy parts in this country; he does not buy tires and gas and oil.

Mr. BUDD. He does buy parts, and although be does not buy gasoline, a good part of that comes from here, too.

Senator LODGE. But he does not buy his tires in this country; he does not buy his tires and parts from an American dealer.

Mr. BUDD. No; but he buys them from American factories. Senator LODGF. I think we have gotten as far on that as you and I can. I have one more question. On page 4 you say:

Another reason why we desire the renewal of the Trade Agreements Act is that the question of the alternative is a serious one.

Then you say:

Certainly a policy of excessive protectionism would again lead to retaliation, reprisals, and a closing of the markets which we must depend upon for the disposal of our surplus production.

Why do you think that the alternative to this policy is a policy of excessive protectionism?

Mr. BUDD. That has been our past history. I think we have got to go one way or the other.

Senator LODGE. Do you think we have to be excessive about it? Mr. BUDD. It has been in the past.

Senator LODGE. But you imply that you think it is going to be. Mr. BUDD. That is exactly the way the trend leads on tariff issues, in my opinion, and by the past experience.

Senator LODGE. You think it is either this or else we are right back to the Smoot-Hawley?

Mr. BUDD. Yes; I do.

Senator LODGE. Here is one who does not care this much about the thesis of Smoot-Hawley. That is all I have.

Senator CLARK. Mr. Budd, on this matter of excessive protection and retaliation, is it not a fact that by our original or initial system of excessive protection, as you say, your experience has been, and certainly it has been my observation, culminating in the SmootHawley bill, we started a system of retaliation all over the world which we cannot ourselves control now except by reciprocal-trade agreements of some sort?

Mr. BUDD. That is absolutely correct.

Senator CLARK. In other words, the rest of the world having followed our evil example in setting up a system of prohibitory tariffs, we have no assurance that if we were to start in and rectify our course and reduce our tariffs that the rest of the world would follow our good example as they followed our evil example.

Mr. BUDE. We do not have any assurance in that regard, and, in fact, on past experience, I would say that we would get retaliation. There is no question about it.

Senator CLARK. On this matter of foreign plants of these automobile industries-and the other industries, of course, are in the

same situation. Those plants were not built because the American manufacturers particularly desired to build branch plants in foreign countries, were they? They were built, were they not, because it was necessary to do it to get behind the tariff walls in your retaliatory system of tariff rates; isn't that correct?

Mr. BUDD. Yes; it was because the tariffs were so formulated that we had to do it. We did not do it because we wanted to.

Senator CLARK. In other words, we passed a very high tariff and Canada promptly proceeded to retaliate by enacting a very high tariff, to use one example, and in addition to that, and brought about very largely through its influence, the British Empire system of preferential tariffs followed, among other things, with a higher tariff on assembled cars than on nonassembled cars, and it was necessary in order to get in the Canadian market at all to go and build branch plants; is that correct?

Mr. BUDD. That is correct.

Senator CLARK. I will read you a statement, which I will ask to have inserted in full in the record. I will just take the trouble to read a couple of paragraphs from an article in the New York Times of January 26, 1936, headed "Trade Pacts Curb United States Units Abroad," by Charles E. Egan. I will also ask to insert in the record an article entitled "Our Many Factories Abroad," by Herbert Lawrence, appearing in the National Financial Weekly under date of September 19, 1938. I will read the first two paragraphs of the article by Charles E. Egan and will ask to have the entire article inserted in the record [reading]:

Revising a trend which has disturbed economists since the middle 1920's, the reciprocal-trade policy of the administration has curbed the establishment of American branch factories abroad, leaders in foreign trade agreed here yesterday. The value of foreign units for the manufacture of American goods, it was held, is steadily diminishing, as tariff and trade barriers in foreign countries give way before the reciprocal-trade agreements being negotiated by the Department of State. Economies possible in the mass production of home factories, together with the freer access now being accorded goods in foreign nations, are given as the major reason for the change.

(The entire article is as follows:)

TRADE PACTS CURB UNITED STATES UNITS ABROAD

FOREIGN BRANCH PLANTS' VALUE FOUND STEADILY DECREASING ACCORDING TO TRADERS-ECONOMIES POSSIBLE HERE-MANY COMPANIES DEALING DIRECTLY WITH BUYERS IN ALL PARTS OF BRITISH EMPIRE

By Charles E. Egan

Reversing a trend which has disturbed economists since the middle 1920's. the reciprocal-trade policy of the administration has curbed the establishment of American branch factories abroad, leaders in foreign trade agreed here vesterday. The value of foreign units for the manufacture of American goods, it was held, is steadily diminishing, as tariff and trade barriers in foreign countries give way before the reciprocal-trade agreements being negotiated by the Department of State. Economies possible in the mass production of home factories, together with the freer access now being accorded goods in foreign nations, are given as the major reason for the change.

FEW UP-TO-DATE FIGURES AVAILABLE

Few up-to-date and reliable figures covering the number of foreign branches maintained by American companies are available, but recent estimates of foreign

trade groups place the number around 3,000. This figure compares with an official Government estimate of 1,819 submitted to Congress in 1932 by the Department of Commerce, which also estimated at that time that 450,000 workers were employed in the foreign branches.

The difference between the recent unofficial estimates and the Government report on the number of plants in 1932 is accounted for by a rise of almost 100 percent in the number of Canadian branches and increases of 10 to 20 percent in the number of branch factories in Europe and other parts of the globe.

Immediately after the Empire trade agreements were concluded in Ottawa in 1932, a scramble of American producers to establish branch plants in Canada and other parts of the British Empire ensued and continued until the reciprocaltrade program of the American Government was well under way.

Canada now, according to export-trade groups, is no longer drawing branch plants, and a number of the smaller American units have been closed. In England fewer branches are now in operation, and no new ones have been opened in months. Many of the companies which formerly used English or Ĉanadian plants for the manufacture and shipment of goods to other parts of the Empire are now dealing directly with all parts of the British Empire.

The situation has progressed to the point where, according to private advices reaching exporters from London last week, a number of producers have become alarmed and are urging a new Empire trade agreement under which goods not manufactured in a colony or dominion would be admitted duty free when shipped from another part of the British Empire. The suggestion is not taken seriously here.

OPERATING PLANTS IN GERMANY

Factories are still being operated by American interests in Germany, Italy, and several other countries where it is next to impossible to ship in nonessentials from abroad, but there has been a noticeable decrease in the operations of plants in other parts of Europe and in Latin America.

Manufacturers of automobiles, office equipment, and electrical products contend that their branch factories went up originally to escape tariff and trade barriers thrown up against American products and will be closed as the necessity for such safeguards disappears. Foreign branch factories, they add, are not satisfactory under the most favorable conditions, namely, because the unit costs of production are extremely high, expenses of administration and supervision are heavy, while the profits realized are small.

[Source: Barron's, The National Financial Weekly, September 19, 1938]

OUR MANY FACTORIES ABROAD

By Herbert Lawrence

BUSINESS HANDLED BY SUCH UNITS MUST BE RECKONED WITH EXPORTS IN ASSAYING

EFFECTS OF WAR

Our interests in foreign markets are only partly measured by our total 1937 exports of $3,345,158,000. To an increasing degree in recent years, American companies have built or acquired manufacturing and assembly plants abroad in order to overcome the handicaps of foreign tariffs and quotas. Because the amount of business handled by these foreign units, and the amount of earnings derived therefrom, are seldom stated in financial reports, it is impossible to determine how large our stake is in foreign business.

Even if foreign subsidiaries of American industrial companies in belligerent countries should have good business in the event of war, it is likely that earnings could not be transferred out of the country. And after another serious war, currencies of the belligerents would almost inevitably be devalued, thus causing foreign exchange losses on the transfer of funds.

Our biggest customers abroad.-Europe was by far our most important customer last year, taking $1,356,000,000 of our merchandise exports. Latin America ranked next taking, $640,000,000 of our goods. To Asia we exported $580,000,000, and to Canada $509,000,000. No other single country exceeded Canada in importance except the United Kingdom, which took $534,564,000, this sum being included above in the European total.

Some measure of the importance of export business to individual industries is revealed in the following table of 1937 merchandise exports. The items in this table represent 87 percent of United States exports in 1937. Figures are in millions of dollars:

Petroleum leads the list of 1937 exports.. It is safe to say also, that American investments in foreign oil properties are greatly in excess of American investments in any other single industry abroad. For example, both Standard Oil Co. of New Jersey and Soconv-Vacuum Oil Co. have world-wide refining and marketing organizations. Both companies have holdings in the company controlling the Iraq petroleum fields. The New Jersey company also has producing interests in Rumania. Texas Corporation and Standard Oil of California each has a 50 percent interest in Bahrein Petroleum Co. which has large crude oil reserves on the island of Bahrein in the Persian Gulf, and which refines and markets oil abroad.

Third largest item in our merchandise exports is automobiles, parts and accessories. In addition, the large motor companies have plants abroad. General Motors Corporation not only manufactures in Canada but also has interests in the Vauxhall Motors in England and the Adam Opel Co. in Germany. Chrysler has assembly plants in Great Britain and Belgium, but manufactures abroad only in Canada.

United States office appliances favored. In the item of "Industrial machinery" is included the value of office-appliance exports. Few American industries have a larger stake in foreign business than the office-equipment companies. For the larger companies, from 25 to 45 percent of total volume is accounted for by foreign sales. A number of these companies also have plants in Europe, including International Business Machines Corporation, Remington Rand. Inc., and National Cash Register Co. Foreign sales of the latter in 1937 were about 46 percent of total volume. Sales in the British Empire account for almost half of Cash Register'stotal foreign sales.

Our machine-tool industry does a large export business. In this group, E. W. Bliss has plants in London and Paris. The company makes metal-working machinery, rolling-mill equipment, and various military supplies.

Another representative of the industrial machinery group is Ingersoll-Rand which has plants at Quebec and at Manchester, England. Its foreign business accounted for 40 percent of its total volume in 1937.

Our chemical companies have stayed pretty much at home, although their export business is quite substantial. Union Carbide & Carbon Corporation has a ferro-alloy plant in Sweden. Monstanto has a chemical subsidiary in England. Hercules Powder Co. has subsidiaries in England and Holland. E. I. Du Pont de Nemours Co. has a number of subsidiaries in Latin America but none in Europe. Commercial Solvents Corporation owns the majority stock in an English solvents

company. Taken as a whole, foreign business of the chemical industry is of minor importance.

The table indicates that export business of the rubber industry is negligible. Firestone Tire & Rubber Co., Goodyear Tire & Rubber Co., and B. F. Goodrich Co. all have manufacturing interests in Britain, but such commitments are relatively small. United States Rubber Co. has plants in Canada, but not in Europe. While export business of the agricultural-machinery companies is substantial, a very large part of such sales are made in Latin America and Canada. However, International Harvester Co. has plants in France, Germany, and Sweden.

Building equipment companies' stake.--Both American Radiator and Standard Sanitary Corporation, and Crane Co. have a considerable stake in the foreign market. Radiator has 41 plants in the United States and 16 in England and Europe. Crane has plants in France and England as well as Canada.

Corn Products Refining Co. does a considerable foreign business. Its domestic factories have a corn-grinding capacity of 155,000 bushels daily, while foreign factories have a capacity of 65,000 bushels. Plants are in England, Germany, Italy, France, Holland, Yugoslavia, and Czechoslovakia.

Well down in the list of exports is photographic equipment and projection goods. Net sales of Eastman Kodak Co. alone for 1937 were $136,114,878, compared with exports for all companies of $22,500,000. Nevertheless, Eastman's foreign stake comprises not only its exports but also its five plants in Europe and one each in Canada and Australia.

The table of exports doesn't give recognition to the importance of foreign film rentals to the American motion-picture companies. Probably about 35 percent of their total film income is derived from the foreign market--a sufficient volume, in all likelihood, to represent the difference between profits and losses. However, by far the biggest portion of these rentals comes from the British Empire and Latin America, rather than continental Europe. Of course, a protracted and exhausting war might seriously impair theater attendance in Great Britain.

Senator CLARK. Has what I have read been in accordance with your observation, Mr. Budd?

Mr. BUDD. Yes, I would say that we would prefer to build complete cars here. We have only started the assembly plants abroad to overcome the high tariffs that have been passed there. Under the existing conditions, as I said to Senator Vandenberg, under the tariffs as they have been passed, we have been able to increase our business in those markets over and above the tariffs that have existed before, but on a basis of the reciprocal agreements and negotiation, if those tariffs could be lowered to a reasonable basis, we would prefer to build our cars here complete, and I am sure that we would get more business through that type of negotiation.

Senator CLARK. Now, as a matter of fact, Mr. Budd, is not true that so far as the automobile industry is concerned, that in the foreign markets-I am not speaking of the manufacturers in the country in which you might be competing-but so far as the foreign markets in general are concerned, there is no nation in the world that can compete with the American automobile trade if the American automobile trade gets an even break in the foreign market, is that correct? Mr. BUDD. That is correct.

Senator CLARK. That is due to the greater skill and greater organication and advance in the facilities that has been made in the trade in this country?

Mr. BUDD. That is correct.

Senator CLARK. Now, Mr. Budd, I put in the record here yesterday some figures showing the increases in wages and salaries in the manufacturing industries in the United States over a period of years beginning in 1932. Of course, that has reflected the prosperity to agriculture and every other business in this country, has it not?

Mr. BUDD. Yes.