Trade, Plus Aid

March 23, 1953

It was in Britain and in Europe, and not here, that the catchy slogan originated: “Trade, Not Aid.” The implication of this was that the countries of Europe no longer were asking for subsidies and handouts. All they were asking for was that the United States remove the artificial barriers that it had put in the way of receiving imports. They would do the same, and then they would balance their foreign trade through their own efforts.

But in practice European officials have been giving an appallingly one-sided interpretation to their own slogan. It turns out to mean more demands on us without corresponding concessions. Some of their demands are entirely justified. They ask that we simplify our customs procedures, that we abolish any quota limitations on imports from them, and that we lower our tariffs still further. We should do all these things. They are as much in the interest of the American consumer as of the European producer.

But the quid-pro-quos that European officials offer are virtually non-existent. They usually fail to suggest any reciprocal lowering of their own tariffs. Even when they do, they make such a reduction worse than meaningless by proposing to continue quotas and discriminations against American goods, and to continue bilateralism, special license requirements for imports, price-pegging for their own currencies, and rationing of dollars. Moreover, their “Trade, Not Aid” slogan turns out to mean, after all, “Trade, Plus Aid.”

All this was illustrated in the series of talks just completed between British and American officials on the problem of convertibility of the pound. The British officials seem to assume that to make the pound convertible would be primarily a favor to the United States, and that therefore we should be willing to pay them to do it. What they appear to have in mind is that we put up some $2,000,000,000 to $4,000,000,000 as a stabilization fund to support the pound. Of course as long as we stood ready to pay over $2.80 to anyone who wanted to convert a pound into dollars we could make the pound “convertible” at that rate as long as our money held out. But at the end of that time we would be just where we were at the start (except for our $4,000,000,000) and the problem would remain unsolved.

The blunt truth is that “convertibility” of the pound is not a problem that even British officials (let alone ours) have to solve. All that British bureaucrats have to do is to stop preventing its convertibility. The British pound is pegged at $2.80 by law. Except under specified conditions, it is made inconvertible into dollars by law. All the British bureaucrats have to do is to repeal these prohibitions. Then currency convertibility will take care of itself, as it has from time immemorial.

Two unwarranted fears have hitherto prevented this simple solution. The first is that the pound will sink and keep sinking. It will do so only if the British Government follows policies that undermine confidence in the pound. But if it keeps the discount rate high, if it keeps the paper pound scarce, if it keeps its budget balanced, if it turns its back firmly against threats of further socialism and property seizure, it will find such a fear groundless, as Canada did when it freed its own dollar.

The second fear is a “flight of capital.” This also is groundless unless government policy provokes such a flight. As an extra safeguard, the government could adopt, as a transitional measure, the device used by Peru. That country, although it forced its exporters to turn the dollars they had earned over to the government, gave them equivalent dollar “certificates” in exchange which they in turn were allowed to sell within Peru for whatever price (in soles) they could get in a free market from would-be importers. Thus there was at least free convertibility within national borders.

It is primarily to Britain’s advantage, rather than to ours, to make its currency convertible. If the will exists, the techniques of doing it present no serious problem.