Profits & Barter

That it pays to be a good neighbor was indicated last week by solid statistics. Partly as a result of neighborliness, largely because of the reciprocal trade treaties of Secretary of State Cordell Hull, U. S. exports to Latin America as a whole increased last year from 40% to 90% in value. Those pessimists who have believed that the totalitarian European states were gaining political and economic influence south of the Rio Grande were surprised to hear that in the same period Nazi Germany's trade increased less than 30%, Fascist Italy's 1 1/2%.

The recent abortive, Nazi-labeled Brazilian revolt is evidence that totalitarian propaganda sometimes backfires. Sometimes totalitarian economics backfire, too, and last week it was disclosed that the U. S. had nudged Germany out of No. 1 place as exporter to Brazil, that Brazil was starting to cut down her German trade.

In 1934 Germany held third place in exports to Brazil, U. S. first, Great Britain second. That year Nazi barter economics started in earnest in Brazil. Germany bartered for Brazilian cotton, coffee, cocoa, gave in return machinery, iron and steel, manufactured products. In 1936 Germany rose quickly to first place as Brazilian exporter, held it through 1937.

The U. S. bid for increased trade with Brazil came with the reciprocal trade treaty effective Jan. 1, 1936. Best argument to induce Brazil to take more U. S. exports was that the U. S. normally buys with internationally exchangeable dollars twice as much from Brazil as Brazil buys from the U. S. Coffee accounts for about 80% of Brazilian exports to the U. S. Later, however, the U. S. discovered another powerful trade persuader. In 1937 the U. S. agreed to sell to Brazil gold up to a value of $60,000,000 to steady Brazilian exchange. Also helpful to U. S.-Brazilian trade was a joint commission suggested by President Roosevelt on his 1936 South American trip, formed last February of Brazilian and U. S. business men.

Early this year German exports to Brazil began to decline, U. S. exports to rise. By treaty a quota is placed on the amount of some products Germany can buy in Brazil with the "compensated" marks. Early this year she used up all the compensated marks allowed for buying Brazilian cotton. She then pulled an economic trick by buying 300,000 bags of quota-free cocoa with compensated marks. Brazil can easily sell her cocoa in a free world market for good currency. By this "purchase" Germany 1) tried to flood Brazil with compensated marks so that Brazil would be forced to buy more German merchandise, 2) tried to produce a temporary world scarcity, thereby raising the price of cocoa so that she could profitably resell her cocoa holdings to other nations for much-needed gold.

To retaliate, Brazil raised the quotation on the compensated mark, thus increasing the cost of German products throughout Brazil, thus eventually cutting down German exports.

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