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Foreign Trade
 
           Aside from the stimulating effect on the economy
of a large-scale arms aid and defense program, we believe that
the foreign situation will provide a progressively less
dynamic element in domestic business. In the period
immeidately after the war, United States exports rose to an
annual rate of almost $18 billion, largely as a result of
foreign spending of gold and dollar reserves accumulated
during the war. As these reserves were dissipated, exports
of about $13 billion were made possible by Government
grants and loans, together with some increase of imports.
The supporting effect of a high rate of exports, as well as
a $6 billion gap between imports and exports, will decline
as Marshall Plan aid tapers off, although supplementary aid
programs may prove expedient for some years to come.
 
           There is widespread hope that the recent
devaluation of currencies will prove to be a turning 
point for the better in European trade but whether 
or not this hope will be justified depends upon 
many unpredictable factors.
Devaluation will undoubtedly produce immediate benefits to
the countries involved, particularly England. It has
stopped, and at least for the time being has reversed, the
drain on Britain's gold and dollar reserves which was
proceeding at an accelerated pace throughout the summer. In
anticipation of devaluation many owners of sterling were
converting either into goods or hard currencies through
gray markets, and purchasers from hard currency areas
withheld orders for sterling goods in the hope of placing
them at a lower sterling rate. Owners of sterling
throughout the world are now less anxious to rid themselves
of holdings at the $2.80 level, which is in line with gray
market quotations before devaluation. The new, more
realistic exchange rates should permit reduction of
administrative controls, multiple price systems and other
barriers to trade. The competitive position of soft
currency products should be improved in American and other
hard currency markets.
 
              Although these benefits are well worth while,
the restoration of a sound British financial position will
depend upon the solution of many more fundamental
problems,chiefly the ability to reduce costs, improve
production and merchandise goods effectively in hard
currency areas. Cost can be held down only if internal
inflation can be checked. This is particularly hard to
accomplish at a time when Britain's policies are for
political purposes directed toward maintaining sizable
public benefits. While the interval since devaluation has
been too short to be
conclusive, there is little evidence to date that the Labor
government means to tackle the cost problem realistically.
Greater productivity requires not only continued high
expenditures for modernization of plant but also persuasion
of both management and labor to work more efficiently. To
improve sales to the dollar area it will be necessary also
to persuade manufacturers of goods in Britain to seek
outlets in this market in preference to long-established
markets which are predominantly in soft currency areas.
Since there is already full employment in England,
increased exports to hard currency countries cannot be
obtained merely by putting idle plant and people to work.
Accordingly, if new price relationships caused by
devaluation do not cause a shift in existing trade
relationships, the government may be forced to new kinds of
incentives for sales to hard currency areas, such as the
recently announced assistance on merchandising costs.
Downward revision of sterling war debts if accomplished
should serve to reduce the pressure to ship goods to soft
currency areas in partial payment.
 
                 Over the longer term the major requirement
for recovery of world trade is at least partial
convertibility of currencies. Until there is an approach to
a better balance of trade among nations and general
confidence in